0000912282-01-500246.txt : 20011009
0000912282-01-500246.hdr.sgml : 20011009
ACCESSION NUMBER: 0000912282-01-500246
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 17
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010928
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PIVOTAL CORP
CENTRAL INDEX KEY: 0001086329
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389]
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-26867
FILM NUMBER: 1748322
BUSINESS ADDRESS:
STREET 1: 300-244 WEST ESPLANADE
STREET 2: NORTH VANCOUVER BRITISH COLUMBIA
CITY: CANADA
BUSINESS PHONE: 6049889982
MAIL ADDRESS:
STREET 1: 300-244 WEST ESPLANADE
STREET 2: NORTH VANCOUVER BRITISH COLUMBIA
CITY: CANADA
FORMER COMPANY:
FORMER CONFORMED NAME: PIVOTAL SOFTWARE INC
DATE OF NAME CHANGE: 19990512
10-K
1
pivotol10k.txt
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended June 30, 2001
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____ to ____
Commission File Number 000-26867
---------
PIVOTAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
British Columbia, Canada Not Applicable
(State or other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
300-224 West Esplanade
North Vancouver, British Columbia
Canada
V7M 3M6
(Address of Principal Executive Offices)
(Zip Code)
(604) 988-9982
(Registrant's Telephone Number,
Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
N/A N/A
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Shares
--------------------------------------------------------------------------------
(Title of Class)
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 THE
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: [ ]
The aggregate market value of the voting shares held by non-affiliates of the
registrant, based on the closing sale price of the common shares on September 4,
2001 as reported on the Nasdaq National Market was approximately U.S.$5.44.
Common shares held by each current executive officer and director and by each
person who is known by the Registrant to own 5% or more of the outstanding
common shares have been excluded from this computation in that such persons may
be deemed to be affiliates of the Registrant. This determination of affiliate
status is not a conclusive determination for other purposes.
AS OF SEPTEMBER 1, 2001, 23,996,235 COMMON SHARES OF THE REGISTRANT WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
Not Applicable.
TABLE OF CONTENTS
PART I 1
ITEM 1. BUSINESS................................................................... 1
ITEM 2. PROPERTIES................................................................. 30
ITEM 3. LEGAL PROCEEDINGS.......................................................... 30
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS......................... 30
PART II 30
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...... 31
ITEM 6. SELECTED FINANCIAL DATA.................................................... 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................. 38
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................. 80
PART III 80
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT................................... 80
ITEM 11. EXECUTIVE COMPENSATION..................................................... 82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 86
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 87
PART IV 87
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............ 87
FORWARD-LOOKING STATEMENTS
Statements in this filing about our future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors described under the heading
"Important factors that may affect our business, our results of operations and
our stock price" in Item 1 and in Item 7 to this report, which is hereby
incorporated by reference in this report.
In some cases, you can identify forward-looking statements by our use of words
such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, achievements or other future events. Moreover, neither we
nor anyone else assumes responsibility for the accuracy and completeness of our
forward-looking statements. We are under no duty to update any of our
forward-looking statements after the date of this report. You should not place
undue reliance on our forward-looking statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
Pivotal Corporation, incorporated in 1990 in British Columbia, Canada, enables
large and medium-sized businesses worldwide to acquire, serve and manage their
customers by providing customer relationship management and electronic business
solutions. Customer relationship management and electronic business solutions
automate and manage marketing, selling and servicing processes over the
Internet. We refer to our solutions as the Pivotal Customer Relationship
Management and eBusiness solution suite. The Customer Relationship Management
and eBusiness solution suite is designed to complement and integrate with a
business' supply chain, therefore enabling businesses to improve efficiency and
increase revenues.
On December 5, 2000, we announced a joint-three year initiative with Microsoft
to develop, market and sell the Customer Relationship Management and eBusiness
solution suite to large enterprises which will result in incremental
expenditures by Microsoft and us towards this initiative over this period. We
have completed the first phase of our business development initiative with
Microsoft by implementing a training program to educate Microsoft sales
professionals about our solutions and engaged Microsoft in co-marketing and
co-selling initiatives. In addition, we were featured as the premier Customer
Relationship Management partner in the Microsoft Business Advantage tour in
March and April 2001.
On August 14, 2001, we announced the worldwide availability of the Pivotal
ePower Lifecycle Engine - Oracle Edition. In the past, we have focused solely on
Microsoft database platforms. With this new development, our solution can now be
implemented using Microsoft and/or Oracle based platforms and technologies. We
believe this will open up a new set of business opportunities to us as we will
now have access to businesses using an Oracle platform. With our new
Oracle-based solution, we will seek to broaden our market by directly targeting
Oracle-based companies and by expanding our relationships with third party
distributors and systems integrators that have Oracle-based practices.
Our solutions are sold in 35 countries and are available in English, French,
German and Spanish from Pivotal directly and Portuguese, Swedish, Japanese,
Chinese and Hebrew from members of our Pivotal Alliance. Our worldwide customer
base includes more than 1,300 organizations in traditional, commercial, public
market sectors and in the new digital economy and includes companies such as ABN
AMRO Securities LLC, American Medical Security Group Inc., Atlas Copco Airpower
N.V., Belgacom France, Bombardier Aerospace, CIBC World Markets, Commonfund,
Compuware Corporation Japan, Deloitte & Touche, Emerson Electric, Ericsson, Farm
Credit Services of America, FLAG Telecom, Grantham, Mayo, Van Otterloo & Company
L.L.C., Haldex Services Corporation, Heller Financial, Hitachi Telecom (USA)
Inc., Intrawest Corporation, Kikkoman Corporation, KPMG, Miller Heiman, Inc.,
National Air Traffic Services, London, National City Bank of Minneapolis, NEC,
Nissan Motor (Denmark), Novozymes North America, Inc., Panasonic SA, Principal
Financial Group, Qiagen, RBC Dain Rauscher Wessels, Southern Company, Toshiba
Information Systems Corporation, USFilter, and 1201 Financial & Insurance
Services, Inc. We market and sell our solutions through a direct sales force as
well as through third-party solution providers.
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Our common shares are listed on NASDAQ under the symbol "PVTL" and on the
Toronto Stock Exchange under the symbol "PVT". Our head office is located at 300
- 224 West Esplanade, North Vancouver, British Columbia, Canada V7M 3M6, and our
telephone number is (604) 988-9982. Our home page on the Internet can be found
at www.pivotal.com. Information contained on our website does not constitute
part of this report.
Pivotal Corporation was incorporated in British Columbia in 1990 under the name
Pen Magic Software Corporation, and changed its name to Pen Magic Software Inc.
in 1991, to Pivotal Software Inc. in 1995 and to Pivotal Corporation in 1999.
The terms "Pivotal," "our company" and "we" in this filing refer to Pivotal
Corporation, a British Columbia company, and all of Pivotal Corporation's wholly
owned subsidiaries including Pivotal Corporation, incorporated in Washington
State, Pivotal Corporation Limited, incorporated in the United Kingdom, Pivotal
Corporation France S.A., incorporated in France, Exactium Ltd., incorporated in
Israel, Exactium, Inc., incorporated in Delaware State, Pivotal Technologies
Corporation Limited, incorporated in the Republic of Ireland, Pivotal
Corporation (N.I.) Limited, incorporated in Northern Ireland, Pivotal GmbH,
incorporated in Germany, Digital Conversations Inc., incorporated in British
Columbia, Pivotal Corporation Australia Pty. Ltd., incorporated in Australia,
Project One Business Technologies Inc., incorporated in British Columbia, Nihon
Pivotal K.K., incorporated in Japan and Inform, Inc., incorporated in Ontario,
collectively.
Pivotal Relationship, Pivotal eRelationship, Pivotal eRelationship 2000, Pivotal
eRelationship 2000 IntraHub, Pivotal eRelationship 2000 CustomerHub, Pivotal
eRelationship 2000 PartnerHub, Pivotal ePower, Pivotal ePower 2000, Pivotal
eSelling 2000, PivotalHost, Pivotal Anywhere, Pivotal ePower Intelligence
Engine, Pivotal Sales & Marketing Intelligence, Pivotal ePower Interaction
Engine, PivotalLink for Customer Interaction Center, Pivotal SyncStream, Pivotal
Demand Chain Management, Pivotal Digital Intelligence, Pivotal Instant Action,
Pivotal Commerce, Pivotal PartnerHub, Pivotal CustomerHub, Pivotal eSelling,
Pivotal Service, Pivotal Marketing, Pivotal ePower Lifecycle Engine - Oracle
Edition and Miller Heiman for eRelationship Sales are trademarks and/or
registered trademarks of Pivotal Corporation. All other company names, product
names, marks, logos, and symbols referenced are the trademarks and/or registered
trademarks of their respective owners.
INDUSTRY BACKGROUND
In the mid-1980's businesses began to implement contact management software to
track prospects, customers and customer data. Since then, departmental software
solutions have been developed to track data related to servicing customers on
the demand side of the business. Some examples of departmental software
solutions are sales force automation software which provides prospect and
customer data to sales staff; customer service software which provides customer
service request and history to customer service representatives; and marketing
automation software to provide campaign and prospect and customer data to
marketing staff to generate more demand for products and services. In the 1990s
cross-departmental Customer Relationship Management systems began to emerge that
brought departmental data assets together into centralized customer and prospect
data repositories while allowing these demand side departments to input their
own specific information, providing the company with a unified view of the
customer and prospect. Today Customer Relationship Management has become a
business strategy that seeks to optimize profitability, revenue and customer
satisfaction by organizing around customer segments, fostering customer
satisfying behaviors and implementing customer-centric processes. On July 16,
2001, Giga Information Group IdeaByte published "IT Trends: Midyear CRM Update"
which states "...more than 50 percent of companies today both in the United
States and Europe are embarking on enterprise CRM initiatives. And in the face
of the economic downturn customer relationship management (CRM) interest is not
wavering, but instead there is new emphasis on clear goals and quick, measurable
results from CRM investments."
With the appearance of the Internet in the 1990s as a ubiquitous communication
network, companies began to provide support over the Internet for field and
remote staff who needed access to departmental data assets. As other
communication channels have continued to evolve, such as fax, email and wireless
communications, businesses have looked for Customer Relationship Management
systems that can provide an integrated "real-time" view of customer information
across all these communication channels. In addition, they have recognized that
the Internet is more than just a network for allowing their own remote staff to
access centralized data repositories; the Internet provides a backbone for
businesses to change the way they interact with business partners and customers.
We believe that the Internet and other communication technologies such as
wireless technologies have created a fundamental change in the way many
companies conduct business. Today, the Internet goes beyond simple
communication. It provides a means for prospects and customers to interact with
businesses, and businesses to interact with all their stakeholders, including
employees, customers, partners and suppliers in "real-time" across global and
corporate boundaries. As a result, there has been a demand for enterprise-wide
software solutions that support stakeholders' need to communicate and
collaborate with businesses across departments and communication channels.
2
Today's demand side and enterprise-wide eBusiness solutions support this
business need. These software solutions automate and manage the people and
processes related to customer management in order to increase revenues and
decrease costs. This enterprise-wide solution ties into companies' supply chain
management solutions and enterprise resource planning applications to increase
productivity, decrease costs, and increase revenues.
In March 2001, the Gartner Group published a review of the market performance of
Customer Relationship Management software, finding "tremendous growth during the
past three years." New license revenue for Customer Relationship Management
vendors reached $3.7 billion in 2000. Growth ranging from 57 percent to 76
percent in each of the past three years has continued to confirm the acceptance
and priority of customer relationship management investments by the enterprise.
According to a July 2001 report of the high-tech market research firm Cahners
In-Stat Group, Customer Relationship Management software application revenue is
expected to increase to more than US$30 billion over the period of 2001 to 2005,
with much of that growth coming in Europe and Asia. Gartner also points to the
highest levels of growth in the Asia/Pacific region, where new license revenue
for Customer Relationship Management software achieved 153 percent growth in
2000.
The Impact of Changing Technologies
Developments in technology have dramatically affected the marketplace for
Customer Relationship Management solutions. These developments include:
- The Internet. With the emergence of the Internet as a dominant
platform for global interactive communication, coordination and
commerce, businesses are seeking better ways to use the Internet as a
platform to conduct their business. As a result, businesses are
investing in technologies that support and exploit the capabilities of
the Internet. Emerging new technology standards based on XML and
Internet services are being embraced by enterprises seeking to
integrate internal systems and provide collaboration with partners and
suppliers in a drive to reduce costs, increase revenues, increase
market intelligence and improve customer satisfaction. Increasingly,
these new technologies are also supplanting non-Internet native
architectures, such as client server computing.
- Widespread Adoption of Microsoft Technologies. Microsoft Windows NT,
Microsoft Windows 2000 and Microsoft .NET platforms offer businesses
the opportunity to develop, deploy and maintain information technology
systems with increased flexibility on a cost-effective basis. These
platforms are also widely used and well understood by technical
personnel. With the recent addition of Microsoft Commerce Server 2000,
Share Point Server 2001 and BizTalk Server, Microsoft is delivering a
rich and cost-effective application development platform to support
the requirement for integration, application customization and
flexibility, and document exchange.
- Growth of Wireless Computing. The proliferation of wireless computing
devices, such as palm computers, Internet-enabled cell phones and
improved remote computing has empowered the mobile professional.
Electronic solutions enable users to access information from any
location using their preferred wireless computing device.
- Availability of Intelligence Systems. Intelligence systems include
customer profiling technologies that enable software to respond to or
anticipate user needs with less input from the user and more analysis
of profiles or actual website visitor behavior. These include guided
selling technologies to help users make purchases on the Internet,
even for very complex products and services. With these
customer-profiling technologies, the customer's buying experience is
personalized and targeted to fulfill its specific needs.
THE OPPORTUNITY
The customers we serve are typically mid-size companies, divisions of large
businesses and large businesses. Many of these businesses are responding to
pressures to implement cross-departmental or enterprise-wide business models
that put the customer at the center of their business in order to increase
revenues, decrease costs, and increase productivity. Many of these businesses
require close integration and collaboration between the organization and their
customers and partners, not only to deliver the high levels of customer service
but also to use the strengths of their partner networks at reduced cost to
themselves. Until recently, most electronic business applications designed on
the Microsoft platform were designed primarily to address the needs of the
smaller enterprise, were often considered too unstable, were not appropriately
scalable for large enterprises and were considered not designed for the
Internet. Today, Microsoft Windows NT, Microsoft Windows 2000, Microsoft
BackOffice platforms and Microsoft .NET servers are considered highly scalable,
enterprise class solutions.
3
The recent development of our solutions for use on the Oracle 8i database has
allowed us to target larger customers and to access an increased market
opportunity by accessing Oracle database customers. Oracle databases are
typically deployed at larger customer sites than the Microsoft SQL Server
database.
We believe that a significant market opportunity exists for an enterprise-wide
customer relationship management and electronic business solution that can be
easily customized, quickly integrated with current systems and business
processes and rapidly deployed. Many businesses have adopted the Internet,
Oracle, Microsoft Windows NT, Microsoft Windows 2000, Microsoft BackOffice, and
Microsoft .NET server platforms. As a result, a new opportunity also has emerged
for an enterprise-wide customer relationship management and electronic business
solution and departmental or business unit applications optimized for these
platforms and to meet the requirement for maximum flexibility. Such a solution
must incorporate many of the benefits enabling businesses to take control of the
demand side of their business in response to pressure from prospects and
customers to deliver powerful and productive customer experiences. We believe
that such a solution must:
- support the need for a modular or phased application deployment and be
usable by a business without significant customization, to enable
rapid deployment at low total cost of ownership;
- support Internet-based collaboration and the sharing of information
with customers and partners;
- support integration and collaboration among sales, marketing and
customer service employees;
- support integration between other internal business systems such as
supply chain, enterprise resource planning and finance systems through
an XML-based computing platform;
- have the ability to support multiple enterprise database platforms,
such as Oracle and Microsoft;
- support mobile professionals and their wireless computing devices;
- provide tools for easy implementation to meet specific needs;
- be easy to use by all end-users without extensive training; and
- support the emerging needs of high-growth industry segments such as
manufacturing, finance and health care.
PIVOTAL SOLUTIONS
We are a leading provider of customer relationship management and electronic
business solutions. These solutions include applications for sales force
automation, marketing automation, service automation, call center management,
partner relationship management and electronic commerce. These solutions enable
companies to increase revenues and decrease costs by increasing efficiency
within the sales, marketing and service activities that ultimately impact
customer acquisition and retention. To achieve this, our solutions connect
employees, partners and customers into one unified business network. Our
electronic business solutions include award-winning, Internet-based applications
supported by an array of professional services and our global Pivotal Alliance
network of third-party distributors. Our solutions are designed and optimized
for the Internet, Microsoft and Oracle platforms. In July 2000, Pivotal was
named the North American Packaged Application of the Year by Microsoft. In
December 2000, we won the Microsoft Industry Solution Award for - "Best
Integrated Customer Relationship Management/eBusiness Solution".
We believe our solutions deliver the following benefits:
- Enables Businesses to Improve Productivity by Increasing Revenues and
Decreasing Costs. Our solutions unify sales, marketing and customer
service employees and partners around customer processes and
interactions. By maintaining all customer information in a shared
database, our solutions make it easy for different users to maximize
their contribution to customer relationship management by better
capturing customer profiles and building one-to-one customer
relationships. We believe this improvement in customer focus enables
businesses to increase revenues through better customer loyalty and
retention. Our customers also realize decreased costs by streamlining
processes and interactions between employees, partners and customers,
through more effective and more targeted marketing, sales and service
campaigns, the reduction of inefficient communications and the
increased effectiveness of targeted communications efforts.
- Improves the Collaboration and Interaction Between Businesses and Their
Customers. Using Pivotal solutions, businesses can transform their
static website into a collaborative tool used to increase their
customer base, and to service and sell to customers. Prospective
customers can obtain information regarding businesses' products and
services over the Internet. Customers can place orders and retrieve
information on products and services over the Internet and directly
interact online
4
with sales, marketing and customer service departments. This direct
interaction can result in improved customer service and generation of
leads, as well as lower customer service costs.
- Improves the Collaboration and Interaction Between Businesses and
Their Partners. Pivotal solutions enables businesses to improve their
efficiency and selling processes by facilitating interaction and
collaboration with their partners over the Internet. Our application
maintains a shared database consisting of customer's information
related to products, services, customer contacts and sales
opportunities. By enabling their partners to access and update the
shared database, our solutions simplify the sharing of information
between businesses and their partners so they can jointly service
their customers' needs and concerns.
- Enables Rapid Implementation and Simple Customization. Businesses can
use our solutions without significant customization which expedites
the implementation process. If they desire, businesses can customize
our solutions to reflect their own internal processes easily using the
industry standard business programming language Microsoft Visual
Basic. In addition, businesses can choose one of our solutions for a
particular industry - solutions already optimized and configured for
such industries as financial services, healthcare and manufacturing.
These industry solutions allow businesses to immediately gain benefit
from our solutions as we have already done the industry-specific
customizations.
- Yields a Low Total Cost of Ownership. Our solutions can be
cost-effectively deployed and customized and thus require few
resources for ongoing support, system maintenance and end-user
training. Our solutions are also relatively easy for end-users to
learn, which results in lower ongoing training costs. In addition, our
software applications permit modifications and upgrades to be
transmitted to all users, including mobile users, thereby reducing the
cost of modifying the solutions.
- Scales With the Growing Needs of Pivotal's Customers. Many of our
customers require that our solutions support their growing number of
employees, online customers and partners. Our solutions' structure
enables our customers to expand our solutions as their businesses grow
by adding servers in a number of locations. This capability improves
performance and enables our solutions to support larger numbers of
concurrent users.
- Increases the Efficiency of Mobile Professionals. Mobile professionals
can access our solutions remotely across local-area networks,
wide-area networks or over the Internet by using a number of portable
computing devices including laptops, palm computers and
Internet-enabled cell phones. Mobile professionals also can work
unconnected to a network and transmit and receive information to
automatically update their own files and the shared corporate
database. These capabilities increase the efficiency of mobile
professionals.
BUSINESS STRATEGY
Our goal is to become a leading global provider of electronic business solutions
which combine Customer Relationship Management, electronic commerce and wireless
technologies. The key elements of our growth strategy are as follows:
- Extend Application and Solution Scope. We intend to continue the
development of our applications to add new functions, with a
particular emphasis on Internet-based selling, marketing and customer
services. We also intend to continue to develop industry solutions for
specific industries that will further simplify the deployment and use
of applications. In addition, we plan to offer new versions of our
applications that support a wider variety of international customers
and their respective business practices and languages.
- Deepen Collaboration and Interaction with Members of the Pivotal
Alliance. We plan to continue broadening our network of strategic
relationships, including our Pivotal Alliance network. The Pivotal
Alliance network includes over 50 independent companies that
distribute our products, install the software purchased by our
customers and provide other software or related services to address
specific customer needs. This network has allowed us to focus on our
core competencies while taking advantage of the strengths of Pivotal
Alliance members who may have specific industry expertise or better
regional presence, which enables them to better address the needs of
our customers and provide them with a complete electronic business
solution. New strategic relationships for the coming year include Cap
Gemini Ernst and Young, and Intel. Additionally, we have significantly
expanded our relations with Microsoft.
- Deepen Collaboration and Interaction Between Pivotal and Our
Customers. We will continue to focus on providing customer solutions
that help our customers achieve business success. In particular, we
plan to maintain a customer-focused culture by inviting repeat
business from existing customers as we make new features available,
and to gain new customers as our existing customers become independent
references for our solutions. We believe that the benefits of our
solutions have helped us to develop a loyal base of customers. We
intend to continue to focus significant resources on customer success
5
programs, including a systematic customer surveying process, to
improve our customer-driven product development initiatives and
ultimately improve our solutions.
- Extend Relationships with Application Service Providers to Deliver Our
Solutions on a Usage Fee Basis. We will continue to expand our
relationships with application service providers to provide an
alternative licensing arrangement through these third party
application service providers that enables customers to pay a usage
fee to access our software on servers operated by the application
service providers. This enables businesses to outsource their
electronic business solutions and related information technology
infrastructure through an alternative pricing model, such as a monthly
fee.
- Continue Expansion of Our Worldwide Distribution Capacity. We
currently have a distribution strategy that includes direct sales
personnel and resellers which enables us to target a wide variety of
customers in different industries and geographical regions. We plan to
continue to invest in our worldwide distribution capacity to increase
market share and penetration. This investment will include expanding
our direct sales force, continuing to expand relationships with
existing and new resellers and entering into bundling arrangements
with technology providers to provide complimentary niche products to
our customers.
- Expand Industry Solution Program. We will continue to develop
solutions in response to industry need. Today's core industry
solutions include solutions for the following industries: financial
services, healthcare, manufacturing, technology, and electronic market
places.
PRODUCTS AND PROFESSIONAL SERVICES
Our solution consists of six suites that help companies control the sales,
marketing, and service processes core to their business. These suites are:
Pivotal Sales, Pivotal Marketing, Pivotal Service, Pivotal Collaboration Hubs,
Pivotal Commerce, and Pivotal eBusiness Platform. In addition, we market
industry specific solutions.
These solution suites are comprised of our core products including Pivotal
eRelationship, Pivotal CustomerHub, Pivotal PartnerHub, Pivotal eSelling,
Pivotal ePower, Pivotal Intelligence Suite, Pivotal Interaction Center, Pivotal
Anywhere, Pivotal Instant Action, Pivotal Toolkit and PivotalHost. These core
products and other leading technology options provide an integrated,
collaborative network that helps to manage information, transactions, and
interactions for every stakeholder in the customer lifecycle.
PIVOTAL SOLUTIONS
Our six solutions are comprised of a variety of core products. For detailed
information on the products which are bundled together into the six solutions,
see the "Core Products" section ahead.
Pivotal Sales
Pivotal Sales empowers sales professionals to create a meaningful and relevant
buying experience by focusing on one-to-one relationships with the customer.
Pivotal Sales expedites sales processes with "best practice" sales
methodologies, and identifies cross-selling and up-selling opportunities for
mobile sales professionals regardless of their location or the time of day.
Pivotal Sales supports sales strategy with integrated forecasting and analysis
through all sales channels.
The Pivotal Sales solution supports the electronic management of the following
capabilities:
o Quote and Proposal Management
o Consolidated Revenue Forecast
o Territory Management
o Opportunity Management
o Team-selling Enablement
o Best Practices Enablement
o Multi-Channel Sales Integration
o Real-Time Product Configuration
o Expense Management
o Sales Efficiency Tools
o Prospecting Campaigns
o Web-based Collaborative Services
6
o Up/Cross-Selling Automation
o Competitive & Industry Intelligence
Pivotal Marketing
Pivotal Marketing empowers a business to attract and retain more profitable
customers by enabling the business to understand the value of each customer and
create a differentiated customer experience with highly personalized
interactions. With Pivotal Marketing, businesses maximize profitability through
one-to-one marketing strategies that deliver optimal customer acquisition,
retention, cross-selling and up-selling results.
The Pivotal Marketing solution supports the electronic management of the
following key marketing capabilities:
o Campaign Management
o Lead Capturing & Tracking
o Intelligence Repository
o Forecasting: campaign impact, market shifts and customer perception
o Customer Profiling
o Event Management
o ROI Calculation and Analysis
o Best Practices
o Data Mining
o Strategic Analysis
o Direct Mail Campaign Management
o Collaborative Action Plans
Pivotal Service
Pivotal Service provides service professionals with the intelligence and
knowledge they need to deliver precise and timely resolutions to customers in
personalized interactions that help foster long-term relationships and loyalty.
Pivotal Service can assist in maximizing revenue by empowering service
professionals to transform customer interactions into cross-sell and up-sell
transactions.
The Pivotal Service solution supports the electronic management of the following
key service capabilities:
o Integrated Communication Platform
o Multi-channel Interactions
o End-to-End Reporting
o Online Issue Resolution
o Online Request Tracking and Escalation
o Service-to-Order Integration
o Personalized Self-Service
o Online Frequently Asked Questions Management
o Interactive Voice Response Self-Service
o Knowledge Base Management
o Sales/Marketing Integration
o Market-driven Product Enhancement
o Time & Activity Management
o Productivity & Performance Analysis
Pivotal Collaboration Hubs
Pivotal Collaboration Hubs are Internet solutions that empower customers and
partners to become active participants in every marketing, sales and service
activity through highly personalized self-service and commerce. Pivotal
Collaboration Hubs create a collaboration and communication network for
employees, customers, and partners to conduct business in a synchronized manner.
The Pivotal Collaboration Hub solution supports the electronic management of the
following capabilities:
o Partner Management
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o Joint Account Management
o Customer Self-Service
o Online Partner & Customer Training
o Multi-channel Data Repository
o Multi-Channel Lead Management & Forecasting
o Sales Tools & Literature Fulfillment
o Order Entry & Tracking
o Service request management & tracking
o Joint Marketing Management
o Issue management & tracking
o Partner Recruitment
o Partner Profiling
o Partner Performance Reporting & Analytics
o Customer Self-Service
o Online Customer Training
o Order Entry and Tracking
o Service Request Management and Tracking
Pivotal Commerce
The Pivotal Commerce solution is an integrated transaction platform for
business-to-business commerce. It efficiently manages financial transactions
across traditional channels and the Internet, delivering personalized
transactions that are coordinated and integrated with the back office. By
guiding customers across multiple channels at every phase of the customer
lifecycle, Pivotal Commerce allows companies to quickly develop proposals,
generate quotes, manage complex pricing configurations, and link leads and sales
activity with traditional channels.
Pivotal Commerce has the following capabilities to support the requirements of
sophisticated online selling:
o Electronic Data Repository: product, pricing, sales data
o Dynamic Proposals
o Quotes
o Reports & Orders
o Browser-based Authoring Environment
o Catalog Management
o Configuration Management
o Supply Chain Integration
o Guided Product, Pricing
o Service Configuration
o Web-based Product and Configuration Management
o Site Management
o Multi-Currency & Language
o Single Source Shipping & Tracking
o Quote and Proposal Management
o Multi-channel Sales Management
Pivotal eBusiness Platform
The Pivotal eBusiness platform delivers the full range of personalization,
collaboration, communication, and commerce technologies that enable rapid
deployment of strategic electronic business and electronic commerce initiatives.
This platform includes the tools, engines, and templates required to create an
integrated Information Technology infrastructure that responds to market demand
and adapts to the ongoing expansion of enterprise-scale electronic business and
electronic commerce systems.
Pivotal Industry Specific Solutions
We provide industry-focused solutions in financial services, healthcare,
manufacturing, technology, and electronic marketplaces.
8
o Our finance solution is an industry specific solution that enables
financial services companies to achieve increased revenue generation
and business agility by delivering quick, intelligent customer service
across all communication channels including direct, electronic mail,
wireless, and facsimile. It identifies customer buying trends and
service preferences; builds extensive profiles that identify
cross-selling and up-selling opportunities; and conducts marketing
campaigns that are personal, precise, relevant and timely. It also
provides security feature that financial companies require to
confidently conduct business across all Internet and traditional
communications channels.
o Our healthcare solution addresses the health insurance industry's need
to adopt technologies that address the needs of the organization to
create administrative efficiencies in their front office activities.
ManagedCare.NET is a solution suite built on the Pivotal ePower
platform that provides healthcare insurance organizations a cohesive
customer relationship management platform across the entire
enterprise.
o Our manufacturing solution helps organizations meet their business
targets and respond to demand side pressures by helping them move
complex product and service sales to the Internet to decrease selling
cycles and improve customer and prospect satisfaction; changing
marketing approaches with highly targeted campaigns based on extensive
customer and prospect data; networking suppliers, distributors,
wholesalers and other partners to improve opportunity management and
inventory levels; and increasing field sales and service
representatives success with real-time access to product and customer
data.
o Our technology solution helps technology companies create a
comprehensive loyalty plan through consolidating and segmenting
customer information based on buying trends so they can develop
aggressive sales and marketing efforts. Our technology solution also
enables technology companies to support their sales force with
information about their most valuable customers' needs and
preferences. It helps ensure successful relationships with customers
and prospects by integrating new Internet sales and communication
channels; supports field sales and service representative success with
real-time access to product and customer data; increases marketing
return on investment with highly targeted campaigns; helps to decrease
sales cycles and improve satisfaction by implementing Internet service
and sales; and can improve opportunity management, tighten channel
forecasting and decrease inventory levels by networking suppliers,
distributors and resellers online.
o Our eMarketplace solution can turn a transactional marketplace into a
collaborative electronic marketplace that increases buyer satisfaction
and loyalty, improves seller participation and maximizes revenues. It
enables organizations to manage the complex relationships and
interactions between marketplace buyers and sellers by leveraging the
power of customer relationship management, partner relationship
management, interactive selling, and marketing analytics.
CORE PRODUCTS
The above Pivotal solutions are comprised of a variety of core products, as
follows:
Pivotal eRelationship
Pivotal eRelationship 2000 is our award-winning Customer Relationship Management
product. It is the application that delivers the capabilities for the Pivotal's
Sales, Marketing and Service solutions. Pivotal eRelationship connects these
three areas of a company into one unified database that is fully integrated for
seamless interaction and information sharing.
Pivotal CustomerHub
Pivotal CustmerHub is one of two applications that deliver the capabilities for
the Pivotal Collaboration Hub solutions. Pivotal CustomerHub improves customer
satisfaction by providing a secure self service channel for customers to place
orders or resolve problems twenty-four hours a day, seven days a week with
highly personalized Internet, email, and phone-based interactions. Pivotal
CustomerHub gives customers the ability to become active participants in every
marketing, sales and service activity.
Pivotal PartnerHub
Pivotal PartnerHub is one of two applications that deliver the capabilities for
the Pivotal Collaboration Hub solution. Pivotal PartnerHub empowers demand side
partners to become collaborative members of your extended business team to
generate sales,
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deliver customer value, and keep customers satisfied. Pivotal PartnerHub creates
a collaborative inter-company framework to exchange knowledge, manage
relationships, and synchronize transactions over marketing, sales, service, and
commerce processes.
Pivotal ePower
Pivotal ePower 2000 is the core product which comprises the Pivotal eBusiness
Platform. It is an XML-based technology platform that includes the tools,
engines and templates required to rapidly deploy and operate Pivotal's customer
relationship management and electronic business solution. This platform is
optimized for use in conjunction with the Microsoft .NET platform, can be scaled
to work in any size of business and is designed to allow all employees,
customers and business partners the ability to access and manipulate the same
information.
Pivotal eSelling
Pivotal eSelling is the core application which delivers the capabilities for the
Pivotal Commerce solution. Pivotal eSelling simplifies the online buying
experience for sophisticated products and services with interactive needs
analysis and intelligent guided selling services. Pivotal eSelling maximizes
revenue with system knowledge that guarantees the execution of each enables
customers to increase their revenue through obtaining information regarding
cross-sell and up-sell opportunities and instantly synchronization of online
transactions across the enterprise.
ADDITIONAL APPLICATIONS
We offer a number of different applications that extend the capabilities of our
solutions. These include:
Pivotal Intelligence Suite. Pivotal Intelligence Suite includes Digital
Intelligence and Pivotal Business Intelligence. These add on applications
provide Internet-based tools for data mining, data analysis, and marketing
campaign management that help sales, marketing, and customer service
professionals analyze data and extract knowledge and insight which allows for
better business decisions.
Pivotal Digital Intelligence. Pivotal Digital Intelligence is
intelligence an application that tracks actual website visitor
interests. As website content changes, Pivotal Digital Intelligence
continues to recognize themes, creating a profile of visitor interests
through a specific period. Pivotal Digital Intelligence can be used to
collect the entire visitor text content stream and the data required to
interpret visitor behavior.
Pivotal Business Intelligence. Pivotal Business Intelligence in an
application that combines analytical processing reporting tools, data
mining, and other technologies into an integrated platform, navigated
with an intuitive Internet-browser interface. It provides enhanced data
analysis, greater insight and detailed reports that help evaluate
present performance and establish effective plans for the future. This
highly scalable solution, which is both easy to use and integrated into
marketing and sales applications, allows organizations to use data
mining to its full potential.
Pivotal Interaction Center. Pivotal Interaction Center routes phone calls,
voice-mail, email, faxes, Internet chat, Internet callback requests, and
voice-over-Internet calls. This allows organizations to replace traditional
systems made up of a private branch exchange, interactive voice response unit,
and automatic call distribution using a single application.
Pivotal Anywhere. Pivotal Anywhere enables mobile professionals to access our
solutions remotely over the Internet by using a number of portable computing
devices including palm computers and Internet-enabled cell phones.
Pivotal Instant Action Pivotal Instant Action is an alert-based task manager
that is ideal for companies that depend on valuable, time-sensitive information
that require input from multiple individuals. As a web-based solution, Pivotal
Instant Action routes critical communications and tasks and tracks the status
between individuals and user groups based on specific business rules and
workflow process. Pivotal Instant Action employs Internet, wireless and
traditional communication channels to accelerate response times to critical
business issues. This solution allows companies to address urgent customer needs
with speed and intelligence even when workforces are dispersed and mobile.
Pivotal Toolkit. Pivotal Toolkit helps businesses to easily customize,
administer and adapt our products, without programming, to meet business
specific needs. This option helps to reduce implementation and customization
costs, ongoing administrative burden and the need for employees with advanced
technical skills. Using Pivotal Toolkit's simple graphical, point-and-click user
interface, businesses can modify any aspect of our products without altering
source code. Pivotal Toolkit also includes visual scripting tools,
10
called agents, which allow users to create workflow processes that do not
require programming. By simply connecting arrows between objects on the screen,
users can automate and model business processes, develop sales scripts and
create online tutorials to guide other users through complex tasks.
PivotalHost. PivotalHost is an Internet hosting solution for our technology.
PivotalHost is a solution whereby we provide customers access to our
applications on a monthly subscription basis over the Internet through an
application service provider. This solution includes our software and
Microsoft's software, server hardware, data center, secure Internet connectively
from the data center, and information technology staff to administer and support
the customer's solution.
PRODUCT PRICING
We license platform products on a "per processor" basis, user licenses on a
"named user" basis and/or applications and a "flat fee" basis. All our products
may be licensed on a monthly subscription basis or as a one-time fee for
perpetual licenses.
PRODUCT AWARDS
The following table lists some of the awards our solutions have won:
SPONSOR DATE AWARD
Microsoft December 2000 Industry Solution Awards for 2000
- Best Integrated Customer Relationship Management/eBusiness
Solution
Microsoft July 2000 North American Packaged Application Partner of the Year
Microsoft February 2000 World Record for Scalability and Performance
Microsoft December 1999 Industry Solution Awards for 1999
- Best Internet Solution for Customer Service
- Best Integrated Customer Relationship Management
December 1998 Industry Solution Awards for 1998 - Best Overall Customer
Relationship Management Solution
December 1997 Industry Solution Awards -- Best Mobile Sales Solution
May 1997 Solutions Provider Awards -- Best Solution by a Solution
Developer
Upside Magazine February 2000 eBusiness Winner
Information Systems Marketing February 2001 Top 15 CRM Software Award
February 2000 Top 15 CRM Software Award
February 1999 Top 15 CRM Software Award
December 1997 Top 15 CRM Software Award
December 1996 Top 15 CRM Software Award
Open Systems Advisors January 1999 Crossroads 99 A-List Award
Information Week Magazine February 1999 IT Innovators for 1999
British Columbia Technology Industry June 2000 Company of the Year
Association
start Magazine July 2000 Hottest Companies of 2000
Deloitte & Touche November 2000 Technology Fast 500
Deloitte & Touche September 2000 Fastest Growing Canadian Technology Company
Aberdeen Group April 2001 Aberdeen List of Top Ten Significant CRM Applications for
2000
11
PROFESSIONAL SERVICES
We provide customers with access to a combination of services to successfully
implement and effectively maintain a customer relationship management and
electronic business solution.
These services include:
- Technical Support and Maintenance. We maintain technical support
centers that provide telephone, Internet and email based problem
identification, analysis and resolution to our worldwide customer
base. Various levels of support are available depending on the needs
of the customer. Our technical support and maintenance services
include upgrades of our software applications.
- Education. Our education services are designed to educate our
customers and Pivotal Alliance members about the customization, use
and administration of our solutions. We offer education, training and
certification that help our customers and selling partners to improve
their ability to implement our solutions. We also offer customized and
on-site training classes to customers with specific needs.
- Implementation Services. We offer implementation services that include
project management, customization and systems engineering. We provide
a standardized implementation methodology, which we call the rapid
productivity methodology and solution development centers that enables
the efficient implementation of our solutions. Customers can work with
us directly or retain one of the Pivotal Alliance members to implement
their customer relationship management solutions. Members of the
Pivotal Alliance currently provide the majority of implementation
services for our products. See "Strategic Relationships."
- Business Consulting. We offer business consulting services that are
focused on key customer relationship management trends such as the
impact of the Internet on customer relationships and the
implementation of one-to-one marketing and business practices. We also
assist our customers in measuring and maximizing return on customer
relationship management investments.
Our technical support and maintenance services are sold on a per license basis
and renewed annually. Our education fees are standardized on a per day rate. Our
business consulting services and implementation services are priced on a time
and materials basis. As of June 30, 2001, we had 214 employees in our
Professional Services department.
CUSTOMERS AND MARKETS
We have licensed our applications on a worldwide basis to more than 1,300
customers across a wide range of industries. Customers in North America
accounted for 67%, 72% and 80% of our total revenues in the years ended June 30,
2001, 2000 and 1999, respectively. Customers in Canada accounted for 12%, 11%
and 6% of our total revenues in the years ended June 30, 2001, 2000 and 1999,
respectively. Customers in the U.S. accounted for 55%, 62% and 74% of total
revenues.
Some of our customers which purchased a minimum of US$100,000 of software
licenses from us prior to June 30, 2001, are set forth in the table below:
CONSULTING MANUFACTURING TECHNOLOGY
---------- ------------- ----------
Burntsand Inc. Foss Electric A/S AremisSoft Manufacturing
KPMG SA IMI Norgren Limited Captivate Network, Inc.
KPMG Consulting AG James Hardie Industries Limited Compaq Computer Corporation
KPMG Peat Marwick LLP Newport Corporation HeadHunter.NET, Inc.
Net-Commerce Siemens SAS ProClarity Corporation
The Wynford Group Teknion Corporation Research in Motion
Toshiba Corporation SecureWorks, Inc
FINANCIAL SERVICES Wilo GmbH Allen Systems Group, Inc.
------------------ Crystal Decisions Corporation
Eprise Corporation
BoE Bank Limited EMARKETPLACE Evolve Software, Inc.
CIBC World Markets ------------ Interactive Intelligence, Inc.
The Common Fund for Nonprofit HIT International Trading AG Software Spectrum Inc.
Organizations (formerly PaperExchange.com Inc.) VERITAS Software Corporation
Dresdner RCM Global Investors(UK)Ltd
Farm Credit Services TELECOMMUNICATIONS
------------------
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RETAIL
Grantham, Mayo, Van Otterloo & Co. LLC Alcatel e-Business Distribution GmbH ------
The Principal Financial Group Belgacom France Taco Bell Corporation
Raymond James Ltd FLAG Telecom Ltd. The Brand Factory
Hitachi Telecom (USA), Inc. Wickes Building Supply Supplies Limited
HEALTH CARE
-----------
OTHER SERVICES
Marriott International (Senior Living ---------------
Services)
McKesson Corporation (formerly Miller Heiman, Inc.
Medical Management Group) United Business Media International Ltd.
NDC Health Information Services Intrawest Corporation
Televerde
Total Information Systems (DAC Services)
SALES AND MARKETING
We sell our solutions through a direct sales force and over 50 independent
members of the Pivotal Alliance which resell our solutions. Our direct sales
force is located in the United States, Canada, the United Kingdom, France,
Germany, Australia, New Zealand, Japan, and Mexico. Members of the Pivotal
Alliance are located worldwide in North and South America, Europe, the Middle
East and Asia.
Our marketing efforts are directed at promoting our solutions and services,
creating market awareness and generating leads. Our marketing activities include
Internet business seminars, print and Internet advertising campaigns and
attendance at industry trade show events and trade conferences. We use the
Internet extensively to communicate with potential customers, existing
customers, partners and others. We also conduct comprehensive public relations
programs that establish and maintain relationships with key trade press,
business press and industry analysts. We have a customer communications team
targeted at working directly with our customers to obtain feedback and to track
ongoing customer success stories. This team also performs a series of surveys on
each customer to assess the customer's satisfaction with our solutions and to
anticipate any further needs of the customer. As of June 30, 2001, we employed a
total of 250 people on our sales and marketing team.
STRATEGIC RELATIONSHIPS
THE PIVOTAL ALLIANCE PROGRAM
Pivotal Alliance Members help us market, sell, implement, support and enhance
our solutions. Members of the Pivotal Alliance Program include:
- Systems Integrators. We have agreements with third parties that have
been granted the right to provide implementation, customization and
training services to customers who have purchased solutions through
our direct sales team. We refer to these third parties as systems
integrators. Some of our systems integrators operate worldwide, such
as KPMG, Cap Gemini Ernst & Young and Hewlett Packard while other
focus on specific regional markets such as Internosis Inc., Sierra
Systems and ePartners.
- Solution Providers. We have agreements with third parties that have
been granted the right to market and re-sell our solutions and to
provide education, implementation and customization services for
solutions they sell, as well as for most sales made through our direct
sales team. We refer to these third parties as solution providers.
Solution providers address the market needs of a specific region,
permitting us to sell our solutions in markets that might otherwise be
difficult for us to serve directly. In some foreign markets, we rely
on selected solution providers to customize our solutions and
translate our software applications into local languages.
- Solution Alliances. We have agreements with third parties that supply
software applications that are integrated with our solutions to
address specific industry or customer requirements. We refer to our
relationships with these third parties as solution alliances. We are
developing solution alliances in a number of product categories
including Internet applications, client/server applications, business
productivity, reporting, finance, mobile office products,
communications, sales configurators, data mining, business information
suppliers and vertical market solutions. The purpose of these
relationships is to expand the breadth of technology and services
available to our customers.
- Application Service Providers. We have agreements with third party
application service providers that provide hosting services to
businesses that purchase our solutions but who do not wish to house,
support or maintain the solutions on their
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internal information technology systems. Application service providers
provide businesses with server hardware, data center, secure Internet
connectivity from the data center, and information technology staff to
administer and support the customer's solution.
We provide education and training services to members of the Pivotal Alliance
Program to increase their understanding of our solution suite. We are
implementing a certification program that will require members that perform
implementation and customization services, to meet our certification standards
in the areas of business analysis, systems design, installation, customization,
training and support. We intend to expand the Pivotal Alliance Program by
upgrading the capabilities of its members.
MICROSOFT
Our applications are optimized for the Microsoft Windows NT, Microsoft Windows
2000 and Microsoft BackOffice platforms. Our focused development efforts have
enabled us to create solutions that exploit the capabilities of Microsoft's
products, including SQL Server, that are bundled and licensed with our
solutions. We also created a direct link between our products' databases and
Microsoft Outlook which allows our customers to use the familiar interface of
Microsoft Outlook to update their calendar, tasks and contact information. In
addition, our solutions use Microsoft Internet technologies to publish
information across the Internet.
Pivotal and Microsoft are jointly educating the market on our unique value
proposition and how our demand chain management solution suite increases revenue
and improves customer retention. To support this, we participate with Microsoft
in numerous industry conferences and trade shows, partner focused national and
regional events and public relations initiatives.
On December 5, 2000, we announced a joint three-year initiative with Microsoft
to develop, market and sell the Pivotal Customer Relationship Management and
eBusiness solution suite to large enterprises which will result in incremental
expenditures by Microsoft and us towards this initiative over this period. We
have executed on the first phase our business development initiative with
Microsoft by implementing a training program to educate Microsoft sales
professionals about our solutions and engaging Microsoft in co-marketing and
co-selling initiatives. In addition, we were featured as the premier Customer
Relationship Management partner in the Microsoft Business Advantage -tour in
March and April 2001.
Our strong relationship with Microsoft is also evidenced by our participation in
the launch of Microsoft Windows 2000 and the optimization of our Customer
Relationship Management and eBusiness solution suite to leverage the new
productivity features offered in Microsoft Office XP - the latest version of
Microsoft Office - has enabled us to participate in early product development
initiatives with Microsoft.
CAP GEMINI ERNST & YOUNG
In May 2001, we signed a strategic alliance agreement with Cap Gemini Ernst &
Young, one of the largest management and IT consulting firms in the world. The
two companies will jointly deliver the Pivotal Customer Relationship Management
and eBusiness solution suite, together with the consulting services of Cap
Gemini Ernst & Young. Cap Gemini Ernst & Young has built a Pivotal practice team
consisting of sales professionals, senior executives, practice managers and
consultants. They are currently working jointly and collaborating with our sales
executives and professional services to deliver our solution suite in North
America, France and New Zealand. Cap Gemini Ernst & Young offers management and
IT consulting services, systems integration, and technology development, design
and outsourcing capabilities on a global scale to help businesses continue to
implement growth strategies and leverage technology in the new economy. We
expect to work closely with Cap Gemini Ernst & Young to develop industry
solutions, sales and marketing strategies and a specific implementation
methodology for deployment of the Pivotal Customer Relationship Management and e
Business solution suite.
OTHER
We continue to experience growth with other existing systems integrator partners
such as and KPMG LLP.
TECHNOLOGY
Our software architecture provides a foundation for the development of new and
innovative products and allows our solutions to be easily adaptable, to operate
with other applications and to address the needs of users on multiple computing
devices. This software architecture also allows our solutions to be used over
the Internet. We have invested in the following technologies which serve as a
basis for our customer relationship management and electronic business
solutions:
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- Microsoft Technology. Our solutions are optimized for the Microsoft
Windows NT, Microsoft Windows 2000 and Microsoft BackOffice platforms.
Our focused development efforts have enabled us to create solutions
that exploit the capabilities of Microsoft's products, including SQL
Server, that are bundled and licensed with our solutions. We also
created a direct link between our products' databases and Microsoft
Outlook that allows our customers to use the familiar interface of
Microsoft Outlook to update their calendar, tasks and contact
information. In addition, our solutions use Microsoft Internet
technologies to publish information across the Internet.
- eBusiness Platform Architecture. Our solutions are structured to be
able to use XML both within the platform architecture and for
interfacing to our products, including our PartnerHub and CustomerHub
products which support users' which are external to the enterprise.
Our solutions are also structured to support multiple user access such
as wireless devices and electronic mail. This allows our professional
service staff, partners and customers the ability to work in the
applications in an industry standard fashion allowing integration with
other systems and technologies. This also allows for a well-defined
interface between our applications, thereby reducing the dependency
between such applications. In addition, it allows us to more easily
integrate other XML-capable technologies and products into our
solutions.
- Internet Commerce Platform Architecture. Pivotal eSelling, an
electronic sales channel for delivering a personalized, one-to-one
buying experience, implements an object-oriented database to store
complex product and selling relationships, with a scalable middle tier
supporting both declarative and procedural rule definition, rendered
via XML as a web commerce application. We believe that this is a
powerful and cost-effective architecture and data representation for
selling complex products and managing the rules associated with this
process.
- Metadata Repository. Our software contains a database, called a
metadata repository, that is the blueprint for each application's data
structure, forms, lists, business rules, workflow, queries and
reports. The inclusion of this database allows for rapid adaptability
and deployment by enabling customization to occur without source code
modification. A business can distribute custom application changes
throughout its organization in the normal data synchronization
process. We believe these benefits differentiate our solution from
those of our competitors.
- Pivotal's SyncStream. Our SyncStream captures any additions,
modifications or deletions to our application and the shared corporate
database and transmits only the net changes to the appropriate users.
This technology eases the deployment of new applications, minimizes
the connection costs associated with the synchronization of data,
transmits changes securely and enables mobile users to receive the
correct data when synchronizing.
- Distributed Database Design. Our solution is designed to support
various databases that reside on multiple servers, including both
Microsoft SQL Server and Oracle 8i. Due to our distributed database
design, data from the central database can be replicated to servers in
different locations and on various mobile remote databases (eg.
laptops), and to be updated by our SyncStream. This allows for
scalability and configuration flexibility as customers can upgrade
network hardware and software in a modular fashion with minimal loss
of performance and downtime.
- Pivotal's Enterprise Manager. Our Enterprise Manager provides
centralized configuration management through a graphical user
interface. The Enterprise Manager enables system administrators to
audit and apply configuration changes to the application, manage and
test customization changes off-line and replicate custom data sets for
mobile users. From a single interface, customers can distribute an
updated system online across the entire enterprise without downtime
for users.
RESEARCH AND DEVELOPMENT
Our research and development department is divided into six functional areas:
Advanced Technology, Software Development, Documentation, Quality Assurance,
Program Management and Product Management. As of June 30, 2001, there were 156
employees in our research and development department. Where appropriate, we
contract with third-party developers to expand the capacity of our research and
development department.
For the years ended June 30, 2001, 2000 and 1999, we spent approximately $18.8
million, $9.0 million and $5.0 million, respectively on research and
development.
Our software development approach consists of a methodology that provides
guidelines for planning, controlling and implementing projects. Our advanced
technology team focuses on tracking and evaluating new technologies with a view
to incorporating the best technologies available into our solutions. Our product
management team gathers and documents market requirements and trends in a
requirements analysis. After the requirements analysis has been reviewed for
feasibility and the proposed project approved by management, a product team is
established to implement the project. Our program management team takes
responsibility for
15
documenting a detailed product specification. The software development team may
build prototypes to assess the risks and business requirements of a project and
then concentrates on research and development activities. Through the later
stages of development we perform final testing and quality assurance. Our
program and product management teams are involved at all stages of development
so that market requirements continue to be addressed. The program and product
management teams also assists with the introduction of the product by training
our direct sales force and internal professional services staff.
We place particular emphasis on quality assurance and testing throughout the
development process. We use version control software as well as standard test
tools, scripts and agents developed by us in order to automate our testing
processes and increase the quality of code we develop.
COMPETITION
The market for our software is intensely competitive and rapidly changing. The
past year has been one of vendor consolidation. Today, the direct competitors
are fewer in number as companies are looking for business technology solutions
that deliver rapid results. We face competition from companies in the Customer
Relationship Management software market and in the overall enterprise business
application market. Some competitors include Siebel Systems Inc., Oracle
Corporation, SAP AG, Onyx Corporation and PeopleSoft, Inc.
Other competitors may enter the market by developing or acquiring new products
and applications.
Microsoft has entered the Customer Relationship Management market with its MS
portal site called bCentral, which is designed for small businesses. It is
possible that Microsoft may decide to introduce solutions or services that
directly compete with our solutions. The introduction of these solutions or
services could result from Microsoft acquiring one of our competitors or one of
our competitor's products. If Microsoft becomes our competitor, it may harm or
end our co-marketing and co-selling initiatives with Microsoft. Such competition
with Microsoft would likely have a material adverse affect on our business,
market share, financial condition and results of operations.
In addition, as we develop new products, particularly applications focused on
electronic commerce or on specific industries, we may begin competing with
companies with whom we have not previously competed. It is also possible that
new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share. Some of
our actual and potential competitors are larger, better established companies
that have greater technical, financial and marketing resources. Increased
competition may result in price reductions, lower gross margins or loss of our
market share, any of which could materially adversely affect our business,
financial condition and operating results.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures, contractual provisions and other similar measures to
protect our proprietary information and technology. We do not currently hold any
patents nor do we have any patent applications pending. There can be no
assurance that any copyrights or trademarks held by us will not be challenged or
determined to be invalid.
As part of our confidentiality procedures, we have a policy of entering into
non-disclosure and confidentiality agreements with our employees, consultants,
corporate alliance members, customers and prospective customers. We also enter
into license agreements with respect to our technology, documentation and other
proprietary information. These licenses are perpetual and are generally
transferable subject to obtaining our prior consent. Despite the efforts to
protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain the use of our products or technology that we consider
proprietary and third parties may attempt to develop similar technology
independently. We pursue registration and protection of our trademarks primarily
in the United States, although we do seek protection elsewhere in selected key
markets. Effective protection of intellectual property rights may be unavailable
or limited in some countries. The laws of some countries do not protect our
proprietary rights to the same extent as in the United States and Canada. There
can be no assurance that protection of our proprietary rights will be adequate
or that our competitors will not independently develop similar technology.
We anticipate that companies that develop software applications will be subject
to infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. As a result, we may become involved in these claims. Any of these
claims, with or without merit, could result in costly litigation, divert our
management's time, attention and resources, delay our product shipments or
require us to enter into royalty or license agreements. If a claim of product
infringement against us is successful, our business and operating results could
be seriously harmed.
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EMPLOYEES
As of June 30, 2001 we had a total of 714 employees, excluding independent
contractors and temporary employees. Of this number, 156 people were engaged in
research and development, 250 people were engaged in sales and marketing, 214
people were engaged in professional services and 94 people were engaged in
general administration. No employees are known by us to be represented by a
collective bargaining agreement and we have never experienced a strike or work
stoppage. We consider our employee relations to be good. Our ability to achieve
our financial and operational objectives depends in large part upon our ability
to attract, retain and motivate highly qualified sales, technical and managerial
personnel. There can be no assurance that we will be able to attract and retain
such employees in the future.
RECENT ACQUISITIONS
Ionysys Technology Corporation Acquisition
On October 16, 2000, we acquired 100% of the assets of Ionysys Technology
Corporation, a privately held provider of Internet solutions based in Vancouver,
British Columbia. Pivotal paid an aggregate cash purchase price of $1.0 million
including acquisition related expenditures of $360,000.
Project One Business Technologies Inc. Acquisition
On October 31, 2000, we acquired 100% of the outstanding shares of Project One
Business Technologies Inc., a privately held provider of Internet solutions
specifically designed for the health care industry based in North Vancouver,
British Columbia. We paid an aggregate purchase price of $1.4 million consisting
of 19,000 common shares and stock options and cash of $460,000, which includes
acquisition related expenditures of $380,000.
The agreement for the acquisition of Project One also provided for additional
consideration of approximately 96,000 common shares to be paid based on
achieving certain product development and operating targets over the next 3
years. All earn-out payments will be recorded as additional purchase price when
determinable. No earn-out payments were required to be made in connection with
the acquisition of Project One since acquisition to the period ended March 31,
2001.
Software Spectrum CRM, Inc. Acquisition
On December 5, 2000, we acquired 100% of the outstanding shares of Software
Spectrum CRM, Inc. Software Spectrum, based in Dallas, Texas, delivers solutions
and consulting expertise in multi-channel contact centers and customer
relationship management. We paid an aggregate purchase price of $7.5 million
consisting of 138,000 common shares and cash of $1.9 million, which includes
acquisition related expenditures of $1.2 million.
Inform, Inc. Acquisition
On June 22, 2001, we acquired all of the shares of Inform Inc. a company located
in Toronto, Canada, which specializes in implementation services for the
financial services industry. We paid an aggregate purchase price of $1.3 million
consisting of 45,446 common shares and cash of $359,000, which includes
acquisition related expenditures of $266,000.
IMPORTANT FACTORS THAT MAY AFFECT OUR BUSINESS, OUR RESULTS OF OPERATIONS AND
OUR STOCK PRICE.
Holders of our common shares are subject to the risks and uncertainties inherent
in our business. You should consider the following factors, as well as other
information set forth in this report, in connection with any investment in our
common shares. If any of the risks described below occurs, our business, results
of operations and financial condition could be adversely affected. In such
cases, the price of our common shares could decline, and you could lose part or
all of your investment.
Although we believe that the expectations reflected in our forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements or other future events. Moreover, neither
we nor anyone else assumes responsibility for the accuracy or completeness of
forward-looking statements. You should consider our forward-looking statements
in light of the following risk factors and other information in this report. If
any of the risks described below occurs, our business, results of operation and
financial condition could differ from those projected in our forward-looking
statements. We are under no duty to
17
update any of our forward-looking statements after the date of this report. You
should not place undue reliance on forward-looking statements.
FACTORS RELATING TO OUR BUSINESS AND THE MARKET FOR CUSTOMER RELATIONSHIP
MANAGEMENT AND ELECTRONIC BUSINESS SOLUTIONS MAKE OUR TOTAL REVENUE AND FUTURE
OPERATING RESULTS UNCERTAIN AND MAY CAUSE THEM TO FLUCTUATE FROM PERIOD TO
PERIOD.
Our operating results have varied in the past, and we expect that they may
continue to fluctuate in the future. In addition, our operating results may not
follow any past trends. Some of the factors that could affect the amount and
timing of our revenues from software licenses and related expenses and cause our
operating results to fluctuate include:
o general economic conditions, which may affect our customers' capital
investment levels in management information systems;
o changes in the economy and foreign currency exchange rates;
o market acceptance of our solutions;
o the length and variability of the sales cycle for our solutions, which
typically ranges between two and eight months from our initial contact
with a potential customer to the signing of a license agreement;
o the size and timing of customer orders, which can be affected by
customer order deferrals in anticipation of new solution
introductions, solution enhancements, and customer budgeting and
purchasing cycles;
o our ability to successfully expand our sales force and marketing
programs;
o increases in the cost of software and professional services;
o our ability to successfully expand our international operations;
o the introduction or enhancement of our solutions or our competitors'
solutions;
o changes in our or our competitors' pricing policies;
o activities of and acquisitions by competitors;
o our ability to develop, introduce and market new solutions on a timely
basis and control our costs; and
o customer satisfaction and our reputation relating to our products and
services.
One or more of the foregoing factors may cause our operating expenses to be
disproportionately high during any given period or may cause our net revenue and
operating results to fluctuate significantly. Based upon the preceding factors,
we may experience a shortfall in revenue or earnings or otherwise fail to meet
public market expectations, which could materially and adversely affect our
business, financial condition, results of operations and the market price of our
common stock.
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OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE DUE TO SEASONAL TRENDS AND
VARIATIONS IN THE FISCAL OR QUARTERLY CYCLES OF OUR CUSTOMERS
Our total revenue and operating results may vary significantly from quarter to
quarter. The main factors that may affect these fluctuations are:
o seasonal variations in operating results;
o variations in the fiscal or quarterly cycles of our customers;
o the discretionary nature of our customers' purchase and budget cycles;
o the size and complexity of our license transactions;
o the potential delays in recognizing revenue from license transactions;
and
o the timing of new product releases.
We have experienced, and expect to continue to experience, seasonality with
respect to solution license revenues. Except for the year ended June 30, 2001,
we have historically recognized more license revenues in the fourth quarter of
our fiscal year and recognized less license revenues in the subsequent first
quarter. We believe that these fluctuations are caused in part by customer
buying patterns and the efforts of our direct sales force to meet or exceed
fiscal year-end quotas. In addition, our sales in Europe are generally lower
during the summer months than during other periods. We expect that these
seasonal trends are likely to continue in the future. If revenues for a quarter
ending September 30 are lower than the revenues for the prior quarter, it may be
hard to determine whether the reason for the reduction in revenues involves
seasonal trends or other factors adversely affecting our business.
Our solution revenues are not predictable with any significant degree of
certainty and future solution revenues may differ from historical patterns. If
customers cancel or delay orders, it can have a material adverse impact on our
revenues and results of operations from quarter to quarter. Because our results
of operations may fluctuate from quarter to quarter, you should not assume that
you could predict results of operations in future periods based on results of
operations in past periods.
Even though our revenues are difficult to predict, we base our expense levels in
part on future revenue projections. Many of our expenses are fixed, and we
cannot quickly reduce spending if revenues are lower than expected. This could
result in significantly lower income or greater loss than we anticipate for any
given period. We will react accordingly to minimize any impact.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO PREDICT HOW OUR BUSINESS
WILL DEVELOP AND FUTURE OPERATING RESULTS.
We commenced operations in January 1991. We initially focused on the development
of application software for pen computers. In September 1994, we changed our
focus to research and development of customer relationship management and
electronic business solutions. We commercially released the versions of our
solutions on the following dates: o Pivotal Relationship - April 1996.
o Pivotal eRelationship - February 1999.
o Pivotal eRelationship 2000 - February 2000.
o Pivotal Anywhere - October 1999.
o Pivotal eSelling - June 2000.
o Pivotal eSelling 2.0 - March 2001.
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o Pivotal ePower (originally a component of eRelationship) - February 2000.
o Pivotal ePower 2.0 - March 2001.
o Pivotal Digital Intelligence - March 2001.
o Pivotal PartnerHub 2.0 - May 2001.
o Pivotal Instant Action - May 2001.
o Pivotal ePower Lifecycle Engine - Oracle Edition - August 2001.
We have a limited operating history and we face many of the risks and
uncertainties encountered by early-stage companies in rapidly evolving markets.
These risks and uncertainties include:
o no history of profitable operations;
o uncertain market acceptance of our solutions;
o our reliance on a limited number of solutions;
o the risks that competition, technological change or evolving customer
preferences could adversely affect sales of our solutions;
o the need to expand our sales and support capabilities;
o our reliance on third parties to market, install, and support our
solutions;
o our dependence on a limited number of key personnel, including our
co-founders;
o our dependence on the adoption and success of the Microsoft. NET
platform; and
o the risk that our management will not be able to effectively manage
growth or acquisitions we have undertaken or may undertake in the
future.
The new and evolving nature of the customer relationship management and
electronic business market increases these risks and uncertainties. Our limited
operating history makes it difficult to predict how our business will develop
and our future operating results.
WE HAVE A HISTORY OF LOSSES, WE MAY INCUR LOSSES IN THE FUTURE AND OUR LOSSES
MAY INCREASE IF PROJECTED REVENUES ARE NOT ACHIEVED TO SUPPORT THE LEVEL OF
OPERATING EXPENSES.
We have incurred net losses in each fiscal year since inception, except for the
year ended June 30, 1998, in which we had net income of approximately $4,000. As
at June 30, 2001, we had an accumulated deficit of approximately $48.2 million.
We have increased our operating expenses in recent periods and expect them to
remain approximately the same in the first quarter of fiscal 2002. We will
continue to examine the level of operating expenses based on projected revenues.
Any planned increases in operating expenses may result in larger losses in
future periods if projected revenues are not achieved. As a result, we will need
to generate significantly greater revenues than we have to date to achieve and
maintain profitability. We cannot be certain that our revenues will increase.
Our business strategies may not be successful and we may not be profitable in
any future period.
THE MARKET FOR OUR SOLUTIONS IS HIGHLY COMPETITIVE.
The market for our software is intensely competitive and rapidly changing. The
past year has been one of vendor consolidation. Today, the direct competitors
are fewer in number as companies are looking for business technology solutions
that deliver rapid results. We face competition from companies in the Customer
Relationship Management software market and in the overall enterprise
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business application market. Some of our actual and potential competitors are
larger, better established companies and have greater technical, financial and
marketing resources. Increased competition may result in price reductions, lower
gross margins or loss of our market share, any of which could materially
adversely affect our business, financial condition and operating results. Some
competitors include Siebel Systems Inc., Oracle Corporation, SAP AG, Onyx
Corporation and PeopleSoft, Inc.
Microsoft has also entered the Customer Relationship Management market with its
MS portal site called bCentral which is designed for small businesses. It is
possible that Microsoft may introduce solutions that compete directly with us.
In addition, as we develop new solutions, particularly applications focused on
electronic commerce or specific industries, we may begin competing with
companies with whom we have not previously competed. It is also possible that
new competitors will enter the market or that our competitors will form
alliances that may enable them to rapidly increase their market share.
WE DEPEND UPON MICROSOFT AND THE CONTINUED ADOPTION AND PERFORMANCE OF THE
MICROSOFT .NET PLATFORM.
We have designed our solutions to operate on the Microsoft .NET platform,
including Windows .NET and .NET Enterprise Servers. Microsoft .NET is a new
platform initiative of Microsoft announced in June 2000. We have spent
considerable resources developing and testing the compatibility of our solutions
for Microsoft .NET. The performance of our solutions with Windows .NET and the
.NET Enterprise Servers has limited experience in the marketplace. As a result,
we market our solutions exclusively to customers who have developed their
computing systems around this platform.
Our future financial performance will depend on the continued growth and
successful adoption of Microsoft .NET -including, Windows .NET and the .NET
Enterprise Servers. Microsoft .NET faces competition, particularly from
computing platforms such as Unix and the Java 2 Platform, Enterprise Edition
(J2EE), and databases from companies such as Oracle. Acceptance of Microsoft
.NET may not continue to increase in the future. The market for software
applications that run on these platforms has in the past been significantly
affected by the timing of new solution releases, competitive operating systems
and enhancements to competing computing platforms. If the number of businesses
that adopt Microsoft Windows .NET fails to grow or grows more slowly than we
currently expect, or if Microsoft delays the release of new or enhanced
solutions, our revenues from the Pivotal Customer Relationship Management and
eBusiness solution suite could be adversely affected.
The performance of our solutions depends, to some extent, on the technical
capabilities of the Microsoft .NET platform. If this platform does not meet the
technical demands of our solutions, the performance or scalability of our
solutions could be limited and, as a result, our revenues from the Pivotal
Customer Relationship Management and eBusiness solution suite could be adversely
affected.
We have also launched a global business development initiative with Microsoft
aimed at leading the emerging customer relationship management and electronic
business market. The success of this initiative will depend on the ability of
Pivotal and Microsoft to jointly market and sell to Global 2000 companies the
Pivotal Customer Relationship Management and eBusiness solution suite combined
with Microsoft .NET Enterprise Servers.
Microsoft has entered the Customer Relationship Management market with its MS
portal site called bCentral, which is designed for small businesses. It is
possible that Microsoft may decide to introduce solutions or services that
directly compete with our solutions. The introduction of these solutions or
services could result from Microsoft acquiring one of our competitors or one of
our competitor's products. If Microsoft becomes our competitor, it may harm or
end our co-marketing and co-selling initiatives with Microsoft. Such competition
with Microsoft would likely have a material adverse affect on our business,
market share, financial condition and results of operations.
Broad antitrust actions initiated by federal and state regulatory authorities
resulted in a verdict against Microsoft in the U.S. District Court for the
District of Columbia. The U.S. District Court adopted the government's proposed
remedy and held that Microsoft should be divided into two companies. Microsoft
appealed this verdict to the U.S. Court of Appeals for the District of Columbia.
The U.S. Court of Appeals affirmed the U.S. District Court's findings of
antitrust violations, but overturned the ruling that Microsoft should be divided
into two companies. The U.S. Court of Appeals also removed the judge presiding
over this matter in the U.S. District Court and remanded to the U.S. District
Court the determination as to what remedies should be pursued against Microsoft.
Microsoft has appealed the finding of a violation of antitrust laws to the U.S.
Supreme Court. Recently, the Justice Department determined not to seek a
break-up of Microsoft as a remedy to the case.
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European Union regulators are currently investigating whether Microsoft has
violated European antitrust laws.
Any outcome to these actions that weakens the competitive position of Microsoft
.NET solutions could adversely affect the market for our solutions.
THE MARKET FOR PIVOTAL EPOWER LIFECYCLE ENGINE - ORACLE EDITION IS UNKNOWN.
We have announced the availability of our Pivotal ePower Lifecycle Engine -
Oracle Edition whereby our solution can now be implemented using Oracle based
platforms and technologies. We do not know whether our new Oracle based solution
will prove to be attractive to Oracle customers or if it will result in any
material revenue for us.
THE SUCCESS OF OUR STRATEGIC ALLIANCE WITH CAP GEMINI ERNST & YOUNG IS UNKNOWN.
We entered a strategic alliance agreement with Cap Gemini Ernst & Young in May
2001 whereby we will jointly market and sell the Pivotal solution suite. We do
not know if this will prove to be a successful relationship in the future or if
it will result in any material revenue for Pivotal.
THE MARKET FOR OUR SOLUTIONS IS NEW AND HIGHLY UNCERTAIN AND OUR PLAN TO FOCUS
ON INTERNET-BASED APPLICATIONS AND INTEGRATE ELECTRONIC COMMERCE FEATURES ADDS
TO THIS UNCERTAINTY.
The market for customer relationship management and electronic business
solutions is still emerging and continued growth demand for and acceptance of
the Pivotal Customer Relationship Management and eBusiness solution suite
remains uncertain. Even if the market for customer relationship management
electronic business solutions grows, businesses may purchase our competitors'
products or develop their own. We believe that many of our potential customers
are not fully aware of the benefits of the Pivotal Customer Relationship
Management and eBusiness solution suite and, as a result, these solutions may
never achieve full market acceptance.
The development of our Internet-based Pivotal Customer Relationship Management
and eBusiness solution suite for customer relationship management and electronic
business and our plan to integrate additional features presents additional
challenges and uncertainties. We are uncertain how businesses will use the
Internet as a means of communication and commerce and whether a significant
market will develop for Internet-based customer relationship management and
electronic business solutions such as those developed by us. The use of the
Internet is evolving rapidly, and many companies are developing new products and
services that use the Internet. We do not know what forms of products and
services may emerge as alternatives to our existing solutions or to any future
Internet-based customer relationship management and electronic business
solutions we may introduce. We have spent, and will continue to spend,
considerable resources educating potential customers about our solutions and
customer relationship management and electronic business software solutions.
However, even with these educational efforts, market acceptance of our solutions
may not increase. If the markets for our solutions do not grow or grow more
slowly than we currently anticipate, our revenues may not grow and may even
decline.
OUR SALES CYCLE IS INCREASING AND THE AVERAGE SIZE OF OUR LICENSING TRANSACTIONS
VARIES WIDELY FROM QUARTER TO QUARTER, WHICH COULD HARM OUR OPERATING RESULTS.
We believe that an enterprise's decision to purchase a customer relationship
management and electronic business solution is discretionary, involves a
significant commitment of its resources and is influenced by its budget cycles.
To successfully sell licenses for our solutions, we typically must educate our
potential customers regarding the use and benefits of customer relationship
management and electronic business solutions in general and our solutions in
particular, which can require significant time and resources. Consequently, the
period between initial contact and the purchase of licenses for our solutions is
often long and subject to delays associated with the lengthy budgeting, approval
and competitive evaluation processes that typically accompany significant
capital expenditures. We frequently must invest substantial resources to develop
a relationship with a potential customer and educate its personnel about our
solutions and services with no guarantee that our efforts will be rewarded with
a sale.
Our sales cycles are lengthy and variable and have been growing longer over the
last quarter. In recent months we were impacted by a significant reduction in
our customers' project sizes, deferral of purchasing and lack of an urgency to
purchase and the overall unpredictability of customer decision-making. In
addition, we have also recently seen a reduction in size of customer orders in
the
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final stages of negotiations as a result of reduction in the customer's project
size. We do not know if these trends will continue and the increase in sales
cycle and varying transaction sizes could harm our operating results
OUR SUCCESS WILL DEPEND UPON THE SUCCESS OF OUR SOLUTIONS.
We anticipate that a majority of our revenues and growth in the foreseeable
future will come from license and service related sales of our integrated
solution suite, consisting of Pivotal Sales, Pivotal Marketing, Pivotal Service,
Pivotal Collaboration Hubs, Pivotal Commerce, and Pivotal eBusiness Platform, as
well as industry specific solutions. Accordingly, failure of our integrated
solution suite to gain increased market acceptance and compete successfully
would adversely affect our business, results of operations and financial
condition. Our future financial performance will depend on our ability to
succeed in the continued sale of our integrated solution suite and related
services as well as the development of new versions and enhancements of these
solutions.
THE SUCCESS OF OUR SOLUTIONS WILL DEPEND UPON THE CONTINUED USE AND EXPANSION OF
THE INTERNET.
Increased sales of our solutions and any future Internet-based applications and
electronic commerce features we integrate with our current solutions, will
depend upon the expansion of the Internet as a leading platform for commerce and
communication. If the Internet does not continue to become a widespread
communications medium and commercial marketplace, the demand for our solutions
could be significantly reduced and our solutions and any future Internet-based
and electronic commerce features may not be commercially successful. The
Internet infrastructure may not be able to support the demands placed on it by
continued growth. The Internet could lose its viability due to delays in the
development or adoption of new equipment, standards and protocols to handle
increased levels of Internet activity, security, reliability, cost, ease of use,
accessibility and quality of service.
Other concerns that could inhibit the growth of the Internet and its use by
business as a medium for communication and commerce include:
o concerns about security of transactions conducted over the Internet;
o concerns about privacy and the use of data collected and stored
recording interactions over the Internet;
o the possibility that federal, state, local or foreign governments will
adopt laws or regulations limiting the use of the Internet or the use
of information collected from communications or transactions over the
Internet; and
o the possibility that governments will seek to tax Internet commerce.
WE DEPEND ON THIRD-PARTY WIRELESS SERVICE PROVIDERS FOR THE SUCCESSFUL
IMPLEMENTATION OF OUR PIVOTAL ANYWHERE SOLUTION.
Our Pivotal Anywhere solution provides a wireless platform that allows our other
solutions to be accessed wirelessly. We depend on third-party providers of
wireless services for the successful implementation of Pivotal Anywhere. Because
Pivotal Anywhere relies on wireless services developed and maintained by third
parties, we depend on these third parties' abilities to deliver and support
reliable wireless services. The wireless industry is new and rapidly developing
and involves many risks, including:
o extensive government regulation in licensing, construction, operation,
sale and interconnection arrangements of wireless telecommunications
systems which may prevent our third-party providers from successfully
expanding their wireless services;
o rapid expansion of the wireless services infrastructure which may
result in flaws in the infrastructure; and
o concerns over the radio frequency emissions or other health and safety
risks that may discourage use of wireless services.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO EXPAND OUR
DIRECT SALES AND SUPPORT INFRASTRUCTURE.
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Our future revenue growth will depend in large part on our ability to
successfully expand our direct sales force and our customer support capability.
We may not be able to successfully manage the expansion of these functions or to
recruit and train additional direct sales, consulting and customer support
personnel. There is presently a shortage of qualified personnel to fill these
positions. If we are unable to hire and retain additional highly skilled direct
sales personnel we may not be able to increase our license revenue to the extent
necessary to achieve profitability. If we are unable to hire highly trained
consulting and customer support personnel we may be unable to meet customer
demands. We are not likely to be able to increase our revenues as we plan if we
fail to expand our direct sales force or our consulting and customer support
staff. Even if we are successful in expanding our direct sales force and
customer support capability, the expansion may not result in revenue growth.
WE RELY ON OUR PIVOTAL ALLIANCE NETWORK OF INDEPENDENT COMPANIES TO SELL,
INSTALL AND SERVICE OUR SOLUTIONS AND TO PROVIDE SPECIALIZED SOFTWARE FOR USE
WITH THEM AND OUR PIVOTALHOST PROGRAM RELIES ON THIRD-PARTY APPLICATION SERVICE
PROVIDERS.
We do not have the internal implementation and customization capability to
support our current level of sales of licenses. Accordingly, we have established
and relied on our international network of independent companies we call the
Pivotal Alliance. Members of the Pivotal Alliance market and sell our solutions,
provide implementation and customization services, provide technical support and
maintenance on a continuing basis and provide us with software applications that
we can bundle with our solutions to address specific industry and customer
requirements. Approximately 20% and 24% of our license revenues for the year
ended June 30, 2001 and 2000, respectively were from sales made through
third-party resellers. The majority of our customers retain members of the
Pivotal Alliance to install and customize our solutions. If we fail to maintain
our existing Pivotal Alliance relationships, or to establish new relationships,
or if existing or new members of the Pivotal Alliance do not perform to our
expectations, our ability to sell, install and service our solutions may suffer.
There is an industry trend toward consolidation of systems integrators that
implement, customize and maintain software solutions. Some of the systems
integrators in the Pivotal Alliance have engaged in discussions concerning
business consolidations. We are uncertain as to the effect that any
consolidation may have on our relationships with members of the Pivotal
Alliance.
The success of our PivotalHost program will depend on the commitment and
performance of third-party application service providers to successfully
implement and market services that incorporate our solutions.
THE LOSS OF OUR CO-FOUNDERS OR OTHER KEY PERSONNEL OR OUR FAILURE TO ATTRACT AND
RETAIN ADDITIONAL PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
Our success depends largely upon the continued service of our executive officers
and other key management, sales and marketing and technical personnel. The loss
of the services of one or more of our executive officers or other key employees
could have a material adverse effect on our business, results of operations and
financial condition. In particular, we rely on our co-founders, Norman Francis,
Chairman of the Board of Directors, and Keith Wales, our Executive Vice
President, Corporate Projects and director. We also rely on Bo Manning, our
President, Chief Executive Officer and director, Vincent Mifsud, our Chief
Operating Officer, Chief Financial Officer and Executive Vice President. We do
not have an employment agreement with Mr. Wales and, therefore, he could
terminate his employment with us at any time without penalty. We maintain key
man insurance on the lives of Messrs. Francis and Wales but do not maintain key
man insurance on the lives of Messrs. Manning and Mifsud.
Our future success also depends on our ability to attract and retain highly
qualified personnel. The competition for qualified personnel in the computer
software and Internet markets is intense, and we may be unable to attract or
retain highly qualified personnel. Due to intense competition for qualified
employees, it may be necessary for us to increase the level of compensation paid
to existing and new employees such that our operating expenses could be
materially increased. The price of our common shares has declined significantly
in the past year. Many of our key employees hold options to purchase common
shares with exercise prices significantly greater than the current market price
of the common shares. Accordingly, our current share option program may be of
limited value in retaining and motivating employees.
WE FACE RISKS FROM THE EXPANSION OF OUR INTERNATIONAL OPERATIONS.
We have permanent offices in the United States, Canada, Ireland, Northern
Ireland, England, Japan, Australia, New Zealand, Germany and France. We are
constantly reviewing our international sales and operations to determine if
offices are required in other
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countries. As a result, we expect to continue this expansion of our
international operations in the future. International operations are subject to
numerous inherent potential risks, including:
o unexpected changes in regulatory requirements;
o export restrictions, tariffs and other trade barriers;
o changes in local tax rates or rulings by local tax authorities;
o challenges in staffing and managing foreign operations, differing
technology standards, employment laws and practices in foreign
countries;
o less favorable intellectual property laws;
o longer accounts receivable payment cycles and difficulties in
collecting payments;
o political and economic instability; and
o fluctuations in currency exchange rates and the imposition of currency
exchange controls.
Any of these factors could have a material adverse effect on our business,
financial condition or results of operations.
Our international expansion has and will continue to require significant
management attention and financial resources. We have had to significantly
enhance our direct and indirect international sales channels and our support and
services capabilities. We may not be able to maintain or increase international
market demand for our solutions. We may not be able to sustain or increase
international revenues from licenses or from consulting and customer support.
In some foreign countries we rely on selected solution providers to translate
our software into local languages, adapt it to local business practices and
complete installations in local markets. We are highly dependent on the ability
and integrity of these solution providers, and if any of them should fail to
properly translate, adapt or install our software, our reputation could be
damaged and we could be subjected to liability. If any of these solution
providers should fail to adequately secure our software against unauthorized
copying, our proprietary software could be compromised.
POLITICAL UNREST MAY ADVERSELY AFFECT THE OPERATION OF OUR EUROPEAN CUSTOMER
SUPPORT CENTER LOCATED IN NORTHERN IRELAND.
We have 15 employees located in our Belfast, Northern Ireland customer support
center. This center provides customer support primarily to all of our customers
in Europe and provides back-up support for other customers around the world.
Northern Ireland has historically experienced periods of religious, civil and
political unrest. Northern Ireland may experience further unrest which could
disrupt our ability to provide customer support and have material adverse effect
on our results of operations and financial condition.
FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND RISKS ASSOCIATED WITH OUR RISK
MANAGEMENT POLICIES MAY AFFECT OUR OPERATING RESULTS.
Substantially all of our revenues and corresponding receivables are in U.S.
dollars. However, a majority of our research and development expenses, customer
support costs and administrative expenses are in Canadian dollars. Accordingly,
we are exposed to fluctuations in the exchange rates between the U.S. dollar and
the Canadian dollar.
We have adopted a foreign currency risk management policy intended to reduce the
effects of potential fluctuations on the results of operations stemming from our
exposure to these risks. As part of this risk management, we identify our future
Canadian currency requirements related to payroll costs, capital expenditure and
operating lease commitments and enter into forward exchange contracts or
purchase Canadian dollars in the open market at the beginning of an operation
period to cover these anticipated currency needs.
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For additional information regarding our forward exchange contracts, see Item 3
"Quantitative Disclosures About Market Risk" contained in this Report.
If our actual currency requirement in the period forecasted differ materially
from the notional amount of our forward contracts and/or the amount of Canadian
dollars purchased in the open market during a period of currency volatility or
if we do not continue to manage our exposure to foreign currency through forward
contracts or other means, we could experience unanticipated foreign currency
gains or losses.
Our foreign currency risk management policy subjects us to risks relating to the
creditworthiness of the commercial banks with which we enter into forward
contracts. If one of these banks cannot honor its obligations, we may suffer a
loss.
We also invest in our international operations which will likely result in
increased future operating expenses denominated in United Kingdom and Irish
pounds, French Francs, euros, German marks, Japanese yen, Australian dollars and
New Zealand dollars. Our exposure to exchange fluctuations in foreign currencies
is not material to date and accordingly, our current foreign currency risk
management practices do not cover foreign exchange risks related to these other
currencies. In the future, our exposure to foreign currency risks from these
other foreign currencies may increase and if not managed appropriately, we could
experience unanticipated foreign currency gains and losses.
The purpose of our foreign currency risk management policy is to reduce the
effect of exchange rate fluctuation on our results of operations. Therefore,
while our foreign currency risk management policy may reduce our exposure to
losses resulting from unfavorable changes in currency exchange rates, it also
reduces or eliminates our ability to profit from favorable changes in currency
exchange rates.
FLUCTUATIONS IN THE MARKET VALUE OF OUR SHORT-TERM INVESTMENTS AND IN INTEREST
RATES MAY AFFECT OUR OPERATING RESULTS.
For additional information regarding the sensitivity of and risks associated
with the market value of short-term investments and interest rates, see Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this Report.
WE HAVE EXPERIENCED RAPID GROWTH WHICH HAS PLACED A STRAIN ON OUR RESOURCES AND
ANY FAILURE TO MANAGE OUR GROWTH EFFECTIVELY COULD CAUSE OUR BUSINESS TO SUFFER.
We have been expanding our operations rapidly and intend to continue this
expansion for the foreseeable future. The number of our employees increased from
526 on June 30, 2000 to 714 on June 30, 2001. This expansion has placed, and is
expected to continue to place, a significant strain on our managerial,
operational and financial resources as we integrate and manage new employees,
more locations, more customers, suppliers and other business relationships. In
the past we have decided to, and in the future we may need to, improve or
replace our existing operational and customer service systems, procedures and
controls. Any failure by us to properly manage our growth or these systems and
procedural transitions could impair our ability to efficiently manage our
business, to maintain and expand important relationships with members of the
Pivotal Alliance and other third parties and to attract and service customers.
It could also cause us to incur higher operating costs and delays in the
execution of our business plan or in the reporting or tracking of our financial
results.
THE INTEGRATION OF CURRENT AND FUTURE ACQUISITIONS MAY BE DIFFICULT AND
DISRUPTIVE.
We are in the process of integrating the Inform business with our business and
we are expending financial and management resources in this effort. We
anticipate that we may acquire other companies in the future. Acquisitions and
the integration of new companies take significant financial and management
resources and are subject to risks commonly encountered in acquisitions,
including, among others, risk of loss of key personnel, difficulties associated
with assimilating ongoing businesses and the ability of our sales force and
consultants to become educated on new products and solutions. We will also need
to integrate the solutions of acquired companies into our solution offering. We
may not successfully overcome these risks or any other problems that may be
encountered in connection with the acquisition of Inform or future acquisitions.
Accordingly, it is uncertain whether we will receive the benefits we anticipate
from these acquisitions and we may not realize value from these acquisition
comparable to the resources we invest in them.
Amortization of intangible assets resulting from acquisitions will adversely
affect our reported income. In connection with our acquisitions of Transitif,
Exactium, Simba, Ionysys, Project One, Software Spectrum and Inform we allocated
an aggregate of $73.2
26
million of the purchase prices to intangible assets that we have been amortizing
over a period of three years on a straight-line basis. Future acquisitions may
result in the creation of significant additional intangible assets.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS
No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination and SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination whether acquired individually or with a group of other assets. These
standards require all future business combinations to be accounted for using the
purchase method of accounting. Goodwill will no longer be amortized but instead
will be subject to impairment tests at least annually. We are required to adopt
SFAS No. 141 and 142 on a prospective basis as of July 1, 2002, but are
permitted to adopt in the first quarter of 2002. We are currently evaluating the
impact the adoption of these pronouncements may have on its financial position
and results of operations; however, due to these pronouncements being issued in
late July 2001 and due to our expectation that the FASB will issue further
guidance with respect to the adoption of both SFAS No. 141 and 142, we are
currently unable to determine the impact the adoption of these pronouncements
may have on its financial position or results of operations. Although we cannot
determine the impact SFAS the adoption of SFAS 141 and SFAS would have on our
operating results, once adopted there could be a material impact on further
operating results if there was an impairment in the value of goodwill.
As part of our business strategy, we regularly review acquisition opportunities
and we may seek to grow by making additional acquisitions. We may not
effectively select acquisition candidates, negotiate or finance acquisitions or
integrate the acquired businesses and their personnel or acquired products or
technologies into our business. We cannot be certain that we can complete any
acquisition we pursue on favorable terms, or that any acquisition will
ultimately benefit our business.
OUR PLAN TO EXPAND OUR SERVICE CAPABILITY COULD ADVERSELY AFFECT GROSS PROFIT
MARGINS AND OPERATING RESULTS.
Revenues from services and maintenance have lower gross margins than revenues
from licenses. Therefore, an increase in the percentage of revenues generated
from services and maintenance as compared to revenues from licenses will lower
our overall gross margins. In addition, an increase in the cost of revenues from
services and maintenance as a percentage of revenues from services and
maintenance could have a negative impact on overall gross margins.
Although margins related to revenues from services and maintenance are lower
than margins related to revenues from licenses, our services organization
currently generates gross profits, and we are seeking to expand our service
capability and our revenues from services and maintenance.
Revenues from services and maintenance depend in part on renewals of technical
support contracts by our customers, some of which may not be renewed. Our
ability to increase revenues from services and maintenance will depend in large
part on our ability to increase the scale of our services organization,
including our ability to successfully recruit and train a sufficient number of
qualified services personnel. We may not be able to do so.
To meet our expansion goals, we expect to hire additional services personnel. If
demand for our services organization does not increase in proportion to the
number of additional personnel we hire, gross profits could fall, or we may
incur losses from our services activities. In addition, the costs of delivering
services could increase and any material increase in these costs could reduce or
eliminate the profitability of our services activities.
WE RELY ON SOFTWARE LICENSED TO US BY THIRD PARTIES FOR FEATURES WE INCLUDE IN
OUR SOLUTIONS.
We incorporate into our solutions, software that is licensed to us by
third-party software developers including Microsoft SQL Server 2000, Microsoft
SQL Server 7.0, Sheridan Calendar Control, InstallShield 3, Crystal Reports,
E.piphany E.4, and Interactive Intelligence Enterprise Interaction Center. We
are seeking to further increase the capabilities of our solutions by licensing
additional applications from third parties. A significant interruption in the
availability of any of this licensed software could adversely affect our sales,
unless and until we can replace this software with other software that performs
similar functions. Because our solutions incorporate software developed and
maintained by third parties, we depend on these third parties' abilities to
deliver and support reliable products, enhance their current products, develop
new products on a timely and cost-effective basis, and respond to emerging
industry standards and other technological changes. If third-party software
offered now or in the future in conjunction with our
27
solutions becomes obsolete or incompatible with future versions of our
solutions, we may not be able to continue to offer some of the features we
presently include in our solutions unless we can license alternative software or
develop the features ourselves.
WE MUST CONTINUE TO DEVELOP ENHANCEMENTS TO OUR SOLUTIONS AND NEW APPLICATIONS
AND FEATURES THAT RESPOND TO THE EVOLVING NEEDS OF OUR CUSTOMERS, RAPID
TECHNOLOGICAL CHANGE AND ADVANCES INTRODUCED BY OUR COMPETITORS.
The software market in which we compete is characterized by rapid change due to
changing customer needs, rapid technological changes and advances introduced by
competitors. Existing products become obsolete and unmarketable when products
using new technologies are introduced and new industry standards emerge. New
technologies could change the way customer relationship management and
electronic business solutions are sold or delivered. As a result, the life
cycles of our solutions are difficult to estimate. We also may need to modify
our solutions when third parties change software we integrate into our
solutions. To be successful we must continue to enhance our current solutions
and develop new applications and features.
We may not be able to successfully develop or license the applications necessary
to offer these or other features, or to integrate these applications with our
existing solutions. We have delayed enhancements and new solution release dates
several times in the past and may not be able to introduce new solutions,
solution enhancements, new applications or features successfully or in a timely
manner in the future. If we delay release of our new solutions or solution
enhancements or new applications or features or if they fail to achieve market
acceptance when released, we may not be able to keep up with the latest
developments in the market and our revenues may fall. We may not be able to
respond effectively to customer needs, technological changes or advances
introduced by our competitors, and our solutions could become obsolete.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
Our success depends in part on our ability to protect our proprietary software
and our other proprietary rights from copying, infringement or use by
unauthorized parties. To protect our proprietary rights we rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
agreements with employees and third parties, and protective contractual
provisions such as those contained in license agreements with consultants,
vendors and customers, although we have not signed these types of agreements in
every case. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our solutions and obtain and use information that we
regard as proprietary. Other parties may breach confidentiality agreements and
other protective contracts we have entered into. We may not become aware of, or
have adequate remedies in the event of, these types of breaches or unauthorized
activities.
CLAIMS BY OTHER COMPANIES THAT OUR SOLUTIONS INFRINGE THEIR COPYRIGHTS OR
PATENTS COULD ADVERSELY AFFECT OUR ABILITY TO SELL OUR SOLUTIONS AND INCREASE
OUR COSTS.
If any of our solutions violates third-party proprietary rights, including
copyrights and patents, we may be required to reengineer our solutions or obtain
licenses from third parties to continue offering our solutions without
substantial reengineering. Although some of our current and potential
competitors have sought patent protection for similar customer relationship
management and electronic business solutions, we have not sought patent
protection for our solutions. If a patent has been issued or is issued in the
future to a third-party that prevents us from using technology included in our
solutions, we would need to obtain a license or re-engineer our solution to
function without infringing the patent. Any efforts to re-engineer our solutions
or obtain licenses from third parties may not be successful and, in any case,
could substantially increase our costs, force us to interrupt sales or delay
solution releases.
OUR SOLUTIONS AND PRODUCTS WE RELY ON MAY SUFFER FROM DEFECTS OR ERRORS.
Software solutions as complex as ours may contain errors or defects, especially
when first introduced or when new versions are released. We have had to delay
commercial release of some versions of our solutions until software problems
were corrected, and in some cases have provided solution enhancements to correct
errors in released solutions. Our new solutions and solution enhancements or new
applications or features may not be free from errors after commercial shipments
have begun. Any errors that are discovered after commercial release could result
in loss of revenues or delay in market acceptance, diversion of development
resources, damage to our reputation, increased service and warranty costs and
liability claims.
Our end-user licenses contain provisions that limit our exposure to product
liability claims, but these provisions may not be enforceable in all
jurisdictions. In some cases, we have been required to waive these contractual
limitations. Further, we may be exposed to product liability claims in
international jurisdictions where our solution provider has supplied our
solutions and negotiated
28
the license without our involvement. A successful product liability claim could
result in material liability and damage to our reputation.
In addition, products we rely on, such as Microsoft platform products, may
contain defects or errors. Our solutions rely on these products to operate
properly. Therefore, any defects in these products could adversely affect the
operation of and market for our solutions, reduce our revenues, increase our
costs and damage our reputation.
IF OUR CUSTOMERS' SYSTEM SECURITY IS BREACHED, OUR BUSINESS AND REPUTATION COULD
SUFFER.
A fundamental requirement for online communications is the secure transmission
of confidential information over the Internet. Users of our solutions transmit
their and their customers' confidential information over the Internet. In our
license agreements with our customers, we disclaim responsibility for the
security of confidential data and have contractual indemnities for any damages
claimed against us. However, if unauthorized third parties are successful in
obtaining confidential information from users of our solutions, our reputation
and business may be damaged and, if our contractual disclaimers and indemnities
are not enforceable, we may be subjected to liability.
CHANGES IN ACCOUNTING STANDARDS AND IN THE WAY WE CHARGE FOR LICENSES COULD
AFFECT OUR FUTURE OPERATING RESULTS.
We recognize revenues from the sale of software licenses on delivery of our
solutions if:
o persuasive evidence of an arrangement exists,
o the fee is fixed and determinable,
o we can objectively allocate the total fee among all elements of the
arrangement, and
o collection of the license fee is probable.
Under some license arrangements, with either a fixed or indefinite term, our
customers agree to pay for the license with periodic payments extending beyond
one year. We recognize revenues from these arrangements as the periodic payments
become due, provided all other conditions for revenue recognition are met. We
have not entered into many of these arrangements, however, if they become
popular with our customers, we may have lower revenues in the short term than we
would otherwise, because revenues for licenses sold under these arrangements
will be recognized over time rather than upon delivery of our solution.
We recognize maintenance revenues ratably over the contract term, typically one
year, and recognize revenues for consulting, education and implementation and
customization services as the services are performed.
Administrative agencies responsible for setting accounting standards, including
the Securities and Exchange Commission and the Financial Accounting Standards
Board, are also reviewing the accounting standards related to business
combinations and stock-based compensation.
Any changes to these accounting standards or any other accounting standards or
the way these standards are interpreted or applied could require us to change
the manner in which we recognize revenue or the way we account for share
compensation or for any acquisition we may pursue or other aspects of our
business, in a manner that could adversely affect our reported financial
results.
29
OUR SHARE PRICE MAY CONTINUE TO BE VOLATILE.
Our share price has fluctuated substantially since our initial public offering
in August 1999. The trading price of our common shares is subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant orders, changes in revenues and earnings estimates by
securities analysts, announcements of technological innovations or new solutions
by us or our competitors, general conditions in the software and computer
industries and other events or factors. In addition, the stock market in general
has experienced extreme price and volume fluctuations that have affected the
market price for many companies in industries similar or related to ours and
have been unrelated to the operating performance of these companies. These
market fluctuations have adversely affected and may continue to adversely affect
the market price of our common shares.
CERTAIN SHAREHOLDERS MAY BE ABLE TO EXERCISE CONTROL OVER MATTERS
REQUIRING SHAREHOLDER APPROVAL.
Our current officers, directors and entities affiliated with us together
beneficially owned a significant portion of our outstanding common shares as of
June 30, 2001. While these shareholders do not hold a majority of our
outstanding common shares, they will be able to exercise significant influence
over matters requiring shareholder approval, including the election of directors
and the approval of mergers, consolidations and sales of our assets. This may
prevent or discourage tender offers for our common shares.
ITEM 2. PROPERTIES
Our principal administrative, professional services and education facilities are
located in North Vancouver, British Columbia, Canada, and our research and
development campus is located in Vancouver, British Columbia, Canada and
together consist of approximately 85,288 square feet of office space in three
separate buildings. The leases for the buildings in North Vancouver expire in
September 2002 and the lease for the building in Vancouver expires in April
2002. We intend to consolidate these offices to one newly constructed facility
in Vancouver, British Columbia with a scheduled completion in the fall of 2002.
Pursuant to an offer to lease this facility, our obligation to occupy the
premises and commence paying rent does not arise until construction of the
building is complete. Once construction is finished, the building will consist
of 126,790 square feet of office space under a lease that expires in July 2017.
Our principal marketing facility is located in Kirkland, Washington and consists
of approximately 13,600 square feet of office space held under a lease that
expires in December 2003. We also have a significant research and development
facility in Atlanta, Georgia that consists of approximately 26,708 square feet
of office space under a lease that expires on April 2006. We also have a
significant professional services facility in Dallas, Texas that consists of
7,877 square feet of space under a lease that expires in September 2003.
Our main administrative office for Europe, the Middle East and Africa is located
in Dublin, Ireland held under a lease expiring in November 2001. Our principal
sales and marketing office for Europe, the Middle East and Africa is located in
Luton, England held under a lease that expires in November 2005. Our European
customer support center is located in Belfast, Northern Ireland and consists of
approximately 9,648 square feet of office space under a lease that expires in
May 2010.
As of June 30, 2001, we also leased offices in: Tokyo, Japan; Sydney, Australia;
Auckland, New Zealand; Mainz, Germany; High Point, North Carolina; Des Plaines,
Illinois; San Bruno and Irvine, California; Dallas, Texas; Denver, Colorado;
Levallois-Perret, France; Paris, France; North Andover, Massachusetts;
Morristown, New Jersey; New York, New York; Bethesda, Maryland; St. Paul,
Minnesota and Toronto, Ontario.
ITEM 3. LEGAL PROCEEDINGS
We are subject to legal proceedings, claims and litigation arising in the
ordinary course of business. Management, after review and consultation with
legal counsel, considers that any liability from the disposition of such
lawsuits would not have a material adverse effect upon our consolidated
financial condition.
We are currently in arbitration with one of our business partners, following a
breach of contract claim against us. We believe the claim is without merit and
we have made a counterclaim. While the results of arbitration and claims cannot
be predicted with certainty, we believe that the final outcome of this matter
will not have a material adverse effect on our business, financial condition,
results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not Applicable.
30
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Our common shares began trading on the Nasdaq National Market on August 5, 1999
under the symbol PVTL. The table below lists the high and low closing prices per
share of our common shares for each quarterly period during the past fiscal
year, as reported on the Nasdaq National Market.
Price Range
of Common Shares
Price Range for Year Ended
of Common Shares June 30, 2000
for Year Ended (beginning
June 30, 2001 August 5, 1999)
----------------- -----------------
High Low High Low
----- --- ---- ---
First Quarter..........................$...59.38 $ 23.44 $ 19.69 $ 12.06
Second Quarter.............................70.23 31.00 59.00 18.13
Third Quarter..............................35.56 10.31 68.56 30.06
Fourth Quarter.............................25.10 9.44 45.50 18.78
Our common shares began trading on The Toronto Stock Exchange on August 17, 2000
under the symbol PVT. The table below lists the high and low closing prices per
share of our common shares for each quarterly period during the past fiscal
year, as reported on The Toronto Stock Exchange.
Price Range
of Common Shares
-----------------
High Low
---- ---
Year Ended June 30, 2001
First Quarter (beginning August 17, 2000)..............Cdn$ 88.25 Cdn$ 54.75
Second Quarter............................................. 105.00 48.00
Third Quarter.............................................. 54.00 16.20
Fourth Quarter............................................. 38.46 14.70
SHAREHOLDERS
As of September 1, 2001, there were approximately 388 registered holders of our
common shares. This does not include the number of persons whose shares are in
nominee or "street name" accounts through brokers.
DIVIDENDS
We have never declared or paid any cash dividends on our share capital. We
currently intend to retain any future earnings to fund the development and
growth of our business and we do not anticipate paying any cash dividends in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
On June 22, 2001, in connection with the acquisition of Inform Inc. we issued
45,446 common shares. We relied on the exclusion from registration provided by
Rule 903(b)(2) of Regulation S under the Securities Act of 1933. We were a
"foreign issuer", as defined by Regulation S and issued our shares to persons
outside the United States and not for the account or benefit of any "U.S.
Person." We imposed offering restrictions in compliance with Rule 903(b)(2).
USE OF PROCEEDS
On August 4, 1999, our registration statement on Form F-1, Registration No.
333-82871, became effective. The offering date was August 5, 1999. The offering
has terminated as a result of all of the shares offered being sold. The managing
underwriters were Merrill Lynch & Co., Bear, Stearns & Co. Inc. and Dain
Rauscher Wessels. The offering consisted of 3,975,000 of our common shares,
which included 475,000 common shares offered pursuant to the subsequent exercise
of the underwriter's over allotment option
31
on August 19, 1999. The aggregate price of the shares offered and sold was $47.7
million. Proceeds to us, after $3.3 million in underwriting discounts and
commissions and $1.3 million in other expenses, were $43.1 million. During the
year ended June 30, 2000, we used $14.5 million of the net proceeds in
connection with acquisitions of Exactium, Simba and Transitif. During the year
ended June 30, 2001, we used $5.7 million of the net proceeds in connection with
acquisitions of Ionysys, Project One, Software Spectrum and Inform. Another $6.0
million of the net proceeds was used for working capital. The remaining $16.9
million of the net proceeds continues to be invested in investment-grade,
interest bearing short-term instruments.
None of the net offering proceeds were paid, and none of the initial public
offering expenses related to payments, directly or indirectly, to our directors,
officers or general partners or their associates, persons owning 10% or more of
any class of securities or our affiliates.
Exchange Controls
There are no government laws, decrees or regulations in Canada which restrict
the export or import of capital or which affect the remittance of dividends,
interest or other payments to non-resident holders of our common shares. Any
remittances of dividends to United States residents and to other non-residents
are, however, subject to withholding tax. See "Taxation" below.
Taxation
Canadian Federal Income Taxation
We consider that the following summary fairly describes in general the principal
Canadian federal income tax consequences applicable to a holder of our common
shares who at all material times deals at arm's length with us, who holds all
common shares as capital property, who is resident in the United States, who is
not a resident of Canada and who does not use or hold, and is not deemed to use
or hold, his common shares of Pivotal in connection with carrying on a business
in Canada (a "non-resident holder"). It is assumed that the common shares will
at all material times be listed on a stock exchange that is prescribed for
purposes of the Income Tax Act (Canada) (the "ITA") and regulations thereunder.
The Canadian federal income tax consequences applicable to holders of our common
shares will not change if we are deemed inactive by The Toronto Stock Exchange.
Investors should however be aware that the Canadian federal income tax
consequences applicable to holders of our common shares will change if we cease
to be listed on a prescribed stock exchange like The Toronto Stock Exchange.
Accordingly, holders and prospective holders of our common shares should consult
with their own tax advisors with respect to the income tax consequences of them
purchasing, owing and disposing of our common shares should we cease to be
listed on a prescribed stock exchange.
This summary is based upon the current provisions of the ITA, the regulations
thereunder, the Canada-United States Tax Convention as amended by the Protocols
thereto (the "Treaty") as at the date of the registration statement and the
currently publicly announced administrative and assessing policies of the Canada
Customs and Revenue Agency (the "CCRA"). This summary does not take into account
Canadian provincial income tax consequences. This description is not exhaustive
of all possible Canadian federal income tax consequences and does not take into
account or anticipate any changes in law, whether by legislative, governmental
or judicial action. This summary does, however, take into account all specific
proposals to amend the ITA and regulations thereunder, publicly announced by the
Government of Canada to the date hereof.
This summary does not address potential tax effects relevant to us or those tax
considerations that depend upon circumstances specific to each investor.
Accordingly, holders and prospective holders of our common shares should consult
with their own tax advisors with respect to the income tax consequences to them
of purchasing, owning and disposing of our common shares.
Dividends
The ITA provides that dividends and other distributions deemed to be dividends
paid or deemed to be paid by a Canadian resident corporation (such as Pivotal)
to a non-resident of Canada shall be subject to a non-resident withholding tax
equal to 25% of the gross amount of the dividend of deemed dividend. Provisions
in the ITA relating to dividend and deemed dividend payments to and gains
realized by non-residents of Canada, who are residents of the United States, are
subject to the Treaty. The Treaty may reduce the withholding tax rate on
dividends as discussed below.
Article X of the Treaty as amended by the US-Canada Protocol ratified on
November 9, 1995 provides a 5% withholding tax on gross dividends or deemed
dividends paid to a United States corporation which beneficially owns at least
10% of our voting stock paying the dividend. In cases where dividends or deemed
dividends are paid to a United States resident (other than a corporation) or a
United
32
States corporation which beneficially owns less than 10% of our voting stock, a
withholding tax of 15% is imposed on the gross amount of the dividend or deemed
dividend paid. We will be required to withhold any such tax from the dividend
and remit the tax directly to CCRA for the account of the investor.
The reduction in withholding tax from 25%, pursuant to the Treaty, will not be
available:
(a) if the shares in respect of which the dividends are paid formed part
of the business property or were otherwise effectively connected with
a permanent establishment or fixed base that the holder has or had in
Canada within the 12 months preceding the disposition, or
(b) the holder is a U.S. LLC which is not subject to tax in the U.S.
The Treaty generally exempts from Canadian income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to an
organization exclusively administering a pension, retirement or employee benefit
fund or plan, if the organization is resident in the U.S. and is exempt from
income tax under the laws of the U.S.
Capital Gains
A non-resident holder is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of our share unless the share
represents "taxable Canadian property" to the holder thereof. Our Common shares
will be considered taxable Canadian property to a non-resident holder only if-.
(a) the non-resident holder;
(b) persons with whom the non-resident holder did not deal at arm's
length- or
(c) the non-resident holder and persons with whom he did not deal at arm's
length,
owned not less than 25% of our issued shares of any class or series at any time
during the five year period preceding the disposition. In the case of a
non-resident holder to whom our shares represent taxable Canadian property and
who is resident in the United States, no Canadian taxes will generally be
payable on a capital gain realized on such shares by reason of the Treaty
unless:
(a) the value of such shares is derived principally from real property
(including resource property) situated in Canada,
(b) the holder was resident in Canada for 120 months during any period of
20 consecutive years preceding, and at any time during the 10 years
immediately preceding, the disposition and the shares were owned by
him when he ceased to be a resident of Canada,
(c) they formed part of the business property or were otherwise
effectively connected with a permanent establishment or fixed base
that the holder has or bad in Canada within the 12 months preceding
the disposition, or
(d) the holder is a U.S. LLC which is not subject to tax in the U.S.
If subject to Canadian tax on such a disposition, the taxpayer's capital gain
(or capital loss) from a disposition is the amount by which the taxpayer's
proceeds of disposition exceed (or are exceeded by) the aggregate of the
taxpayer's adjusted cost base of the shares and reasonable expenses of
disposition. For Canadian income tax purposes, the "taxable capital gain" is
equal to one-half of the capital gain.
United States Federal Income Taxation
The following is a general discussion of the material United States Federal
income tax consequences, under current law, generally applicable to a U.S.
Holder (as defined below) of our common shares who holds such shares as capital
assets. This discussion does not address all potentially relevant United States
Federal income tax matters and it does not address consequences peculiar to
persons subject to special provisions of United States Federal income tax law,
such as those described below as excluded from the definition of a U.S. Holder.
In addition, this discussion does not cover any state, local, or foreign tax
consequences. (See "Canadian Federal Income
33
Tax Consequences" above.)
The following discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, published Internal Revenue Service
("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and adversely changed, possibly on a retroactive basis, at any time. In
addition, this discussion does not consider the potential effects, both adverse
and beneficial, of any proposed legislation which, if enacted, could be applied,
possibly on a retroactive basis, at any time.
The discussion below does not address potential United States Federal income tax
effects relevant to us or those United States Federal income tax considerations
that depend upon circumstances specific to each investor. In addition, this
discussion does not address United States Federal income tax consequences that
may be relevant to particular investors subject to special treatment under
certain U.S. Federal income tax laws, such as those described below as excluded
from the definition of a U.S. Holder. Purchasers of our common stock should
therefore satisfy themselves as to the overall tax consequences of their
ownership of the common stock, including the State, local and foreign tax
consequences thereof (which are not reviewed herein), and should consult their
own tax advisors with respect to their particular circumstances.
U.S. Holders
As used herein, a "U.S. Holder" means a beneficial holder of our common shares
who is a citizen or resident of the United States, a corporation or partnership
created or organized in or under the laws of the United States or of any
political subdivision thereof, an estate whose income is taxable in the United
States irrespective of source and any trust if a US court is able to exercise
primary supervision over the administration of the trust and one or more US
persons have the authority to control all substantial decisions of the trust. A
U.S. Holder does not include persons subject to special provisions of United
States Federal income tax law, such as tax-exempt organizations, individual
retirement accounts and other tax-deferred accounts, qualified retirement plans,
financial institutions, insurance companies, real estate investment trusts,
regulated investment companies, broker-dealers, shareholders subject to the
alternative minimum tax provisions of the Code, shareholders who hold our shares
as part of a straddle, hedging, conversion transaction, constructive sale or
other arrangement involving more than one position, and shareholders who
acquired their shares through the exercise of employee stock options or
otherwise as compensation. This summary does not address the consequences to a
person or entity holding an interest in a shareholder or the consequences to a
person of the ownership, exercise or disposition of any options, warrants or
other rights to acquire common shares.
Dividend Distribution on our Shares
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to our common shares are required to include in gross income for
United States Federal income tax purposes the gross amount of such distributions
to the extent that we have current or accumulated earnings and profits, without
reduction for any Canadian income tax withheld from such distributions. Such
Canadian tax withheld may be deducted or may be credited against actual tax
payable, subject to certain limitations and other complex rules, against the
U.S. Holder's United States Federal taxable income. See "Foreign Tax Credit"
below. To the extent that distributions exceed our current or accumulated
earnings and profits, they will be treated first as a return of capital to the
extent of the U.S. Holder's basis in our common shares and thereafter as gain
from the sale or exchange of our common shares. Preferential tax rates for net
long term capital gains may be applicable to a U.S. Holder which is an
individual, estate or trust. There are currently no preferential tax rates for
net long term capital gains of a U.S. Holder that is a corporation.
In general, dividends paid on our common shares will not be eligible for the
dividends received deduction provided to corporations receiving dividends from
certain United States corporations.
In the case of foreign currency received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt, a U.S. Holder will have
a tax basis in the foreign currency equal to its U.S. dollar value on the date
of receipt. Generally any gain or loss recognized upon a subsequent sale or
other disposition of the foreign currency, including the exchange for U.S.
dollars, will be ordinary income or loss. However, an individual whose realized
gain does not exceed $200 will not recognize that gain, to the extent that there
are no expenses associated with the transaction that meet the requirements for
deductibility as a trade or business expense (other than travel expenses in
connection with a business trip) or as an expense for the production of income.
Certain information reporting and backup withholding rules may apply with
respect to our common shares. In particular, a payor or middleman within the
U.S., or in certain cases outside the U.S., will be required to withhold 31%
(which rate is scheduled for periodic reduction on payments made subsequent to
August 6, 2001) of any payments to a holder of our common shares of dividends
on, or
34
proceeds from the sale of, such common shares within the U.S., unless the holder
is an exempt recipient, if the holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with, or establish an
exemption from, the backup withholding tax requirements. Any amounts withheld
under the U.S. backup withholding tax rules will be allowed as a refund or a
credit against the U.S. Holder's U.S. federal income tax liability, provided the
required information is furnished to the IRS. U.S. Holders are urged to consult
their own tax counsel regarding the information reporting the backup withholding
rules applicable to our common shares.
Foreign Tax Credit
A U.S. Holder who pays (or who has had withheld from distributions) Canadian
income tax with respect to the ownership of our common shares may be entitled,
at the election of the U.S. Holder, to either a deduction or a tax credit for
such foreign tax paid or withheld. This election is made on a year-by-year basis
and generally applies to all foreign income taxes paid by (or withheld from) the
U.S. Holder during that year. There are significant and complex limitations
which apply to the credit, among which is the general limitation that the credit
cannot exceed the proportionate share of the U.S. Holder's United States income
tax liability that the U.S. Holder's foreign source income bears to his or its
world-wide taxable income. In determining the application of this limitation,
the various items of income and deduction must be classified into foreign and
domestic sources and into various categories, such as "passive income", "high
withholding tax interest", "financial services income", "shipping income" and
certain other classifications of income. A U.S. Holder that is a domestic U.S.
corporation owning 10% or more of our voting stock is also entitled to a deemed
paid foreign tax credit in certain circumstances for our underlying foreign tax
related to dividends received or Subpart F income deemed received from us. (See
the discussion below of Controlled Foreign Corporations). The availability of
the foreign tax credit and the application of the limitations on the foreign tax
credit are fact specific and holders and prospective holders of our common
shares should consult their own tax advisors regarding their individual
circumstances.
Disposition of Common Shares
Gain or loss realized on a sale of our common shares by a U.S. Holder will
generally be a capital gain or loss, and will be long-term if the shareholder
has a holding period of more than one year. The amount of gain or loss
recognized by a selling U.S. Holder will be measured by the difference between
(i) the amount realized on the sale and (ii) his tax basis in our common shares.
Preferential tax rates for net long term capital gains may be applicable to a
U.S. Holder that is an individual, estate or trust. There are currently no
preferential tax rates for net long term capital gain for a U.S. Holder that is
a corporation. Capital losses are deductible only to the extent of capital
gains. However, in the case of taxpayers other than corporations (U.S.)$3,000
($1,500 for married individuals filing separately) of capital losses are
deductible against ordinary income annually. In the case of individuals and
other non-corporate taxpayers, capital losses that are not currently deductible
may be carried forward to other years. In the case of corporations, capital
losses that are not currently deductible are carried back to each of the three
years preceding the loss year and forward to each of the five years succeeding
the loss year.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting to a U.S.
Holder from the holding and disposition of our common shares. Management of
Pivotal is of the opinion that there is little, if any, likelihood of us being
deemed a "Foreign Personal Holding Company", a "Foreign Investment Company" or a
"Controlled Foreign Corporation" (each as defined below) under current and
anticipated conditions.
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of our outstanding shares is owned, actually or
constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% or more of our gross income for such year was "foreign
personal holding company income" (e.g., income from dividends, interest and
similar income), we would be treated as a "foreign personal holding company." In
that event, U.S. Holders that hold common shares would be required to include in
income for such year their allocable portion of our "foreign personal holding
company income" to the extent that we do not distribute such income.
Foreign Investment Company
If 50% or more of the combined voting power or total value of our outstanding
shares are held, actually or constructively, by citizens or residents of the
United States, United States domestic partnerships or corporations, or estates
or trusts other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), and we are found to be engaged primarily in the business of
investing,
35
reinvesting, or trading in securities, commodities, or any interest therein, it
is possible that we might be treated as a "foreign investment company" as
defined in Section 1246 of the Code, causing all or part of any gain realized by
a U.S. Holder selling or exchanging our common shares to be treated as ordinary
income rather than capital gains.
Passive Foreign Investment Company
As a foreign corporation with U.S. Holders, we could potentially be treated as a
passive foreign investment company ("PFIC"), as defined in Section 1297 of the
Code, depending upon the percentage of our income which is passive, or the
percentage of our assets which produce or are held for the production of passive
income. U.S. Holders owning common shares of a PFIC are subject to the highest
rate of tax on ordinary income in effect for the applicable taxable year and to
an interest charge based on the value of deferral of tax for the period during
which the common shares of the PFIC are owned with respect to certain "excess
distributions" on and dispositions of PFIC stock. However, if the U.S. Holder
makes a timely election to treat a PFIC as a qualified electing fund ("QEF")
with respect to such shareholder's interest therein, the above-described rules
generally will not apply. Instead, the electing U.S. Holder would include
annually in his gross income his pro rata share of the PFIC's ordinary earnings
and net capital gain regardless of whether such income or gain was actually
distributed. A U.S. Holder of a QEF can, however, elect to defer the payment of
United States federal income tax on such income inclusions. Special rules apply
to U.S. Holders who own their interests in a PFIC through intermediate entities
or persons. In addition, subject to certain limitations, U.S. Holders owning,
actually or constructively, marketable (as specifically defined) stock in a PFIC
will be permitted to elect to mark that stock to market annually, rather than be
subject to the excess distribution regime of section 1291 described above.
Amounts included in or deducted from income under this alternative (and actual
gains and losses realized upon disposition, subject to certain limitations) will
be treated as ordinary gains or losses. This alternative will apply to taxable
years of U.S. Holders beginning after 1997 and taxable years of foreign
corporations ending with or within such taxable years of U.S. Holders.
We believe that we were not a PFIC for our fiscal year ended June 30, 2001.
There can be no assurance that our determination concerning our PFIC status will
not be challenged by the IRS, or that we will be able to satisfy record keeping
requirements which will be imposed on QEFs in the event that we qualify as a
PFIC.
Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value
of our stock is owned, directly or indirectly, by citizens or residents of the
United States, United States domestic partnerships or corporations, or estates
or trusts other than foreign estates or trusts (as defined by the Code Section
7701(a)(31)), each of which own, directly or indirectly, 10% or more of our
total combined voting power, we would be treated as a "controlled foreign
corporation" or "CFC" under Subpart F of the Code. This classification would
bring into effect many complex results including the required inclusion by such
10% U.S. Holders in income of their pro rata shares of our "Subpart F income"
(as defined by the Code) and our earnings invested in "U.S. property" (as
defined by Section 956 of the Code). In addition, under Section 1248 of the
Code, if we are considered a CFC at any time during the five year period ending
with the sale or exchange of our stock, gain from the sale or exchange of our
common shares by such a 10% U.S. Holder at any time during the five year period
ending with the sale or exchange is treated as ordinary dividend income to the
extent of our earnings and profits attributable to the stock sold or exchanged.
Because of the complexity of Subpart F, and because we may never be a CFC, a
more detailed review of these rules is beyond of the scope of this discussion.
If we are both a PFIC and a CFC, we generally will not be treated as a PFIC with
respect to any 10% U.S. Holders as described above. This rule generally will be
effective for taxable years of 10% U.S. Holders beginning after 1997 and for our
taxable years ending with or within such taxable years of such 10% U.S. Holders.
Special rules apply to 10% U.S. Holders who are subject to the special PFIC
taxation rules discussed above. Because of the complexity of Subpart F, a more
detailed review of these rules is outside of the scope of this discussion.
ALL PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF PURCHASING OUR COMMON SHARES.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report. The consolidated statement of
operations data for each of the three years ended June 30, 2001, 2000 and 1999
and the
36
consolidated balance sheet data as of June 30, 2001 and 2000 are derived from
audited financial statements included elsewhere in this report. The consolidated
statement of operations data for the years ended June 30, 1998 and 1997 and the
consolidated balance sheet data as of June 30, 1999, 1998 and 1997 are derived
from audited consolidated financial statements not included in this report.
YEAR ENDED JUNE 30,
------------------------------------------------------------------
2001 2000(1) 1999 1998 1997
--------- ---------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
REVENUES:
Licenses $ 58,510 $ 37,384 $ 18,819 $ 11,311 $ 2,916
Services and maintenance 36,780 15,555 6,508 2,898 590
-------- -------- -------- -------- -------
Total revenues 95,290 52,939 25,327 14,209 3,506
-------- -------- -------- -------- -------
COST OF REVENUES:
Licenses 3,800 2,141 536 401 121
Services and maintenance 20,166 8,147 3,078 1,281 387
-------- -------- -------- -------- -------
Total cost of revenues 23,966 10,288 3,614 1,682 508
-------- -------- -------- -------- -------
Gross profit 71,324 42,651 21,713 12,527 2,998
OPERATING EXPENSES:
Sales and marketing 51,230 31,165 16,830 9,226 2,646
Research and development 18,750 8,906 4,958 1,910 1,163
General and administrative 13,567 4,190 2,466 1,513 725
Amortization of goodwill 23,062 1,409 -- -- --
In-process research and development and -- 6,979 -- -- --
other charges -------- -------- -------- -------- -------
Total operating expenses 106,609 52,649 24,254 12,649 4,534
-------- -------- -------- -------- -------
37
YEAR ENDED JUNE 30,
-------------------------------------------------------------------------
2001 2000(1) 1999 1998 1997
----------- ---------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Loss from operations (35,285) (9,998) (2,541) (122) (1,536)
Interest and other income (loss) 3,333 2,193 (24) 136 142
---------- --------- --------- -------- ---------
Income (loss) before income taxes (31,952) (7,805) (2,565) 14 (1,394)
Income taxes 503 557 243 10 --
---------- --------- -------- -------- ---------
Net income (loss) for the period $(32,455) $ (8,362) $ (2,808) $ 4 $(1,394)
========== ========= ========= ========= =========
Basic and diluted earnings (loss) per share $ (1.40) $ (0.45) $ (0.72) $ -- $ (0.41)
Pro forma basic and diluted loss per share(2) $ (0.39) $ (0.18) -- --
Shares used to calculate earnings (loss) per share
Basic 23,173 18,643 3,888 3,720 3,393
Diluted 23,173 18,643 3,888 14,927 3,393
Pro forma basic and diluted loss per share(2) 21,339 15,940
AS OF JUNE 30,
-----------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- ------- ------- ------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents $ 13,247 $ 4,734 $ 9,338 $ 1,202 $ 3,898
Working capital 58,366 28,297 7,257 3,317 4,417
Total assets 168,443 121,945 21,722 10,752 6,729
Long-term obligations 592 -- -- -- --
Redeemable convertible preferred shares -- -- 17,500 9,500 9,500
Total shareholders' equity (deficit) 128,201 96,097 (7,192) (4,455) (4,533)
NOTES:
(1) Results for the year ended June 30, 2000 include a charge for in
process research and development and other charges related to the
acquisition of Exactium and Simba. See note 2 to consolidated
financial statements.
(2) See note 1 of notes to consolidated financial statements for an
explanation of the method used to calculate basic and diluted per
share amounts. The 2000 and 1999 amounts are calculated on a pro forma
basis.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Pivotal Corporation, incorporated in 1990 British Columbia, Canada, enables
large and medium-sized businesses worldwide to increase, acquire and manage
their customers by providing customer relationship management and electronic
business solutions. Customer Relationship management and electronic business
solutions automate and manage marketing, selling and servicing processes over
the Internet and through traditional channels by integrating customer
relationship management, electronic selling, electronic commerce and wireless
technologies. We refer to our customer relationship management and electronic
solutions as the Pivotal Customer Relationship Management and eBusiness solution
suite. The Pivotal Customer Relationship Management and eBusiness solution suite
is designed to complement and integrate with a business' supply chain, therefore
enabling businesses to improve efficiency and increase revenues.
Our solutions are sold in 35 countries and are available in English, French,
German and Spanish from Pivotal directly and Portuguese, Swedish, Japanese,
Chinese and Hebrew from members of our Pivotal Alliance. Our worldwide customer
base includes more than
38
1,300 organizations in traditional, commercial, public market sectors and in the
new digital economy and includes companies such as ABN AMRO Securities LLC,
American Medical Security Group Inc., Atlas Copco Airpower N.V., Belgacom
France, Bombardier Aerospace, CIBC World Markets, Commonfund, Compuware
Corporation Japan, Deloitte & Touche, Emerson Electric, Ericsson, Farm Credit
Services of America, FLAG Telecom, Grantham, Mayo, Van Otterloo & Company
L.L.C., Haldex Services Corporation, Heller Financial, Hitachi Telecom (USA)
Inc., Intrawest Corporation, Kikkoman Corporation, KPMG, Miller Heiman, Inc.,
National Air Traffic Services, London, National City Bank of Minneapolis, NEC,
Nissan Motor (Denmark), Novozymes North America, Inc., Panasonic SA, Principal
Financial Group, Qiagen, RBC Dain Rauscher Wessels, Southern Company, Toshiba
Information Systems Corporation, USFilter, and 1201 Financial & Insurance
Services, Inc. We market and sell our solutions through a direct sales force as
well as through third-party solution providers.
RECENT ACQUISITIONS
During the year ended June 30, 2001, we completed acquisitions including those
described below which were accounted for under the purchase method of
accounting. Accordingly, the results of operations of each acquisition are
included in our consolidated statement of operations since the acquisition date,
and the related assets and liabilities were recorded based upon their respective
fair values at the date of acquisition. Pro forma results of operations have not
been presented because the effects of these acquisitions were not material on
either an individual or an aggregate basis.
Ionysys Technology Corporation
On October 16, 2000, we acquired all of the assets of Ionysys Technology
Corporation, a privately held provider of Internet solutions based in Vancouver,
British Columbia. We paid an aggregate cash purchase price of $1.0 million
including acquisition related expenditures of $360,000.
Project One Business Technologies Inc.
On October 31, 2000, we acquired all of the shares of Project One Business
Technologies Inc., a privately held provider of Internet solutions specifically
designed for the health care industry based in North Vancouver, British
Columbia. We paid an aggregate purchase price of $1.4 million consisting of
19,000 common shares and cash of $460,000, which includes acquisition related
expenditures of $380,000.
The agreement for the acquisition of Project One also provided for additional
consideration of approximately 96,000 common shares to be paid based on
achieving specified product development and operating targets over the next 3
years. All earn-out payments will be recorded as additional purchase price when
determinable. There were no earn-out payments required to be made in connection
with the acquisition of Project One since acquisition to the period ended June
30, 2001.
Software Spectrum CRM, Inc.
On December 5, 2000, we acquired all of the shares of Software Spectrum CRM,
Inc. Software Spectrum, based in Dallas, Texas, delivers solutions and
consulting expertise in multi-channel contact centers, demand chain network
management and customer relationship management. We paid an aggregate purchase
price of $7.5 million consisting of 138,000 common shares and cash of $1.9
million, which includes acquisition related expenditures of $1.2 million.
Inform, Inc.
On June 22, 2001, we acquired all of the shares of Inform Inc. a company located
in Toronto, Canada, which specializes in implementation services for the
financial services industry. We paid an aggregate purchase price of $1.3 million
consisting of 45,446 common shares and cash of $359,000, including acquisition
related expenditures of $266,000.
The total consideration, including acquisition costs, was allocated based on
estimated fair values on the acquisition date as follows:
39
Project Software
(all amounts in thousands) Ionysys One Spectrum Inform Other Total
----------- ----------- ------------ -------------------- -----------
Consideration (inclusive of cash
received of $372)
Cash $1,014 $460 $1,925 $359 $2,296 $6,054
Fair value of common shares
issued - 904 5,549 951 - 7,404
----------- ----------- ------------ -------------------- -----------
$1,014 $1,364 $7,474 $1,310 $2,296 $13,458
=========== =========== ============ ==================== ===========
See note 2 of the Consolidated Financial Statements for additional details
related to these acquisitions.
SOURCE OF REVENUE AND REVENUE RECOGNITION POLICY
We derive our revenues from the sale of licenses and services and maintenance to
end-users, value added resellers and application service providers and, to a
lesser extent, through distribution of third party products. We recognize
license revenues on delivery to the customer of our solutions if:
- there is persuasive evidence of an arrangement;
- the fee is fixed or determinable;
- there is vendor-specific objective evidence supporting allocating the
total fee among all elements of a multiple-element arrangement; and
- the collection of the license fee is probable.
Multiple-element arrangements could consist of software licenses, upgrades,
enhancements, maintenance and consulting services. Under some license
arrangements, with either a fixed or indefinite term, our customers agree to pay
for the license with periodic payments extending beyond one year. We recognize
revenues from these arrangements as the periodic payments become due, provided
all other conditions for revenue recognition are met.
We enter into reseller and sub-licensing arrangements that provide a fee payable
to us based on a percentage of list price. We recognize revenue only on the fees
payable to us, net of any amount payable to the reseller by the customer.
We typically sell first year maintenance with the related software license.
Revenue related to maintenance is recognized over the term of the maintenance
contract, typically one year. Revenues relating to technical support and
maintenance have increased due to our increasing customer base and the renewal
of technical support and maintenance contracts upon expiration of first year
maintenance arrangements.
We recognize revenues from consulting, implementation services, and education as
these services are performed. We derive revenue from these services primarily on
a time-and-materials basis under a separate service arrangement with the
customer. The majority of the implementation services provided to our customers
in connection with installations of our solutions are provided by third-party
consulting and implementation service providers. These third-party service
providers contract directly with the customer.
Our cost of license revenues primarily consists of costs related to media, the
packaging and distribution of solutions, the related documentation and other
production costs and royalty fees due to third parties for integrated
technology. Our cost of services revenues includes salaries and related expenses
for our implementation, consulting support and education organizations and an
allocation of facilities, communications and depreciation expenses. Our
operating expenses are classified into three general categories: sales and
marketing, research and development and general and administrative. We classify
all charges to these operating expense categories based on the nature of the
expenditures. We allocate the costs for overhead and facilities to each of the
functional areas based on their headcount. Our customers include a number of our
suppliers. On occasion, we have purchased goods or services for our operations
from these vendors at or about the same time we have licensed our software to
these organizations. These transactions are negotiated separately and recorded
at terms we consider to be arms-length.
40
Software development costs incurred prior to the establishment of technological
feasibility are included in research and development costs as incurred. Since
license revenues from our solutions are not recognized until after technological
feasibility has been established, software development costs are not generally
expensed in the same period in which license revenues for the developed
solutions are recognized.
RESULTS OF OPERATIONS
The following table sets forth the consolidated statement of operations data for
each of the years in the three years ended June 30, 2001 expressed as a
percentage of total revenues:
Year ended June 30,
--------------------------------------------------------------------------------------------
2001 2000 1999
--------------------------------------------------------------------------------------------
REVENUES:
Licenses 61% 71% 74%
Services and maintenance 39% 29% 26%
--------------------------------------------------------------------------------------------
Total revenues 100% 100% 100%
--------------------------------------------------------------------------------------------
COST OF REVENUES:
Licenses 4% 4% 2%
Services and maintenance 21% 15% 12%
--------------------------------------------------------------------------------------------
Total cost of revenues 25% 19% 14%
--------------------------------------------------------------------------------------------
Gross profit 75% 81% 86%
--------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 54% 59% 66%
Research and development 20% 17% 20%
General and administrative 14% 8% 10%
Amortization of goodwill 24% 3% -
In-process research and development and other charges - 13% -
--------------------------------------------------------------------------------------------
Total operating expenses 112% 100% 96%
--------------------------------------------------------------------------------------------
Loss from operations (37%) (19%) (10%)
Interest and other income 4% 4% -
--------------------------------------------------------------------------------------------
Loss before income taxes (33%) (15%) (10%)
Income taxes 1% 1% 1%
--------------------------------------------------------------------------------------------
Net loss (34%) (16%) (11%)
============================================================================================
YEARS ENDED JUNE 30, 2001 AND 2000
REVENUES
Total revenues increased 80% to $95.3 million for the year ended June 30, 2001
from $52.9 million for the year ended June 30, 2000.
Licenses
Revenues from licenses increased 57% to $58.5 million for the year ended June
30, 2001 from $37.4 million for the year ended June 30, 2000.
Our revenues from licenses increased due to sale of licenses to new customers
and to follow-on sales to existing customers. These increases were attributable
to increased market acceptance of our solutions and increased sales as a result
of our expansion of our direct and indirect channels of distribution both in
North America and internationally. In addition, we believe that the availability
of new features added to the Pivotal Customer Relationship Management and
eBusiness solution suite has increased revenues as this has
41
extended the overall functionality of our solutions by permitting organizations
to collaborate with customers and partners over the Internet. In recent months,
the buying patterns of our potential customers were different than prior
quarters due to economic downturn in North America. This weakening of the North
American economy has resulted in longer sales cycles making it difficult to
predict when sales of licenseswill close.
Revenues from licenses represented 61% and 71% of total revenues for the years
ended June 30, 2001 and 2000, respectively. License revenues decreased as a
percentage of total revenues primarily due to growth in our professional
services business to meet the demand for implementation of our products. North
American license revenues accounted for 67% and 72% of total license revenues in
the years ended June 30, 2001 and 2000, respectively. International license
revenues increased as a percentage of total revenues as demand for our products
increased as we expanded our European and other international operations
combined with a weakening U.S. economy. No single customer accounted for 10% or
more of our revenues for the years ended June 30, 2001 and 2000.
Our license revenue growth depends on the overall demand for customer
relationship management solutions and electronic business solutions. The overall
demand for our software depends in large part on the general economic and
business conditions. Due primarily to the general weakening of the U.S. economy
in the first half of calendar 2001, we experienced a decrease in the
year-on-year growth rate of our software license revenues in the fourth quarter
of 2001. Software license revenues as a percentage of total revenues decreased
from 64% in the three month ended December 31, 2000 to 62% in the third quarter
ended March 31, 2001 and to 54% in the fourth quarter ended June 30, 2001.
Software license revenues decreased as a percentage of total revenues primarily
due to a slower growth rate of our software license revenues, which we believe
was due primarily as a result of the weakening U.S. economy and the growth of
our professional servicesdue to an increase in the number of technical support
and maintenance contracts we obtained as our customer base grew.
Revenues are difficult to forecast and will be significantly influenced by the
overall global economy and corporate spending trends.
Services and Maintenance
Revenues from services and maintenance increased 136% to $36.8 million for the
year ended June 30, 2001 from $15.6 million for the year ended June 30, 2000.
This resulted from an increase of $9.9 million in revenues from technical
support and maintenance contracts, which entitles the customer to new versions
of the product and to technical support and maintenance services and an increase
of $11.3 million in revenues from implementation, education and consulting
service engagements.
Our revenues from services and maintenance represented 39% and 29% of total
revenues for the years ended June 30, 2001 and 2000, respectively. We believe
that revenues from services and maintenance will continue to increase as a
percentage of total revenues, due to an increase in the number of technical
support and maintenance contracts we expect to obtain as our customer base
grows. We intend to expand consulting services targeted at helping customers
understand more about matters such as effective one-to-one marketing and using
the Internet to increase revenues and improve customer service. We plan to
continue relying on third parties to provide a majority of implementation
services to our customers, rather than providing those services directly.
COST OF REVENUES
Total cost of revenues increased 133% to $24.0 million for the year ended June
30, 2001 from $10.3 million for the year ended June 30, 2000.
Licenses
Cost of revenues from licenses consists of costs relating to the packaging and
distribution of solutions, related documentation and other production costs and
royalty fees paid for incorporation of third-party solutions into our solutions.
Cost of revenues from licenses increased 77% to $3.8 million for the year ended
June 30, 2001 from $2.1 million for the year ended June 30, 2000. The increase
is due primarily to increased costs for third-party technology integrated with
our solutions. Cost of revenues from licenses as a percentage of revenues from
licenses was 6% for each of the years ended June 30, 2001 and 2000. We expect
that the cost of licenses as a percentage of revenue from licenses will remain
approximately the same for fiscal 2002.
Services and Maintenance
Cost of revenues from services and maintenance consists of personnel and other
expenses relating to the cost of providing maintenance and customer support,
education and consulting services. Cost of revenues from services and
maintenance will vary
42
depending on the mix of services we provide between support and maintenance,
education, implementation and consulting services. Gross profit margins are
higher for support and maintenance services than they are for education and
consulting services. Support and maintenance services involve the delivery of
software upgrades, which the customers download and install themselves and
customer support. Education and consulting services generally require more
involvement by our employees, resulting in higher compensation, travel and
similar expenses.
Cost of revenues from services and maintenance increased 148% to $20.2 million
for the year ended June 30, 2001 from $8.1 million for the year ended June 30,
2000. The increase in dollar amount resulted from the hiring of consulting,
customer support and education personnel to support our growing customer base.
Cost of revenues from services and maintenance as a percentage of revenues from
services and maintenance was 55% and 52% for the years ended June 30, 2001 and
2000, respectively.
We expect that cost of revenues from services and maintenance will be comparable
to the fourth quarter of fiscal 2001 as a percent of revenues from services and
maintenance as we expand our service capabilities in international markets to
support planned expansion of our international business and as we expand our
consulting services.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions, bonuses
and benefits earned by sales and marketing personnel, direct expenditures such
as travel, communication and occupancy for direct sales offices and marketing
expenditures related to direct mail, online marketing, trade shows, advertising
and promotion.
Sales and marketing expenses increased 64% to $51.2 million for the year ended
June 30, 2001 from $31.2 million for the year ended June 30, 2000. The increase
in dollar amounts reflects the expansion of our international sales capacity,
which required an increase in the number of sales and marketing professionals.
Sales and marketing expenses decreased as a percentage of total revenues to 54%
in the year ended June 30, 2001 from 59% in the year ended June 30, 2000. This
decrease of sales and marketing expenses as a percentage of total revenues
resulted from the improved productivity of our sales and marketing personnel and
programs.
During the fourth quarter ended June 30, 2001, we increased program spending
which caused sales and marketing costs to increase as a percentage of revenue.
These costs are expected to remain at approximately the same levels in the first
quarter of fiscal 2002. We will continue to examine the level of sales and
marketing costs based on our revenue projections.
Research and Development
Research and development expenses include costs associated with new products,
enhancements of existing products and quality assurance activities and consist
primarily of salaries, benefits and equipment for software engineers, quality
assurance personnel, program managers, product managers, technical writers and
outside contractors used to augment the research and development efforts.
Research and development expenses increased 111% to $18.8 million for the year
ended June 30, 2001 from $8.9 million for the year ended June 30, 2000. The
increase was due to the increase in the number of research and development
employees. Research and development expenses were 20% and 17% of total revenues
for the years ended June 30, 2001 and 2000, respectively. We expect to continue
to keep research and development expenditures as the same percentage of revenues
as we expand the Demand Chain Management solution suite.
General and Administrative
General and administrative expenses consist primarily of salaries and occupancy
costs for executive, finance, administrative, human resources and information
services personnel. General and administrative expenses also include legal and
other professional fees and bad debt expense.
General and administrative expenses increased 224% to $13.6 million for the year
ended June 30, 2001 from $4.2 million for the year ended June 30, 2000. General
and administrative expenses were 14% and 8% of total revenues, respectively, for
the same periods. The increase of $9.4 million in general and administrative
expenses included $3.6 million of additional charges which related to the
impairment of long-lived assets and an additional provision for doubtful
accounts. The remaining $5.8 million increase in the general and administrative
expenses during the year ended June 30, 2001 relates to the hiring of additional
personnel and the implementation of internal financial and administrative
systems.
The impairment of long-lived assets of $1.4 million relates to assets which we
will no longer be using as we are currently re-configuring our business systems.
The total bad debt expense was $3.6 million for the year ended June 30, 2001
which included an additional provision for doubtful accounts of $1.7 million
during the fourth quarter ended June 30, 2001. This additional provision
43
was made because we are experiencing delay in payments from certain customers
due to a weakening in the North American economy.
Over the next year we expect general and administrative expenses to remain at
approximately the same level as the fourth quarter ended June 30, 2001.
Amortization of Goodwill
Amortization of goodwill was $23.1 million in the year ended June 30, 2001. This
amount is comprised of a full year of amortization and a partial year of
amortization for additions to goodwill for acquisitions which totaled$15.1
million and $58.1 million for fiscal 2001 and 2000 respectively. Included in
goodwill is $239,000 in additional consideration paid based on the net after-tax
earnings of Transitif and license revenues received by Transitif from sale of
licenses for our products. We are amortizing goodwill from these acquisitions
over a period of three years. Amortization of goodwill totaling $1.4 million in
the year ended June 30, 2000, related to goodwill of arising from the
acquisitions of Transitif and Exactium.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS
No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination and SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination whether acquired individually or with a group of other assets. These
standards require all future business combinations to be accounted for using the
purchase method of accounting. Goodwill will no longer be amortized but instead
will be subject to impairment tests at least annually. We are required to adopt
SFAS No. 141 and 142 on a prospective basis as of July 1, 2002, but are
permitted to adopt in the first quarter of fiscal 2002. We are currently
evaluating the impact the adoption of these pronouncements may have on our
financial position and results of operations; however, due to these
pronouncements being issued in late July 2001 and due to our expectation that
the FASB will issue further guidance with respect to the adoption of both SFAS
No. 141 and 142, we are currently unable to determine the impact the adoption of
these pronouncements may have on our financial position or results of
operations. Although we cannot determine the impact the adoption of SFAS 141 and
SFAS 142 will have on our operating results, once adopted there could be a
material impact on future operating results if there was an impairment in the
value of goodwill.
Pursuant to the foregoing, we estimate amortization of goodwill to be $27.4
million from existing acquisitions for the year ended June 30, 2002 if we do not
adopt SFAS No. 141 and 142 effective in the first quarter of fiscal 2002. As we
are subject to an annual goodwill valuation test on each balance sheet date, the
charge to the Consolidated Statement of Operations could be higher if there were
an impairment in the value of goodwill. If we choose to adopt SFAS 141 and 142
during the first quarter of fiscal 2002 SFAS No. 141 and SFAS No. 142 and
further FASB guidance, we may not be required to continue amortizing past
acquisitions. This determination has not been made at this time.
INTEREST AND OTHER INCOME (LOSS)
Interest and other income consists of earnings on cash and cash equivalents and
short term investments net of interest expense and foreign exchange gains and
losses. Interest and other income was $3.3 million and $2.2 million for the
years ended June 30, 2001 and 2000, respectively. The increase of $1.1 million
during the year ended June 30, 2001 was due primarily to our higher cash and
cash equivalents and short-term investments. This was a result of the equity
financing completed in November 2000, which generated $51.8 million net of
expenses and brokers commissions. Interest and other income for the year ended
June 30, 2001 included foreign exchange gains of $65,000 compared to losses of
$168,000 for the year ended June 30, 2000. The other components of interest and
other income were not material for the periods presented.
INCOME TAXES
The provision for income taxes was $503,000 and $557,000 for the years ended
June 30, 2001 and 2000, respectively. These income tax amounts were attributable
to our operations in the United States, the United Kingdom and France and were
offset by $470,000 and $127,000 related to Canadian research and development tax
incentives received during the years ended June 30, 2001 and 2000 respectively.
44
YEARS ENDED JUNE 30, 2000 AND 1999.
REVENUES
Total revenues increased 109% to $52.9 million for the year ended June 30, 2000
from $25.3 million for the year ended June 30, 1999.
Licenses
Revenues from licenses increased 99% to $37.4 million for the year ended June
30, 2000 from $18.8 million for the year ended June 30, 1999.
Our revenues from licenses increased due to sales to new customers and follow-on
sales to existing customers. These increases were attributable to increased
market acceptance of our solutions, increased sales as a result of our expansion
of our direct and indirect channels of distribution and our marketing
organization. We believe that the availability of our Pivotal eRelationship 2000
product suite and Pivotal eSelling 2000 product contributed to the increase in
revenue from licenses, as they extended the overall functionality of our
solutions by permitting organizations to collaborate with customers and partners
over the Internet.
Revenues from licenses represented 71% and 74% of total revenues for the years
ended June 30, 2000 and 1999, respectively. No single customer accounted for 10%
or more of our revenues for the years ended June 30, 2000 and 1999. North
American license revenues accounted for 72% and 80% of total license revenues in
the years ended June 30, 2000 and 1999, respectively.
Services and Maintenance
Revenues from services and maintenance increased 139% to $15.6 million for the
year ended June 30, 2000 from $6.5 million for the year ended June 30, 1999.
This resulted from an increase of $4.6 million in revenues from technical
support and maintenance contracts, which entitles the customer to new versions
of the product and to technical support and maintenance services and an increase
of $4.5 million in revenues from implementation, education and consulting
service engagements. Our revenues from services and maintenance represented 29%
and 26% of total revenues for the years ended June 30, 2000 and 1999,
respectively.
COST OF REVENUES
Total cost of revenues increased 185% to $10.3 million for the year ended June
30, 2000 from $3.6 million for the year ended June 30, 1999.
Licenses
Cost of revenues from licenses increased to $2.1 million for the year ended June
30, 2000 from $536,000 for the year ended June 30, 1999. The increase is due
primarily to increased costs for third-party technology integrated with our
solutions. Cost of revenues from licenses as a percentage of revenues from
licenses was 6% and 3% for the years ended June 30, 2000 and 1999, respectively.
Services and Maintenance
Cost of revenues from services and maintenance increased 165% to $8.1 million
for the year ended June 30, 2000 from $3.1 million for the year ended June 30,
1999. The increase in dollar amount resulted from the hiring of consulting,
customer support and educating personnel to support our growing customer base.
Cost of revenues from services and maintenance as a percentage of revenues from
services and maintenance was 52% and 47% for the years ended June 30, 2000 and
1999, respectively.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses increased 85% to $31.2 million for the year ended
June 30, 2000 from $16.8 million for the year ended June 30, 1999. The increase
in dollar amounts reflects the expansion of our international sales capability
which required an increase in the number of sales and marketing professionals.
Sales and marketing expenses decreased as a percentage of total revenues to 59%
in the year ended June 30, 2000 from 66% in the year ended June 30, 1999. This
decrease of sales and marketing expenses as a percentage of total revenues
resulted from the improved productivity of our sales and marketing personnel and
programs.
Research and Development
Research and development expenses increased 80% to $8.9 million for the year
ended June 30, 2000 from $5.0 million for the year ended June 30, 1999. The
increase was due to the increase in the number of research and development
employees as we expanded our Customer Relationship Management and eBusiness
solution suite. Research and development expenses were 17% and 20% of total
revenues for the years ended June 30, 2000 and 1999, respectively. This decrease
in the percentage of research and development
45
expenditures compared to total revenues resulted from the higher growth rate of
revenues in the year ended June 30, 2000 compared to the growth rate of research
and development expenditures.
General and Administrative
General and administrative expenses increased 70% to $4.2 million for the year
ended June 30, 2000 from $2.5 million for the year ended June 30, 1999. General
and administrative expenses were 8% and 10% of total revenues, respectively, for
the same periods. The increase in general and administrative expenses was due to
hiring additional personnel and the implementation of internal financial and
administrative systems.
In-Process Research and Development and Other Charges
During the year ended June 30, 2000, we recorded in-process research and
development charges of $4.7 million related to the acquisitions of Exactium and
Simba. These amounts were expensed as the underlying projects had not reached
technical feasibility, had no alternative future uses and successful development
was uncertain. We also recorded a write-down of $2.3 million of our other assets
which were made redundant as a result of the acquisitions of Exactium and Simba.
Exactium Ltd.
On June 2, 2000, we completed the purchase of Exactium and recorded a charge to
income of $2.8 million, or $0.15 per share, for in-process research and
development.
Purchased in-process research and development was related to the completion of
Exactium's electronic selling technology and its integration into our solutions.
At the time of acquisition, a prototype of Exactium's product existed and was
being used in limited trials. This prototype was not stable or sufficiently
developed to be scaleable on an enterprise-wide basis. We estimated that
Exactium's product was approximately 80% complete as of the acquisition date.
There was a considerable amount of uncertainty related to increasing the
product's scalability for deployment on an enterprise-wide basis, improving the
stability of the application and identifying and fixing bugs. In the opinion of
management, the acquired in-process research and development had not yet reached
technological feasibility and had no alternative future uses. Accordingly, we
recorded a charge of $2.8 million in the fourth quarter of fiscal year 2000
related to the acquired in-process research and development.
Our valuation of in-process research and development was based upon the
forecasted operating cash flows from the technology acquired, giving effect to
the stage of completion at the acquisition date. These forecasted cash flows
were then discounted at a rate commensurate with the risk involved in completing
the acquired in-process technology. The forecasted cash flows assumed inclusion
of the product developed from acquired technology into our existing product
suite. The purchased in-process research and development expense related to
completion of Exactium's eSelling 2000 product. This product was completed in
late June 2000. We estimated that revenues related to the sale of solutions
incorporating Exactium's technology would commence in the year ending June 30,
2001 and would increase thereafter. Revenue increases were based upon the
historical growth rate of software sales for the customer relationship
management and electronic business market.
The estimated operating costs as a percentage of estimated revenue were based
upon our normal operating margin. Operating cash flows were reduced by an
expected effective tax rate of 40%. Net cash flows were discounted to their
present value at the acquisition date using an appropriate after-tax
risk-adjusted discount rate reflecting the risk of unproven but partially
developed software products.
The Exactium technology was subsequently completed and the eSelling product was
released in late June 2000.
Simba Technologies Inc.
On June 26, 2000, we completed the purchase of Simba. We recorded a charge to
income of $1.9 million for in-process research and development or $0.10 per
share.
At the time of the acquisition, Simba did not have a first-generation product.
There were a considerable number of uncertainties as to completion of the
product. In the opinion of management, the acquired in-process research and
development had not yet reached technological feasibility and had no alternative
future uses. Accordingly, we recorded a charge of $1.9 million in the fourth
quarter of fiscal 2000 related to the acquired in-process research and
development.
Our valuation of the acquired research and development was based upon the
present value of forecasted operating cash flows from the technology acquired,
giving effect to the stage of completion at the acquisition date. These
forecasted cash flows were then discounted at a rate commensurate with the risk
involved in completing the acquired technology. The forecasted cash flows
assumed inclusion of the product developed from acquired technology into our
existing product suite.
46
Our valuation of acquired research and development was prepared using the income
approach and contemplated that sales of solutions incorporating Simba's
technology would commence in late 2000 and increase thereafter. Revenue
increases were based upon our historical growth rate and that of software sales
for the electronic marketing market. Operating costs as a percentage of revenue
were estimated based upon our normal operating margin. Operating cash flows were
reduced by an expected effective tax rate of 40%. Net cash flows were discounted
to their present value at the acquisition date using an appropriate after-tax
risk-adjusted discount rate reflecting the risk of unproven but partially
developed solutions.
To date, progress and development costs incurred on the Simba technology has
been in line with our initial expectations.
Failure to achieve the expected levels of revenues and net income from the
Exactium and Simba products will negatively impact the return on investment
expected at the time the acquisitions were completed and may potentially result
in impairment of other assets related to the acquisitions.
Amortization of Goodwill
Amortization of goodwill was $1.4 million in the year ended June 30, 2000
related to goodwill arising from the acquisitions of Transitif and Exactium.
There was no amortization of goodwill in the year ended June 30, 1999.
INTEREST AND OTHER INCOME (LOSS)
Interest and other income (loss) increased to income of $2.2 million for the
year ended June 30, 2000 from a loss of $24,000 for the year ended June 30,
1999. These increases are primarily due to interest earned from cash, cash
equivalents and short-term investments generated by our initial public offering.
Interest and other income for the year ended June 30, 2000 included foreign
exchange losses of $168,000 compared to losses of $191,000 for the year ended
June 30, 1999. The other components of interest and other income were not
material for the periods presented.
INCOME TAXES
Income taxes increased to $557,000 for the year ended June 30, 2000 from
$243,000 for the year ended June 30, 1999. These taxes related to the United
States and the United Kingdom. As a result of net operating losses and the
availability of loss carry forwards in Canada, we have not incurred significant
Canadian income taxes.
QUARTERLY RESULTS OF OPERATIONS
The following tables present our unaudited quarterly results of operations both
in absolute dollars and on percentage of revenue basis for each of our last
eight quarters. This data has been derived from unaudited consolidated financial
statements that have been prepared on the same basis as the annual audited
consolidated financial statements and, in our opinion, include all normal
recurring adjustments necessary for the fair presentation of such information.
These unaudited quarterly results should be read in conjunction with our
consolidated financial statements.
Three months ended
---------------------------------------------------------------------------------------------------------------------------
(all amounts in thousands) Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1999 1999 2000 2000 2000 2000 2001 2001
----------------------------------------------------------------------------------------------------------------------------
REVENUES:
Licenses $6,097 $ 8,026 $ 10,125 $ 13,136 $13,768 $ 16,346 $ 16,368 $ 12,028
Services and maintenance 2,578 3,516 4,412 5,049 7,290 9,385 10,026 10,079
----------------------------------------------------------------------------------------------------------------------------
Total revenues 8,675 11,542 14,537 18,185 21,058 25,731 26,394 22,107
----------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
Licenses 284 410 635 812 866 979 1,009 946
47
Services and maintenance 1,368 1,813 2,295 2,671 3,870 4,979 5,346 5,971
----------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 1,652 2,223 2,930 3,483 4,736 5,958 6,355 6,917
----------------------------------------------------------------------------------------------------------------------------
Gross profit 7,023 9,319 11,607 14,702 16,322 19,773 20,039 15,190
----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 5,715 6,917 8,214 10,319 11,498 12,914 12,689 14,129
Research and development 1,569 2,125 2,409 2,803 3,917 4,509 5,096 5,228
General and administrative 707 968 1,197 1,318 1,776 2,100 2,787 6,904
Amortization of goodwill -- 32 97 1,280 4,995 5,405 6,068 6,594
In-process research and
development and other charges -- -- -- 6,979 -- -- -- --
----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 7,991 10,042 11,917 22,699 22,186 24,928 26,640 32,855
----------------------------------------------------------------------------------------------------------------------------
Loss from operations (968) (723) (310) (7,997) (5,864) (5,155) (6,601) (17,665)
Interest and other income 357 685 673 478 343 644 994 1,352
----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (611) (38) 363 (7,519) (5,521) (4,511) (5,607) (16,313)
Income tax expense (recovery) 75 126 139 217 (67) 170 56 344
----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (686) $ (164) $ 224 $ (7,736) $(5,454) $ (4,681) $ (5,663) $(16,657)
=============================================================================================================================
48
Three months ended
-----------------------------------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1999 1999 2000 2000 2000 2000 2001 2001
------------------------------------------------------------------------------------------------------------------------------
REVENUES:
Licenses 70% 70% 70% 72% 65% 64% 62% 54%
Services and maintenance 30% 30% 30% 28% 35% 36% 38% 46%
-----------------------------------------------------------------------------------------------------------------------------
Total revenues 100% 100% 100% 100% 100% 100% 100% 100%
-----------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES:
Licenses 3% 3% 4% 4% 4% 4% 4% 4%
Services and maintenance 16% 16% 16% 15% 18% 19% 20% 27%(1)
-----------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 19% 19% 20% 19% 22% 23% 24% 31%
-----------------------------------------------------------------------------------------------------------------------------
Gross profit 81% 81% 80% 81% 78% 77% 76% 69%
-----------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Sales and marketing 66% 60% 56% 57% 55% 50% 48% 64%(2)
Research and development 18% 19% 17% 15% 19% 18% 19% 24%
General and administrative 8% 8% 8% 7% 8% 8% 11% 31%(3)
Amortization of goodwill -- -- 1% 7% 24% 21% 23% 30%
In-process research and
development and other charges -- -- -- 39% -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 92% 87% 82% 125% 106% 97% 101% 149%
-----------------------------------------------------------------------------------------------------------------------------
Loss from operations (11%) (6%) (2%) (44%) (28%) (20%) (25%) (80%)
Interest and other income 4% 6% 5% 3% 2% 3% 4% 6%
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (7%) -- 3% (41%) (26%) (17%) (21%) (74%)
Income taxes 1% 1% 1% 1% - 1% - 1%
-----------------------------------------------------------------------------------------------------------------------------
Net income (loss) (8%) (1%) 2% (42%) (26%) (18%) (21%) (75%)
=============================================================================================================================
(1) Cost of revenues for services and maintenance increased during the fourth
quarter as a result of increased numbers of technical support and
maintenance contracts we obtained as our customer base grew.
(2) During the fourth quarter ended June 30, 2001, we increased program
spending which caused sales and marketing costs to increase as a percentage
of revenue. These costs are expected to remain approximately the same in
the first quarter of fiscal 2002. We will continue to examine the level of
sales and marketing costs based on revenue projections.
(3) Fourth quarter general and administrative expenses includes $3.6 million
for non recurring charges which related to the impairment of long lived
assets and an additional provision for doubtful accounts.
49
For the years ended June 30, 1999 and 2000 we experienced an increase in
revenues during our fourth fiscal quarter, which we believe was primarily
related to sales compensation policies and annual objectives. We believe the
decrease in revenue in the quarter ended June 30, 2001 is due to the current
economic slowdown and related reluctance of companies to acquire significant
software and systems at this time. In addition, a pattern of reduced buying by
European customers during July and August has resulted in lower European license
revenues in the quarters ended September 30.
We incurred operating losses as we increased the level of investment in all
facets of our business. Our quarterly operating results have fluctuated
significantly in the past and will continue to fluctuate in the future as a
result of a number of factors, many of which are outside of our control. As a
result of our limited operating history and recent acquisitions, we cannot
forecast operating expenses based on historical results. Accordingly, we base
our anticipated level of expense in part on future revenue projections. Most of
our expenses are fixed in the short-term and we may not be able to quickly
reduce spending if revenues are lower than we have projected. Our ability to
forecast our quarterly revenues accurately is limited given our limited
operating history, length of the sales cycle of our solutions and other
uncertainties in our business. If revenues in a particular quarter do not meet
projections, our net losses in a given quarter would be greater than expected.
As a result, we believe that our quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the results
of one quarter as an indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had $13.2 million in cash and cash equivalents, $55.5
million in short term investments and $58.4 million in working capital. During
the quarter ended December 31, 2000, we successfully concluded an equity
financing in Canada, generating $51.8 million, net of expenses and brokers'
commissions.
Our cash and cash equivalents and short-term investments increased to $68.7
million as of June 30, 2001 from $35.5 million as of June 30, 2000. Our working
capital increased to $58.4 million at June 30, 2001 from $28.3 million at June
30, 2000. The increase is partly attributable to the equity financing completed
November 28, 2000, which generated $51.8 million, net of expenses and broker
commissions, offset by acquisitions and working capital requirements.
Net cash used in operating activities for the year ended June 30, 2001 was $4.5
million compared to net cash generated of $4.9 million in the same period in
2000.
Net cash used in investing activities was $43.2 million and $54.3 million for
the year ended June 30, 2001 and 2000, respectively. During the years ended June
30, 2001 and 2000, we used $24.7 million and $30.8 million, respectively, for
net purchases of short-term investments. Capital expenditures totalled $6.8
million and $6.1 million for the years ended June 30, 2001 and 2000,
respectively. Long-term investments and other assets totaled $6.3 million and
$2.9 million for the years ended June 30, 2001 and 2000, respectively. During
the year ended June 30, 2001, we used $5.4 million (net of cash acquired) on
acquisitions including Ionysys, Project One , Software Spectrum, and Inform.
During the year ended June 30, 2000, we used $14.5 million (net of cash
acquired) on the acquisitions of Transitif, Exactium and Simba.
Cash provided by financing activities was $56.2 million and $44.8 million for
the years ended June 30, 2001 and 2000, respectively. Net cash provided by
financing activities resulted from the issuance of common shares.
Our principal source of liquidity at June 30, 2001 was our cash, cash
equivalents and short-term investments of $68.7 million. We have a credit
facility with a Canadian chartered bank which includes a revolving term
operating line of $2.0 Million (CDN $3.0 Million), bearing interest at the
bank's prime rate plus 1% per year, secured by a charge on all our current and
future personal property. As of June 30, 2001 and 2000, no amounts were
outstanding under the credit facility.
O ur accounts receivable at June 30, 2001, were 101 days of sales outstanding,
which is above our target range of 76 to 80 days. Days of sales outstanding
increased because our international revenues represented a higher percentage of
total revenue. International receivables, on average, tend to lag over North
American receivables. In addition, our accounts receivables included amounts
with extended payment terms that were not due at June 30, 2001.
In June 2000, we entered into a $723,000 (Cdn. $ 1.1 million) irrevocable letter
of credit with a Canadian chartered bank. The letter of credit expired June 19,
2001. Subsequent to June 30, 2001, we entered into a new irrevocable letter of
credit with the same bank for $2.5 Million (Cdn $3.8 million). The letter of
credit, which expires July 3, 2002, collaterizes our obligations to a third
party for tenant improvement costs.
We believe that the total amount of cash and cash equivalents and short-term
investments, along with the credit facilities, will be sufficient to meet our
anticipated cash needs for working capital or other purposes at least for the
next twelve months. Thereafter, depending on the development of our business, we
may need to raise additional cash for working capital or other expenses. We also
may encounter opportunities for acquisitions or other business initiatives that
require significant cash commitments, or unanticipated problems or expenses that
could result in a requirement for additional cash before that time. If we need
to raise additional cash, financing may not be available to us on favorable
terms, or at all.
50
AUDIT COMMITTEE
We have established an Audit Committee of the Board of Directors, the charter of
which is to oversee the activities of management and our external auditors as
they relate to the financial reporting process. Currently, the Audit Committee
was comprised of Robin Louis, Jeremy Jaech and Steven Gordon. In particular, the
Audit Committee's role includes ensuring that management properly develops and
adheres to a sound system of internal controls, and that our external auditors,
through their own review, assess the effectiveness of those controls and
management's adherence to them.
In fulfilling their responsibilities, the Audit Committee conducted regular,
quarterly meetings with our external auditors. In these meetings, the Audit
Committee discussed with management and our external auditors the quality and
acceptability of accounting policies and significant transactions or issues
encountered during the period. In addition, the Audit Committee met with our
external auditors independent of management to provide for independent and
confidential assessment of management and the internal controls as they relate
to the quality and reliability of our financial statements. In the year ended
June 30, 2001, we adopted an Audit Committee Charter as required by the Nasdaq
Stock Exchange, Inc. in compliance with the Nasdaq Stock Exchange, Inc.'s
Marketplace Rules. We are committed to supporting this process and the Audit
Committee in fulfilling their role of ensuring the integrity of our internal
controls and financial reporting.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates
and foreign currencies.
FOREIGN CURRENCY RISK
We have operations in Canada and a number of countries outside of the United
States and therefore we are subject to risks typical of an international
business including, but not limited to differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions
and foreign exchange rate volatility. Accordingly, our future results could be
materially adversely affected by changes in these or other factors.
Our sales and corresponding receivables are substantially in U.S. dollars.
Through our operations in Canada and outside North America, we incur the
majority of our research and development, customer support costs and
administrative expenses in Canadian and other local currencies. We are exposed,
in the normal course of business, to foreign currency risks on these
expenditures. We have evaluated our exposure to these risks and have determined
that our only significant foreign currency exposure at this time is to the
Canadian dollar through our operations in Canada. At this time, we do not
believe our exposure to other currencies is material.
We use forward contracts to minimize the risks associated with transactions
originating in Canadian dollars. We have not designated these forward contracts
to be hedging instruments, therefore, all gains or losses resulting from the
change in fair value of these contracts have been included in earnings in the
current period.
If we were to designate these types of forward contracts or other derivatives as
hedges in the future and such derivatives satisfy the criteria for hedging
instruments, then depending on the nature of the hedge, changes in the fair
value of the derivatives will be offset against the change in fair value of
assets, liabilities, or firm commitments through earnings (fair value hedges) or
recognized in other comprehensive income until the related hedged item is
recognized in earnings (cash flow hedges). Any change in fair value related to
the ineffective portion of a derivative will be recognized in earnings through
periodic mark to market adjustments.
Prior to the year ended June 30, 1999, we did not engage in hedging transactions
and our gains and losses on foreign currency transactions were not significant.
In addition to the use of foreign exchange forward contracts noted above, from
time to time we may also purchase Canadian dollars in the open market and hold
these funds in order to satisfy forecasted operating needs in Canadian dollars
for the next operating period, which is generally limited to six months or less.
51
At June 30, 2001, we had no outstanding currency forward exchange contracts,
because forward contracts generally mature at the end of a quarterly period. As
of June 30, 2000, we had outstanding currency forward exchange contracts of $5.5
million. During the year ended June 30, 2001, we recorded a foreign exchange
gain of $65,000 compared to a loss of $168,000 from the unhedged portion of our
foreign currency exposure during the year ended June 30, 2000.
INTEREST RATE RISK
We invest our cash in a variety of short-term financial instruments, including
government bonds, commercial paper and money market instruments. Our portfolio
is diversified and consists primarily of investment grade securities to minimize
credit risk. These investments are typically denominated in U.S. dollars. Cash
balances in foreign currencies are operating balances and are only invested in
demand or short-term deposits of the local operating bank.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted because of a rise in interest rates, while
floating rate securities may produce less income than expected if interest rates
fall. Due in part to these factors, our future investment income may fall short
of expectations because of changes in interest rates or we may suffer losses in
principal if forced to sell securities which have seen a decline in market value
because of changes in interest rates.
Our investments are made in accordance with an investment policy approved by our
Board of Directors. Under this policy, all short term investments must be made
in investment grade securities with original maturities of less than one year at
the time of acquisition.
We do not attempt to reduce or eliminate our exposure to interest rate risk
through the use of derivative financial instruments due to the short-term nature
of the investments. Based on a sensitivity analysis performed on our balances as
of June 30, 2001, the fair value of our short term investment portfolio would
not be significantly impacted by either a 100 basis point increase or decrease
in interest rates.
52
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Pivotal Corporation
We have audited the accompanying consolidated balance sheets of Pivotal
Corporation as of June 30, 2001 and 2000 and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the three years
in the period ended June 30, 2001. Our audit also included the financial
statement schedule listed in the Index at Item 14(a). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pivotal
Corporation as of June 30, 2001 and 2000 and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Vancouver, Canada
July 20, 2001
53
PIVOTAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars; all amounts in thousands)
June 30,
-----------------------------
2001 2000
-------------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 13,247 $ 4,734
Short-term investments 55,468 30,788
Accounts receivable 26,610 16,764
Prepaid expenses 2,691 1,859
-------------- -----------
Total current assets 98,016 54,145
Property and equipment, net 9,183 7,231
Goodwill, intangibles and other assets, net 61,244 60,569
-------------- -----------
Total assets $ 168,443 $ 121,945
============== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 25,324 $ 16,877
Deferred revenue 13,810 8,971
Current portion of obligations under capital leases and
long-term debt 516 -
-------------- -----------
Total current liabilities 39,650 25,848
Non-current portion of obligations under capital leases and
long-term debt 592 -
-------------- -----------
Total liabilities 40,242 25,848
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred shares, undesignated, no par value, authorized
shares - 20,000 at June 30, 2001 and June 30, 2000; no shares
issued and outstanding - -
Common shares and additional paid-in capital, no par value,
authorized shares - 200,000 at June 30, 2001 and June 30, 2000;
issued and outstanding shares - 23,933 and 22,057 at June 30, 2001
and June 30, 2000, respectively 176,728 112,078
Deferred share-based compensation (81) (193)
Accumulated other comprehensive loss (203) -
Accumulated deficit (48,243) (15,788)
-------------- -----------
Total shareholders' equity 128,201 96,097
-------------- -----------
Total liabilities and shareholders' equity $ 168,443 $ 121,945
============== ===========
See accompanying Notes to the Consolidated Financial Statements.
54
PIVOTAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in United States dollars;
all amounts in thousands except per share data)
Years ended June 30,
-----------------------------------------
2001 2000 1999
---------- ---------- ----------
Revenues:
License $ 58,510 $ 37,384 $ 18,819
Services and maintenance 36,780 15,555 6,508
---------- ---------- ----------
Total revenues 95,290 52,939 25,327
---------- ---------- ----------
Cost of revenues:
License 3,800 2,141 536
Services and maintenance 20,166 8,147 3,078
---------- ---------- ----------
Total cost of revenues 23,966 10,288 3,614
---------- ---------- ----------
Gross profit 71,324 42,651 21,713
---------- ---------- ----------
Operating expenses:
Sales and marketing 51,230 31,165 16,830
Research and development 18,750 8,906 4,958
General and administrative 13,567 4,190 2,466
Amortization of goodwill 23,062 1,409 -
In process research and development and other charges - 6,979 -
---------- ---------- ----------
Total operating expenses 106,609 52,649 24,254
---------- ---------- ----------
Loss from operations (35,285) (9,998) (2,541)
Interest and other income (loss) 3,333 2,193 (24)
---------- ---------- ----------
Loss before income taxes (31,952) (7,805) (2,565)
Income taxes 503 557 243
---------- ---------- ----------
Net loss for the year $ (32,455) $ (8,362) $ (2,808)
========== =========== ==========
Loss per share
Basic and diluted $ (1.40) $ (0.45) $ (0.72)
Pro forma basic and diluted $ (0.39) $ (0.18)
Weighted average number of shares used to
calculate loss per share:
Basic and diluted 23,173 18,643 3,888
Pro forma basic and diluted 21,339 15,940
See accompanying Notes to the Consolidated Financial Statements.
55
PIVOTAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in United States dollars;
all amounts in thousands except per share data)
Common Shares
and
Class A Additional
Convertible Paid-in Class B Accumulated
Preferred Shares Capital Common Shares Deferred Other Total
-------------- ---------------- ------------- Share-based Comprehensive Accumulated Shareholders'
Shares Amount Shares Amount Shares Amount Compensation Loss Deficit Equity (Deficit)
------ ------ ------ -------- ------ ------ ------------ ------------- ----------- ---------------
Balance, June 30, 1998 2,000 $ 83 3,853 $ 80 - $ - $ - $ - $ (4,618) $ (4,455)
Issuance of common
shares on exercise
of stock options - - 78 14 - - - - - 14
Conversion of common
shares into Class B
common shares - - (477) (4) 477 4 - - - -
Deferred share-based
compensation - - - 473 - - (473) - - -
Amortization of
share-based
compensation - - - - - - 57 - - 57
Net loss - - - - - - - - (2,808) (2,808)
------ ------ ------ -------- ------ ------ ------------ ------------- ----------- ---------------
Balance, June 30, 1999 2,000 83 3,454 563 477 4 (416) - (7,426) (7,192)
Conversion of
Class B common shares
into common shares - - 477 4 (477) (4) - - - -
Conversion of
Class A preferred
shares into common
shares (2,000) (83) 2,000 83 - - - - - -
Conversion of redeemable
convertible preferred
shares into common
shares - - 10,052 17,500 - - - - - 17,500
Issuance of common shares
on exercise of
stock options - - 375 995 - - - - - 995
Issuance of common shares
on initial public
offering, net of
offering costs - - 3,975 43,101 - - - - - 43,101
Issuance of common shares
related to Employee
Stock Purchase Plan - - 69 707 - - - - - 707
Acquisitions - - 1,655 49,125 - - - - - 49,125
Amortization of
share-based
compensation - - - - - - 223 - - 223
Net loss - - - - - - - - (8,362) (8,362)
------ ------ ------ ------ ------ ------ ------------ ------------- ----------- ---------------
Balance, June 30, 2000 - - 22,057 112,078 - - (193) - (15,788) 96,097
Tax benefit from employee
stock option plans - - - 876 - - - - - 876
Issuance of common shares
on exercise of
stock options - - 506 3,109 - - - - - 3,109
Issuance of common shares
related to Employee Stock
Purchase Plan - - 72 1,440 - - - - - 1,440
Acquisitions - - 298 7,404 - - - - - 7,404
Amortization of
share-based
compensation - - - - - - 112 - - 112
Compensation related to
stock options - - - 65 - - - - - 65
Issuance of common shares
on equity financing,
net of offering costs - - 1,000 51,756 - - - - - 51,756
Unrealized loss on
available-for-sale
investment - - - - - - - (203) - (203)
Net loss - - - - - - - - (32,455) (32,455)
------ ------ ------ -------- ------ ------ ------------ ------------- ----------- ---------------
Balance, June 30, 2001 - $ - 23,933 $176,728 $ - $ (81) $ (203) $(48,243) $ 128,201
====== ====== ====== ======== ====== ====== ============ ============= =========== ===============
See accompanying Notes to the Consolidated Financial Statements.
56
PIVOTAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in United States dollars; all amounts in thousands)
Years ended June 30,
-------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net loss for the year $ (32,455) $ (8,362) $ (2,808)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization of goodwill 23,062 1,409 -
Depreciation 4,556 2,215 1,017
In process research and development and other charges - 6,979 -
Tax benefit from employee stock option plans 876 - -
Impairment loss on property and equipment 948 - 52
Amortization of deferred share-based compensation 112 223 57
Non-cash share-based compensation expense 65 - -
Change in operating assets and liabilities (1,368) 2,469 4,196
------------ ------------ ------------
Net cash (used in) provided by operating activities (4,204) 4,933 2,514
------------ ------------ ------------
Cash flows for investing activities:
Purchases, sales and maturities of short-term investments, net (24,680) (30,788) -
Purchase of property and equipment (6,833) (6,110) (2,392)
Purchase of long-term investments and other assets (6,276) (2,921) -
Acquisitions (net of cash acquired) (5,682) (14,520) -
------------ ------------ ------------
Net cash used in investing activities (43,471) (54,339) (2,392)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from equity financing 51,756 - -
Net proceeds from initial public offering of common shares - 43,101 -
Proceeds from issuance of common shares 4,550 1,701 14
Repayment of long-term debt (118) - -
Proceeds from issuance of redeemable convertible preferred shares - - 8,000
------------ ------------ ------------
Net cash provided by financing activities 56,188 44,802 8,014
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 8,513 (4,604) 8,136
Cash and cash equivalents, beginning of period 4,734 9,338 1,202
------------ ------------ ------------
Cash and cash equivalents, end of period $ 13,247 $ 4,734 $ 9,338
============ ============ ============
Supplemental cash flow disclosure:
Income taxes (recovered) paid $ (132) $ 324 $ 137
============ ============ ============
Interest paid $ 10 $ 1 $ -
============ ============ ============
Supplemental non-cash investing disclosure:
Issuance of common shares and options on acquisitions $ 7,404 $ 49,125 $ -
============ ============ ============
Supplemental non-cash financing disclosure:
Issuance of common shares and options on acquisitions $ 7,404 $ 49,125 $ -
============ ============ ============
Conversion of preferred shares into common shares $ - $ 17,583 $ -
============ ============ ============
See accompanying Notes to the Consolidated Financial Statements.
57
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Pivotal Corporation enables large and medium-sized businesses worldwide to
make, serve, and manage customers efficiently and intelligently by
providing customer relationship management and electronic business
solutions based on Microsoft standards. Pivotal helps companies manage
collaborative relationships between customers, business partners, and
employees; guides intelligent commerce transactions across multiple
channels; and seamlessly integrates the demand side of business with the
supply side. Pivotal's software solutions include Pivotal eRelationship,
developed to manage business relationships, Pivotal eSelling, designed to
sell complex products over the Internet, and Pivotal ePower, an integrated
Internet application platform that is built on best-in-class resources.
Principals of Consolidation
These consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) and include the accounts of Pivotal and its
wholly owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
Revenue Recognition
The Company recognizes revenue in accordance with accounting standards for
software companies including Statement of Position No. 97-2, Software
Revenue Recognition, as amended by Statement of Position No. 98-9, Software
Revenue Recognition with Respect to Certain Arrangements.
Pivotal generates revenues through two sources: (1) license revenues and
(2) services and maintenance revenues. License revenues are normally
generated from licensing with end-users, value-added resellers (VARs) and
application service providers and, to a lesser extent, through distribution
of third party products. When software licenses are sold indirectly to
end-users through VARs, Pivotal recognizes as revenue only the fee payable
from the reseller upon sell-through to the end-customer by the reseller.
Service revenues are generated from consulting services, education and
maintenance.
Revenues from software license agreements are recognized upon delivery of
software if persuasive evidence of an arrangement exists, collection is
probable, the fee is fixed or determinable, and vendor-specific objective
evidence exists to allocate the total fee to elements of the arrangement.
Vendor-specific objective evidence is typically based on the price charged
when an element is sold separately, or, in the case of an element not yet
sold separately, the price established by authorized management, if it is
probable that the price, once established, will not change before market
introduction. Elements included in multiple element arrangements could
consist of software products, upgrades, enhancements, customer support
services, or consulting services. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. Pivotal's agreements with its
customers and resellers do not contain product return rights. Revenues for
license arrangements with payment terms extending beyond one year are
recognized periodically as payments become due, provided all other
conditions for revenue recognition are met.
Maintenance revenues are recognized ratably over the term of the contract,
typically one year. Consulting revenues are primarily related to
implementation services performed on a time-and-materials basis under
separate service arrangements related to the installation and use of
Pivotal's software products. Revenues from consulting and education
services are recognized as services are performed. If a transaction
includes both license and service elements, license fee revenues are
recognized separately on shipment of the software, provided services do not
include significant customization or modification of the base product, and
the payment terms for licenses are not subject to acceptance criteria. In
cases where license fee payments are contingent on acceptance of services,
Pivotal defers recognition of revenues from both the license and the
service elements until the acceptance criteria are met.
58
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (Continued)
During the fourth quarter of fiscal 2001, Pivotal adopted Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements, (SAB 101).
The adoption of SAB 101 did not have a material effect on Pivotal's
consolidated financial position or results of operations.
Pivotal's customers include a number of suppliers. On occasion, Pivotal has
purchased goods or services for Pivotal's operations from vendors on or
about the same time Pivotal has licensed its software to these
organizations. These transactions are separately negotiated and recorded at
amounts and terms Pivotal considers to be at arm's-length.
Cost of Revenues
Cost of license revenues consists primarily of media, product packaging and
shipping, documentation and other production costs, and third party
royalties. Cost of services and maintenance revenues consists primarily of
salaries, benefits and allocated overhead costs related to consulting,
training and global services personnel, including the cost of services
provided by third-party consultants engaged by Pivotal.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting periods. Estimates are used for,
but not limited to, the accounting for doubtful accounts, depreciation and
amortization, income taxes and contingencies. Actual results may differ
from those estimates.
Cash and Cash Eqivalents
Cash equivalents consist of highly liquid short-term investments with
original maturities at the date of acquisition of 90 days or less and are
recorded at cost.
Short-Term Investments
Under Financial Accounting Standard ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities, management classifies
investments as available-for-sale or held-to-maturity at the time of
purchase and re-evaluates such designation as of each balance sheet date.
Investments classified as held-to-maturity securities are stated at
amortized cost with corresponding premiums or discounts amortized against
interest income over the life of the investment.
Marketable equity and debt securities not classified as held-to-maturity
are classified as available-for-sale and reported at fair value. Unrealized
gains and losses on these investments, net of any related tax effect, are
included in equity as a separate component of shareholders' equity.
Short-term investments consist of money market instruments with maturities
of less than one year. As at June 30, 2001, Pivotal's short-term
investments consisted solely of held-to-maturity investments and their
carrying value was substantially the same as their market value.
Investments in Public Companies
At June 30, 2001, Pivotal held an investment in a publicly traded company
in which it has less than 20% of the voting rights and in which it does not
exercise significant influence. The investment is included in goodwill,
intangibles and other assets and is recorded at fair value, which is
determined based on quoted market prices, with net unrealized gains and
losses included in accumulated other comprehensive loss.
59
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Non-Public Companies
Pivotal has certain investments in non-publicly traded companies in which
it has less than 20% of the voting rights and in which it does not exercise
significant influence. These investments are included in goodwill and other
assets and are carried at cost. Pivotal monitors these investments for
impairment and makes appropriate reductions in carrying values when
necessary.
Fair Value of Financial Instruments
At June 30, 2001 and 2000, Pivotal has the following financial instruments:
cash and cash equivalents, short-term investments, accounts receivable,
investments in public and non-public companies, accounts payable and
accrued liabilities, and at June 30, 2001, long-term debt. The carrying
value of cash and cash equivalents, short-term investments, accounts
receivable and accounts payable and accrued liabilities approximates their
fair value based on their liquidity or based on their short-term nature. At
June 30, 2001, the carrying value of long-term debt also approximates fair
value.
The fair values of investments in publicly traded companies are determined
using quoted market prices for those securities. The fair values of
investments in non-publicly traded companies are not readily determinable.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided using the following
rates and methods:
Computer software 2 year straight line
Computer hardware and equipment 30% declining balance or 3 year
straight line
Furniture and fixtures 20% declining balance
Leasehold improvements are amortized using the straight-line method over
three to five years.
Goodwill, Intangibles and other Assets
Goodwill, core technology and other intangible assets are carried at cost
less accumulated amortization and are being amortized on a straight-line
basis over the economic lives of the respective assets, generally three
years.
Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. Measurement of an impairment loss for long-lived
assets and certain identifiable intangible assets that management expects
to hold and use are based on the fair value of the asset. Long-lived assets
and certain identifiable intangible assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell. In 2001,
Pivotal recorded an impairment loss of $948 related to long-lived assets
having carrying values in excess of the cash flows expected to result from
their disposal. No such impairment losses had been identified by Pivotal
for the years ended June 30, 2000 and 1999.
60
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. SFAS No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,
provides for the capitalization of certain software development costs after
technological feasibility of the software is established. Under Pivotal's
current practice of developing new products and enhancements, the
technological feasibility of the underlying software is not established
until substantially all product development is complete, including the
development of a working model. No such costs have been capitalized because
the impact of capitalizing such costs would not be material.
Concentration of Credit Risk
Financial instruments that potentially subject Pivotal to a concentration
of credit risk consist principally of cash and cash equivalents, short-term
investments and accounts receivable. Cash and cash equivalents are
custodied with high-quality financial institutions and short-term
investments are made in investment grade securities to mitigate exposure to
credit risk. Pivotal's customer base is dispersed across many different
geographic areas throughout North America, Europe and the Asia Pacific and
consists of companies in a variety of industries. Pivotal performs ongoing
credit evaluations of its customers and does not require collateral or
other security to support credit sales. Pivotal provides an allowance for
bad debts based on historical experience and specifically identified risks.
During 2001, 2000 and 1999, no single customer accounted for more than 10%
of revenues.
Derivation Financial Instruments
Pivotal's use of derivative financial instruments is limited to short-term
foreign currency forward exchange contracts also referred to as forward
contracts, used to manage exposure related to certain Canadian currency
transactions. Pivotal does not enter into derivative financial instruments
for trading purposes. Pivotal identifies future Canadian currency
commitments and enters into forward contracts to hedge exposure to
fluctuations in the Canadian dollar. Gains and losses on forward contracts
that are designated and effective as hedges of firm foreign currency
commitments are recognized when the related transaction is recognized.
Gains and losses not meeting the criteria for hedge accounting are
recognized in operations in the current period.
As of June 30, 2001, Pivotal had no outstanding forward contracts.
As at June 30, 2000, Pivotal had outstanding forward contracts to purchase
Canadian dollars for U.S.$5.5 million. The unrealized loss on these
contracts at June 30, 2000 was $79.
Foreign Currency Translation
The functional currency of Pivotal and its subsidiaries is the U.S. dollar.
Assets and liabilities denominated in other than the U.S. dollar are
translated using the exchange rates prevailing at the balance sheet date.
Revenues and expenses are translated using average exchange rates
prevailing during the period. Gains and losses on foreign currency
transactions and translation are recorded in the consolidated statements of
operations.
Advertising
Pivotal expenses advertising costs as they are incurred. Advertising
expense is included in sales and marketing expenses and amounted to $1,305,
$924 and $538 in 2001, 2000 and 1999, respectively.
Income Taxes
Pivotal accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. This statement provides for a liability
approach under which deferred income taxes are provided based upon
currently enacted tax laws and rates. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amounts expected to be
realized.
61
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Share-Based Compensation
As permitted under SFAS No. 123, Accounting for Stock-Based Compensation,
Pivotal has accounted for employee stock options in accordance with
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and has made the pro forma disclosures required by
SFAS No. 123 in Note 11.
Deferred compensation charges arise from those situations where options are
granted at an exercise price lower than the deemed fair value of the
underlying common shares. These amounts are amortized as charges to
operations, over the vesting periods of the individual stock options.
Loss per common share
Basic loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share amounts reflect the potential
dilution by including other common share equivalents, including stock
options and redeemable convertible preferred shares, in the weighted
average number of common shares outstanding for a period, if dilutive.
Pro forma loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding and the weighted average
redeemable convertible preferred shares and Class A convertible preferred
shares outstanding as if such shares were converted into common shares and
had been outstanding at the beginning of the fiscal year. No convertible
preferred shares were outstanding during the year ended June 30, 2001.
Pivotal had a net loss for all periods presented herein; therefore, none of
the stock options outstanding during each of the periods presented were
included in the computation of diluted loss per share as they were
antidilutive.
The following table sets forth the computation of basic and diluted, and
pro forma basic and diluted loss per share:
Years ended June 30,
--------------------------------------
2001 2000 1999
---------- ---------- ----------
Net loss (A) $ (32,455) $ (8,362) $ (2,808)
========== ========== ==========
Weighted average number of
common shares outstanding (B) 23,173 18,643 3,888
==========
Pro forma adjustment for convertible preferred shares 2,696 12,052
---------- ----------
Pro forma basic and diluted weighted average
number of shares (C) 21,339 15,940
========== ==========
Loss per share
Basic and diluted (A/B) $ (1.40) $ (0.45) $ (0.72)
Pro forma basic and diluted (A/C) $ (0.39) $ (0.18)
62
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 141 addresses the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination and SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination
whether acquired individually or with a group of other assets. These
standards require all future business combinations to be accounted for
using the purchase method of accounting. Goodwill will no longer be
amortized but instead will be subject to impairment tests at least
annually.
Pivotal is required to adopt SFAS No. 141 and 142 on a prospective basis as
of July 1, 2002, but is permitted to adopt them in the first quarter of
2002. Pivotal is currently evaluating the impact that the adoption of these
pronouncements may have on its financial position and results of
operations; however, due to these pronouncements being issued in late July
2001 and due to the Pivotal's expectations that the FASB will issue further
guidance with respect to adoption of both SFAS No. 141 and No. 142, Pivotal
is currently unable to determine the impact that the adoption of these
pronouncements may have on its financial position or results of operations.
Reclasifications
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. BUSINESS COMBINATIONS
During the years ended June 30, 2001 and 2000, Pivotal completed the
acquisitions described below which were accounted for using the purchase
method of accounting. Accordingly, the results of operations of each
acquisition are included in the consolidated statement of operations since
the acquisition date, and the related assets and liabilities were recorded
based upon their respective fair values at the date of acquisition.
Fiscal 2001
Ionysys Technology Corporation
On October 16, 2000, Pivotal acquired 100% of Ionysys Technology
Corporation, a privately held company providing consulting and
implementation services related to Internet solutions based in Vancouver,
British Columbia. Pivotal paid an aggregate cash purchase price of $1,014
including acquisition related expenditures of $360.
Project One Business Technologies Inc.
On October 31, 2000, Pivotal acquired 100% of Project One Business
Technologies Inc., a privately held company providing consulting and
implementation services specifically designed for the health care industry
based in North Vancouver, British Columbia. Pivotal paid an aggregate
purchase price of $1,364 consisting of 19 common shares and cash of $460,
which includes acquisition related expenditures of $380.
The agreement for the acquisition of Project One also provided for
additional consideration to a maximum of approximately 96 common shares to
be paid based on achieving certain targets over the next 3 years. All share
consideration will be recorded as additional purchase price when issued. No
shares were required to be issued in connection with the acquisition of
Project One during the period ended June 30, 2001.
63
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
2. BUSINESS COMBINATIONS (Continued)
Sofware Spectrum CRM, Inc.
On December 5, 2000, Pivotal acquired 100% of Software Spectrum CRM, Inc..
Software Spectrum, based in Dallas, Texas, delivers solutions and
consulting expertise in multi-channel contact centers, and customer
relationship management to help organizations increase revenue and customer
satisfaction. Pivotal paid an aggregate purchase price of $7,474 consisting
of 138 common shares and cash of $1,925, which includes acquisition related
expenditures of $1,175.
Inform Inc.
On June 22, 2001, Pivotal acquired 100% of Inform Inc., a company located
in Toronto, Ontario, which specializes in implementation services for the
financial services industry. Pivotal paid an aggregate purchase price of
$1,310 consisting of 45 common shares and cash of $359, which includes
acquisition related expenditures of $266.
Other
Other acquisitions consist of asset acquisitions of implementation services
business during the third quarter ended March 31, 2001.
The total consideration, including acquisition costs, was allocated based
on estimated fair values on the acquisition date as follows:
Project Software
Ionysys One Spectrum Inform Other Total
------- ------- ---------- -------- ------- -------
Tangible assets acquired $ 86 $ 62 $ 2,697 $ 1,374 $ 103 $ 4,322
Liabilities assumed - (1,008) (2,534) (2,022) (413) (5,977)
------- ------- ---------- -------- ------- -------
Net identifiable assets (liabilities)
acquired 86 (946) 163 (648) (310) (1,655)
Goodwill and other intangibles 928 2,310 7,311 1,958 2,606 15,113
------- ------- ---------- -------- ------- -------
Purchase price $1,014 $ 1,364 $ 7,474 $ 1,310 $2,296 $13,458
======= ======= ========== ======== ======= ========
Consideration (inclusive of cash
received of $372)
Cash $1,014 $ 460 $ 1,925 $ 359 $2,296 $ 6,054
Fair value of common shares
issued - 904 5,549 951 - 7,404
------- ------- ---------- -------- ------- -------
$1,014 $ 1,364 $ 7,474 $ 1,310 $2,296 $13,458
======= ======= ========== ======== ======= ========
The fair value of the common shares of Pivotal issued in connection with
the acquisitions was determined by taking an average of the opening and
closing trading price of the common shares for a short period just before
and just after the terms of the transaction were agreed to by the parties
and announced to the public or the closing price on the acquisition dates.
64
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
2. BUSINESS COMBINATIONS (Continued)
Pro Forma Information
Unaudited pro forma results of operations assuming Pivotal had acquired
Ionysys, Project One, Software Spectrum, Inform and Other at the beginning
of the 2001 fiscal year have not been presented because the effects of
these acquisitions were not material on either an individual or aggregate
basis.
Fiscal 2000
Transitif S.A.
Effective December 3, 1999, Pivotal acquired 100% of Transitif S.A., a
French corporation that distributed customer relationship management
solutions. Transitif deploys Pivotal solutions through its network of
systems integrators throughout France. Pivotal paid an aggregate cash
purchase price of $1,266, including acquisition related expenditures of
$120 with additional consideration payable based on the net after-tax
earnings of Transitif and license revenues received by Transitif from the
future sale of licenses for Pivotal products to June 2002. All earn-out
payments will be recorded as additional purchase price when determinable
and Pivotal may elect to pay up to fifty percent of the additional purchase
price, if any, in Pivotal common shares. Pivotal made earn-out payments of
$239 during the year ended June 30, 2001.
Exactium Ltd.
Effective June 2, 2000, Pivotal acquired 100% of Exactium Ltd., an Israeli
company based in Atlanta, Georgia that provides e-selling solutions for
internet and Microsoft standards. Pivotal paid an aggregate purchase price
of $45,140 consisting of 1,225 common shares and stock options, cash of
$13,150 including a shareholder loan repayment of $5,402 and acquisition
related expenditures of $775.
Simba Digital Technologies Inc.
On June 26, 2000, Pivotal acquired 100% of Simba Digital Technologies Inc..
Pivotal paid an aggregate purchase price of $17,590 consisting of 837
common shares and stock options, and acquisition related expenditures of
$455.
65
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
2. BUSINESS COMBINATIONS (Continued)
The total consideration, including acquisition costs, was allocated based
on estimated fair values on the acquisition date as follows:
Transitif Exactium Simba Total
------------- ------------- ------------- -------------
Assets acquired
In process research and development $ - $ 2,830 $ 1,890 $ 4,720
Core developed technology - 290 - 290
Acquired workforce - 770 560 1,330
Other assets 1,146 370 720 2,236
------------- ------------- ------------- -------------
1,146 4,260 3,170 8,576
Liabilities assumed (1,050) (926) (683) (2,659)
------------- ------------- ------------- -------------
Net identifiable assets acquired 96 3,334 2,487 5,917
Goodwill 1,170 41,806 15,103 58,079
------------- ------------- ------------- -------------
Purchase price $ 1,266 $ 45,140 $ 17,590 $ 63,996
============= ============= ============= =============
Consideration (inclusive of cash received of $351)
Cash $ 1,266 $ 13,150 $ 455 $ 14,871
Fair value of common shares and
stock options issued - 31,990 17,135 49,125
------------- ------------- ------------- -------------
$ 1,266 $ 45,140 $ 17,590 $ 63,996
============= ============= ============= =============
The fair value of the common shares of Pivotal issued in conjunction with
the acquisitions was determined by taking an average of the opening and
closing trading price of the common shares for a short period just before
and just after the terms of the transaction were agreed to by the parties
and announced to the public. The purchase price was increased by the
estimated fair value of the stock options of Pivotal exchanged for the
Exactium and Simba options outstanding.
Purchased in Process Research and Development
Purchased in process research and development charges relate to
acquisitions of companies accounted for under the purchase method in which
a portion of the purchase price was allocated to acquired in process
technology. During 2000, Pivotal acquired Exactium and Simba and included
in the purchase price was an aggregate amount of purchased in process
research and development of $4,720.
66
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
2. BUSINESS COMBINATIONS (Continued)
Purchased in Process Research and Development (Continued)
Independent valuations were performed to assess and allocate a value to
purchased in process research and development. The value allocated to in
process research and development was based upon the forecasted operating
after-tax cash flows from the technology acquired, giving effect to the
stage of completion at the acquisition date. These forecasted cash flows
were then discounted at a rate commensurate with the risk involved in
completing the acquired technology taking into consideration the
characteristics and applications of each product, existing and future
markets, and assessments of the life cycle stage of each product. Based on
this analysis, the existing technology that had reached technological
feasibility was capitalized. Existing technology, that had not reached
technological feasibility and for which no future alternative use existed,
was expensed. Future cash flows were adjusted for the value contributed by
any core technology and development efforts expected to be completed post
acquisition. Research and development costs to bring the products from the
acquired companies to technological feasibility are not expected to have a
material impact on Pivotal's future results of operations or cash flows.
The forecasted data employed in the analysis was based upon both forecast
information maintained by the management of Exactium and Simba, and
Pivotal's estimate of the future potential of the acquired technology. The
inputs used by Pivotal in analyzing purchased in process research and
development were based upon assumptions that management believes reasonable
but which are inherently uncertain and unpredictable. These assumptions may
be incomplete or inaccurate, and no assurance can be given that
unanticipated events and circumstances will not occur. Accordingly, actual
results may vary from the forecasted results. While management believes
that all of the development projects will be successfully completed,
failure of any of these projects to achieve technological feasibility,
and/or any variance from forecasted results, may result in a material
adverse effect on Pivotal's financial condition and results of operations.
A description of the purchased in process research and development for each
acquisition is set forth below.
Exactium
The allocation to in process research and development was related to the
Exactium eSelling technology. At the time of acquisition, a prototype of
Exactium's product existed and it was being used in limited trials. This
prototype was not stable or sufficiently developed to be scalable on an
enterprise-wide basis. Forecasted revenues used in the valuation reflected
historical growth rates of software sales for the eBusiness management
market and Pivotal, and contemplated revenues related to the sale of
products incorporating Exactium technology commencing during the summer of
2000 and increasing thereafter. Pivotal estimated that the technology was
approximately 80% complete as of the acquisition date. Net cash flows were
discounted to net present value at the acquisition date using an
appropriate tax adjusted rate reflecting the risk of unproven but partially
developed software products. The Exactium technology was subsequently
completed and the eSelling product was released in late June 2000.
Simba
The allocation to in process research and development was related to the
Simba electronic marketing product. At the time of acquisition, Simba did
not have a first-generation product and there were considerable
uncertainties as to completion of the product. The valuation of acquired in
process research and development was prepared using the income approach and
contemplated that revenues related to the sale of products incorporating
the Simba technology would commence in late 2000 and increase thereafter.
Revenue increases were based upon the historical growth rate of software
sales for the electronic marketing market and Pivotal. Net after tax cash
flows were discounted to their present value at the acquisition date using
an appropriate after-tax risk-adjusted discount rate reflecting the risk of
unproven but partially developed software products. To date, progress and
development costs incurred on the Simba technology have been in line with
the Company's initial expectation.
In addition to the charge for in-process research and development, Pivotal
recorded a write-down of other assets of Pivotal made redundant as a result
of the acquisitions in the amount of $2,259.
67
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
2. BUSINESS COMBINATIONS (Continued)
Pro Forma Information
The following table presents the unaudited pro forma results of operations
for informational purposes assuming Pivotal had acquired Exactium and Simba
at the beginning of the 1999 fiscal year.
June 30,
----------------------------------
2000 1999
----------------------------------
Net revenues $ 58,602 $ 30,594
Net loss $ (33,943) $ (25,905)
Basic and diluted loss per share $ (1.68) $ (4.67)
The pro forma results of operations give effect to certain adjustments
including amortization of purchased intangibles and goodwill. Included in
the pro forma net loss for the year ended June 30, 2000 is a $6,979 charge
for in-process research and development and other charges by Pivotal. The
information may not necessarily be indicative of the future combined
results of operations of Pivotal, Exactium and Simba. The pro forma results
of operations have not been presented for the Transitif transaction because
the effect of this acquisition was not considered to be material to
Pivotal.
3. ACCOUNTS RECEIVABLE
Accounts receivable are net of an allowance for doubtful accounts of $2,200
and $740 at June 30, 2001 and 2000, respectively.
4. PROPERTY AND EQUIPMENT
June 30,
-------------------------
2001 2000
----------- -----------
Computer software and equipment $ 11,619 $ 6,889
Furniture and fixtures 2,944 2,389
Leasehold improvements 2,054 1,695
----------- -----------
16,617 10,973
Accumulated depreciation (7,434) (3,742)
----------- -----------
Net book value $ 9,183 $ 7,231
=========== ===========
68
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
5. GOODWILL, INTANGIBLES AND OTHER ASSETS
June 30,
-------------------------
2001 2000
----------- -----------
Goodwill $ 75,408 $58,079
Acquired intangibles 1,620 1,620
Other assets 8,698 2,288
----------- -----------
85,726 61,987
Accumulated amortization (24,482) (1,418)
----------- -----------
Net book value $ 61,244 $60,569
=========== ===========
Other assets in the amount of $8,698 consist of prepaid long-term royalties
and long-term investments. Amortization of $24,482 includes the
amortization of goodwill and acquired intangibles.
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The components of accounts payable and accrued liabilities were as follows:
June 30,
-------------------------
2001 2000
----------- -----------
Accounts payable $ 12,721 $ 9,369
Accrued compensation 3,867 3,020
Accrued acquisition costs 5,227 1,229
Other accrued liabilities 3,509 3,259
----------- -----------
$ 25,324 $16,877
=========== ===========
7. LINE OF CREDIT
Pivotal has a credit facility with a Canadian chartered bank which includes
a revolving term operating line of $1,982 (Cdn.$3,000), bearing interest at
the bank's prime rate plus 1% per year, secured by a charge on all current
and future personal property of Pivotal. As of June 30, 2001 and 2000, no
amounts were outstanding under the facility.
69
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
8. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT
Obligations under capital leases and long-term debt were as follows:
June 30,
-------------------------------
2001 2000
------------ ------------
Obligation under capital lease with an interest rate of 5% $ 625 $ -
Note payable, non-interest bearing, unsecured, repaid
subsequent to year-end 365
Other obligations 118
------------ ------------
1,108 -
Less: Current portion (516) -
------------ ------------
$ 592 $ -
============ ============
As of June 30, 2001, future annual minimum lease payments for capital
leases were $500, including $89 of imputed interest.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
Pivotal leases office facilities under operating leases which generally
require Pivotal to pay a share of operating costs, including property
taxes, insurance and maintenance. Pivotal also leases certain equipment
under operating leases.
Future minimum operating lease payments for the years ending June 30
pursuant to leases outstanding as of June 30, 2001 are as follows:
2002 $9,253
2003 6,839
2004 4,176
2005 3,736
2006 2,912
-----------
$26,916
===========
Rent expense totaled approximately $4,755, $2,237 and $1,075 in the years
ended June 30, 2001, 2000 and 1999, respectively. Certain of these lease
obligations have been secured by irrevocable letters of credit for $799, $0
and $50 at June 30, 2001, 2000 and 1999, respectively.
Other Letters of Credit
Subsequent to June 30, 2001, the Company arranged a letter of credit of
$2,477 (Cdn.$3,750). The letter of credit, which expires July 3, 2002,
secures Pivotal's obligations to a third party for tenant improvement
costs.
Legal Proceedings
Pivotal is currently in arbitration with one of its business partners
related to a breach of contract claim against the Company. The Company
believes the claim is without merit and has made a counterclaim. While the
results of the arbitration and claims cannot be predicted with certainty,
the Company believes that the final outcome of this matter will not have a
material adverse effect on Pivotal's business, financial condition, results
of operations or cash flows.
70
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
10. REDEEMABLE CONVERTIBLE PREFERRED SHARES
During the year ended June 30, 1999, Pivotal's shareholders approved an
increase in the authorized capital of Pivotal by authorizing 1,288 Class F
preferred shares which were issued during that year for total proceeds of
$8,000.
The holders of each class of preferred shares had the right to one vote for
each common share into which the preferred shares could be converted.
All of the redeemable preferred shares had the right to receive
non-cumulative dividends at amounts as determined by the directors of
Pivotal. When dividends were paid on any other outstanding class of shares
of Pivotal, the holders of the Class B, Class D, Class E and Class F
preferred shares were entitled to an amount per share equal to that paid on
the other class of shares, as determined on a basis as if all of the
outstanding redeemable preferred shares had been converted into common
shares.
The Class B, Class D, Class E and Class F preferred shares were redeemable
at Pivotal's option with the approval of the holders of 75% of the
outstanding shares of the applicable class, and were retractable at the
holder's option on or after June 30, 2001 at the issue price plus any
declared and unpaid dividends.
Each class of redeemable preferred shares was convertible into common
shares at any time at the option of the holder, using the formula of 0.95
to 1.00 for the Class B preferred shares and one-for-one for Class D, Class
E and Class F preferred shares as provided in the Articles of Pivotal. All
classes of preferred shares were also automatically convertible into common
shares at the conversion price in certain circumstances. All of these
shares were converted into common shares during the year ended June 30,
2000.
11. SHAREHOLDERS' EQUITY
Initial Public Offering
On August 4, 1999, Pivotal's registration statement on Form F-1,
Registration No. 333-92971, became effective. The offering date was August
5, 1999. The offering was terminated as a result of all of the shares
offered being sold. The managing underwriters were Merrill Lynch & Co.,
Bear, Stearns & Co. Inc. and Dain Rauscher Incorporated. The offering
consisted of 3,975 common shares of Pivotal, which included 475 common
shares offered pursuant to the subsequent exercise of the underwriters'
over allotment option on August 19, 1999. The aggregate price of the shares
offered and sold was $47.7 million. Proceeds to Pivotal, after $3.3 million
in underwriting discounts and commissions and $1.3 million in other
expenses, were $43.1 million. Simultaneous with the closing of the
Offering, all outstanding preferred shares were converted into common
shares.
Equity Financing
On November 21, 2000, Pivotal completed an equity financing in Canada of
one million common shares for aggregate proceeds of approximately $55
million. Proceeds to Pivotal were $51.8 million, after $2.2 million in
underwriting discounts and commissions and $1.0 million in other expenses.
This transaction was exempt from Securities Act registration pursuant to
the exclusion from registration provided by Regulation S under the
Securities Act.
71
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
11. SHAREHOLDERS' EQUITY
Preferred Shares, Common Shares and Class B Common Shares
On December 16, 1998, Pivotal's shareholders approved the redesignation of
common shares without par value to Class A common shares without par value.
Pivotal's shareholders also approved the increase in authorized capital by
creating 600 Class B common shares with a par value of Cdn.$0.03 each.
In December 1998 and January 1999, Pivotal issued an aggregate of 477 Class
B common shares in exchange for 477 Class A common shares. Prior to
completion of the initial public offering, all of the issued and
outstanding Class A convertible preferred shares and Class B common shares
were exchanged for common shares on a one-for-one basis.
On June 17, 1999, Pivotal's shareholders approved an increase in the number
of authorized Class A common shares from 50,000 to 200,000 and an increase
in authorized capital by creating 20,000 unissued preferred shares without
par value. Pivotal's shareholders also approved the redesignation of Class
A common shares, both issued and unissued, to common shares without par
value.
The holder of each common share has the right to one vote per share. The
preferred shares could at any time and from time to time be issued in one
or more series and the Board of Directors could determine the special
rights and restrictions of each series including any dividend, conversion
or redemption rights, subject to the approval of at least 75% of the
holders of any outstanding Class A, B, D, E and F preferred shares.
The holders of the Class A preferred shares had the right to one vote for
each common share into which the preferred shares could be converted. The
Class A preferred shares had the same rights to receive dividends as the
redeemable preferred shares discussed in Note 10, and were convertible into
common shares on a one-for-one basis, subject to adjustment under certain
circumstances. The Class A preferred shares were not redeemable or
retractable.
On June 17, 1999, Pivotal's shareholders also approved, subject to the
conversion of the redeemable convertible preferred shares, the Class A
convertible preferred shares and the Class B common shares into common
shares, the cancellation of the authorized Class B common share capital and
the authorized Class A, B, D, E, and F preferred share capital.
Employee Stock Option Plan
Under the terms of the 1999 Pivotal Incentive Stock Option Plan, as amended
(the "Plan"), the Board of Directors may grant incentive and non-qualified
stock options to employees, officers, directors, independent consultants
and contractors of Pivotal and subsidiaries, partnerships, and joint
ventures including directors thereof. Generally, Pivotal grants stock
options with exercise prices equal to the quoted market value of the common
shares on the date of grant, as determined by the Board of Directors.
Options generally vest over a four-year period, but the Board of Directors
may provide for different vesting schedules in particular cases. Options
generally expire five years from the date of grant.
On June 17, 1999, Pivotal's shareholders approved changes to the Plan that
increase the number of shares reserved for issuance pursuant to the Plan by
(a) 1,076 common shares plus (b) an automatic increase on the first day of
each fiscal year beginning on July 1, 2001, equal to the lesser of 800
shares or 4% of the average number of common shares outstanding as used to
calculate fully diluted earnings per share for the preceding year.
On October 25, 2000, Pivotal's shareholders approved an amendment to the
Plan that increased the maximum number of common shares reserved for
issuance under the Plan by 1,500 common shares to 6,576 in order to ensure
sufficient options are available to permit the Company to maintain its
policy of granting options to employees.
72
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
11. SHAREHOLDERS' EQUITY (Continued)
Employee Stock Option Plan (Continued)
Pivotal has assumed certain options granted to former employees of acquired
companies (the "Acquired Options"). The Acquired Options were assumed by
Pivotal outside of the Plan, but all are administered as if issued under
the Plan. All of the Acquired Options have been adjusted to give effect to
the conversion under the terms of the Agreements and Plans of
Reorganization between Pivotal and the companies acquired. The Acquired
Options generally become exercisable over a four year period and generally
expire either five or ten years from the date of grant. No additional
options will be granted under any of the acquired companies' plans.
A summary of stock option activity and information concerning currently
outstanding and exercisable options is as follows:
Options Outstanding
------------------------------
Options Number of Weighted
Available Common Average
for Grant Shares Exercise Price
----------- ----------- ---------------
(Expressed in
Canadian
dollars, except
as noted)
Balances, June 30, 1998 758 742 Cdn.$0.94
----------- ----------- ---------------
Options authorized 2,576 - -
Options granted (866) 866 9.71
Options exercised - (78) 0.28
Options cancelled 75 (75) 3.74
----------- ----------- ---------------
Balances, June 30, 1999 2,543 1,455 Cdn.$6.07
----------- ----------- ---------------
Options authorized 408 - -
Options granted (1,837) 1,837 23.12
Options exercised - (375) 2.96
Options cancelled 270 (270) 10.37
Balances, June 30, 2000 1,384 2,647 US$16.95
----------- ----------- ---------------
Options authorized 1,500 - -
Options granted (2,341) 2,341 26.34
Options exercised - (506) 6.14
Options cancelled (net) 724 (811) 25.80
----------- ----------- ---------------
Balances, June 30, 2001 1,267 3,671 US$22.87
=========== =========== ==============
73
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
11. SHAREHOLDERS' EQUITY (Continued)
Employee Stock Option Plan (Continued)
The U.S. dollar equivalents of the weighted average exercise price
calculated using the year end exchange rates were as follows: $4.12 and
$0.64 as of June 30, 1999 and 1998, respectively.
The following tables summarize information concerning outstanding and
exercisable options at June 30, 2001:
Options Exercisable
----------------------------
Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Exercise Prices Number Contractual Price Number Price
per Share Outstanding Life (in years) per Share Exercisable per Share
---------------- ----------- --------------- -------------- ----------- -------------
$ 0.00 - $ 5.85 395 3.8 $ 2.52 229 $ 1.35
$ 5.85 - $11.70 868 9.5 9.31 29 7.90
$11.70 - $17.55 358 8.7 12.67 43 13.32
$17.55 - $23.40 48 8.9 21.25 10 20.76
$23.40 - $29.25 815 9.0 25.38 162 25.81
$29.25 - $35.10 329 9.0 31.20 35 31.87
$35.10 - $40.95 287 9.3 36.17 28 36.53
$40.95 - $46.80 231 8.9 43.39 13 41.50
$46.80 - $52.65 240 8.9 50.57 42 51.05
$52.65 - $58.50 100 9.3 58.50 3 58.50
---------------- ----------- --------------- -------------- ----------- -------------
$ 0.00 - $58.50 3,671 9.0 $ 22.87 594 $ 17.68
================ =========== =============== ============== =========== =============
Employee Stock Purchase Plan
On June 17, 1999, Pivotal's shareholders approved the adoption of an
employee stock purchase plan and authorized the issuance of up to 1,000
common shares under the plan with amendments as the Board of Directors of
Pivotal may deem desirable. Under the employee stock purchase plan, a
qualified employee may authorize payroll deductions of up to 10% of the
employee's compensation (as defined) to a maximum of $25 to purchase common
stock at 85% of the lower of fair market value at the beginning or end of
the related subscription period.
Common Shares Reserved for Future Issuance
Pivotal has reserved common shares as of June 30, 2001 as follows:
Exercise of stock options 4,937
Employee Stock Purchase Plan 859
---------
5,796
=========
74
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
11. SHAREHOLDERS' EQUITY (Continued)
Employee Stock Option Plan (Continued)
Under APB Opinion No. 25, because the exercise price of Pivotal's employee
stock options generally equals the fair value of the underlying stock on
the date of grant, no compensation expense is recognized. Deferred
compensation expense of $473 was recorded during 1999 for those situations
where the exercise price of an option was lower than the deemed fair value
for financial reporting purposes of the underlying common stock. The
deferred compensation is being amortized over the vesting period of the
underlying options. Amortization of the deferred share-based compensation
balance of $81 at June 30, 2001 will approximate $58 and $23 during the
fiscal years ending June 30, 2002 and 2003, respectively.
An alternative method of accounting for stock options is SFAS No. 123,
Accounting for Stock-Based Compensation. Under SFAS No. 123, employee stock
options are valued at the grant date using the Black-Scholes valuation
model and the resultant compensation cost is recognized ratably over the
vesting period. Had compensation cost for Pivotal's share option plan been
determined based on the Black-Scholes value at the grant dates for awards
as prescribed by SFAS No. 123, the pro forma net loss and basic and diluted
loss per share would have been as follows:
Years Ended June 30,
--------------------------------------
2001 2000 1999
------------ ------------ ------------
Net loss
As reported $ (32,455) $ (8,362) $ (2,808)
SFAS No. 123 pro forma (48,901) (10,541) (2,849)
Basic and diluted loss per share
As reported $ (1.40) $ (0.45) $ (0.72)
SFAS No. 123 pro forma (2.11) (0.57) (0.73)
Compensation expense recognized in providing pro forma disclosures may not
be representative of the effects on pro forma earnings for future years
since SFAS No. 123 applies only to options granted after 1996.
The weighted average Black-Scholes option pricing model value of options
granted under the share option plan during the years ended June 30, 2001,
2000 and 1999 were U.S.$20.76, U.S.$15.45 and Cdn.$1.92 (U.S.$1.30) per
share, respectively. The fair value for these options was estimated at the
date of grant using the following weighted average assumptions:
Years Ended June 30,
--------------------------------------
2001 2000 1999
------------ ------------ ------------
Assumptions
Volatility factor of expected
market price of Pivotal's shares 121.2% 85.0% 0.0%
Dividend yield 0.0% 0.0% 0.0%
Weighted average expected
life of stock options (years) 4.0 years 4.0 years 4.0 years
Risk free interest rate 5.0% 7.0% 5.6%
75
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
12. INCOME TAXES
Details of the income tax provision (recovery) were as follows:
Years Ended June 30,
--------------------------------------
2001 2000 1999
------------ ------------ ------------
Current
Canadian $ (547) $ - $ (47)
Foreign 1,050 557 290
------------ ------------ ------------
503 557 243
Deferred
Canadian - - -
------------ ------------ ------------
Income tax provision $ 503 $ 557 $ 243
============ ============ ============
The reported income tax provision differs from the amount computed by
applying the Canadian basic statutory rate to the loss before income taxes.
The reasons for this difference and the related tax effects are as follows:
Years Ended June 30,
--------------------------------------
2001 2000 1999
------------ ------------ ------------
Canadian basic statutory tax rate 45% 45% 45%
------------ ------------ ------------
Expected income tax recovery $(14,378) $ (3,512) $(1,154)
Foreign tax rate differences (137) (155) (144)
Goodwill amortization and other
non-deductible expenses 10,087 2,661 56
Research and development tax credits (470) (127) (47)
Benefit of losses not tax affected 3,407 389 1,484
Benefit of temporary differences
not recognized 1,994 1,301 48
------------ ------------ ------------
$ 503 $ 557 $ 243
============ ============ ============
76
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
12. INCOME TAXES (Continued)
Deferred income taxes result principally from temporary differences in the
recognition of certain revenue and expense items for financial and income
tax reporting purposes. Significant components of Pivotal's deferred tax
assets and liabilities as of June 30, 2001 and 2000 are as follows:
2001 2000
---------- ----------
Deferred income tax assets
Net operating tax loss carry-forwards $ 6,158 $ 4,547
Research and development expenses 220 85
Book and tax base differences on assets 2,388 -
Other 87 80
---------- ----------
Total deferred income tax assets 8,853 4,712
Valuation allowance for deferred income tax assets (8,831) (4,547)
---------- ----------
Net deferred income tax assets 22 165
Deferred income tax liabilities
Book and tax base differences on assets - 187
---------- ----------
Net deferred income tax liabilities included in accounts
payable and accrued liabilities $ 22 $ 22
========== ==========
Due to the uncertainty surrounding the realization of the deferred income
tax assets in future income tax returns, Pivotal has a 100% valuation
allowance against its deferred income tax assets. The net change in the
total valuation allowance for the years ended June 30, 2001 and 2000 was a
provision of $(4,284) and $1,346, respectively.
As of June 30, 2001, Pivotal has tax loss carry-forwards of approximately
$13,685 available to reduce future years' income for tax purposes. These
carry-forward losses expire at various dates between 2003 to 2007.
13. COMPREHENSIVE LOSS
The components of comprehensive loss were as follows:
Years ended June 30,
-----------------------------------------
2001 2000 1999
---------- ---------- -----------
Net loss $(32,455) $(8,362) $(2,808)
Change in unrealized loss on
available-for-sale securities (203) - -
---------- ---------- -----------
Total $(32,658) $(8,362) $(2,808)
========== ========== ===========
77
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
14. CHANGE IN OPERATING ASSETS AND LIABILITIES
The change in operating assets and liabilities was as follows:
Years ended June 30
-----------------------------------------
2001 2000 1999
---------- ---------- -----------
Accounts receivable $(9,156) $(7,511) $(1,188)
Prepaid expenses (761) (545) (323)
Accounts payable and accrued liabilities 4,141 7,260 4,370
Deferred revenue 4,408 3,265 1,337
---------- ---------- -----------
$(1,368) $ 2,469 $ 4,196
========== ========== ===========
15. RELATED PARTY TRANSACTIONS
During the year ended June 30, 2000, Pivotal entered into an agreement to
license software from a company with a former director in common under
which Pivotal paid $350.
During the year ended June 30, 2001, Pivotal loaned a total of $320 to two
officers of the Company. One of these loans is secured by certain shares of
a private company and the other is unsecured. Both loans are non-interest
bearing and are due within one year.
16. SEGMENTED INFORMATION
Pivotal operates in one business segment, the development, marketing, and
supporting of Internet and corporate network-based software applications
used for managing customer and selling partner relationships.
Pivotal licenses and markets its products internationally. The following
table presents a summary of revenues by geographical region:
Years ended June 30
-----------------------------------------
2001 2000 1999
---------- ---------- -----------
United States $ 52,409 $ 32,591 $ 18,779
Canada 11,435 5,574 1,463
International 31,446 14,774 5,085
---------- ---------- -----------
$ 95,290 $ 52,939 $ 25,327
========== ========== ===========
Pivotal attributes revenue among the geographical areas based on the
location of the customers involved.
78
PIVOTAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars;
all amounts in thousands except amounts per share)
16. SEGMENTED INFORMATION (Continued)
The following table presents a summary of property and equipment by
geographic region:
June 30,
------------------------------
2001 2000
------------ --------------
Property and equipment
United States $1,012 $1,395
Canada 5,836 4,624
International 2,335 1,212
------------ --------------
$9,183 $7,231
============ ==============
Schedule II -- Valuation and Qualifying Accounts Years ended June 30, 2001, 2000
and 1999 (in thousands) Allowance for Doubtful Accounts
Balance at Additions Additions
beginning of charged to costs charged to Balance at
Year year and expenses other accounts Write-offs end of Year
-------- ----------- ------------- -------------- ----------- ------------
2001 $740 3,312 -- 1,792 $2,260
2000 $ 334 626 -- 220 $740
1999 $ 91 243 -- -- $334
79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The table below provides the names, ages, and positions with Pivotal of our
executive officers and directors:
NAME AGE POSITION
----------------------------------------- ---- ---------------------
Kent Roger (Bo) Manning......................43 President,.Chief.Executive.Officer and Director
Norman B. Francis............................52 Chairman of the Board of Directors
Keith R. Wales ............................. 56 Executive Vice President, Corporate Projects and
Director
Vincent D. Mifsud............................34 Chief Operating Officer, Chief Financial Officer
and Executive Vice President
Robert A. Runge..............................47 Chief Marketing Officer
Kirk T. Herrington ..........................43 Chief Technical Oficer & Exectuive Vice
President, Product Development
Martin Palacios..............................38 Chief Information Officer
Jeremy A. Jaech .............................46 Director
Robert J. Louis..............................56 Director
Douglas J. Mackenzie ........................41 Director
Steven M. Gordon.............................42 Director
-----------
KENT ROGER (BO) MANNING has served as President, Chief Executive Officer
and a director since August 2001. Prior to joining Pivotal, Mr. Manning served
as co-founder and Chief Executive Officer of Roundarch, a CRM solutions joint
venture between Deloitte Consulting, BroadVision, and WPP Group (holding company
for Ogilvy & Mather, Young & Rubicam Inc., J. Walter Thompson),from January 2000
to August 2001. Mr. Manning served as Global CRM Practice Leader, for Deloitte
Consulting, from 1995 to 1999. Mr. Manning also served as a Consultant to
Deloitte Consulting from 1987 to 1995. Prior to that, Mr. Manning served as
General Manager of Infopro from 1984 to 1987. Mr. Manning holds a triple
Bachelor of Arts degree from the University of Michigan in business, economics
and psychology and received his MBA in 1987, from Northwestern University with a
double major in marketing and finance.
NORMAN B. FRANCIS co-founded Pivotal in 1990 and has served a director
since December 1990 and as President and Chief Executive Officer from December
1990 to August 2001. Mr. Francis' experience prior to co-founding Pivotal
includes co-founding Basic Software Group Inc., an accounting software company,
in 1979. Mr. Francis served as Basic Software Group's Vice President, Operations
until the company was acquired by Computer Associates International, Inc., a
software company, in 1985. Mr. Francis served as Vice President, Micro Products
Division of Computer Associates International Inc. from 1985 to 1990. Mr.
Francis holds a bachelor of science degree in Computer Science from the
University of British Columbia, Canada and is a Chartered Accountant.
80
KEITH R. WALES co-founded Pivotal in 1990 and has served as a director
since December 1990 and as Executive Vice President, Corporate Projects since
January 2001. Mr. Wales also served as Chief Technical Officer from July 1999
through December 2000 and as Vice President, Research and Development from
December 1990 through July 1999. Mr. Wales' experience prior to co-founding
Pivotal includes co-founding Basic Software Group Inc., an accounting software
company, in 1979. Mr. Wales served as Basic Software Group's Vice President,
Research and Development until the company was acquired by Computer Associates
International, Inc. in 1985. Mr. Wales served as Divisional Vice President,
Research and Development of Computer Associates International, Inc. from 1985 to
1986. Mr. Wales holds a bachelor of science degree in Mathematics and a master's
of science degree in Computer Science from the University of British Columbia,
Canada.
VINCENT D. MIFSUD has served as Chief Operating Officer since January 2001,
Chief Financial Officer since December 1998 and Executive Vice President since
July 2000. Mr. Mifsud also served as Vice President, Operations from December
1998 to July 2000. Prior to joining Pivotal, Mr. Mifsud served as Controller,
Vice President, Finance and Chief Financial Officer of Rand Technology, Inc., a
software developer and value added reseller of mechanical design automation
tools and services, from May 1993 to December 1998. Prior to this, Mr. Mifsud
worked for three years with Arthur Andersen LLC in their Enterprise Division.
Mr. Mifsud holds a bachelor's degree in Commerce and Economics from the
University of Toronto, Canada and is a Chartered Accountant.
ROBERT A. RUNGE has served as Chief Marketing Officer since July 2000. Mr.
Runge also served as Vice President, Worldwide Marketing from September 1997 to
July 2000. Before joining Pivotal, Mr. Runge served as Vice President, Marketing
of BroadVision, Inc., an Internet marketing software company, from September
1995 to September 1997. Mr. Runge served as Director of Product Marketing of
Sybase, a software company, from September 1990 to September 1995. Prior to
joining Sybase, Mr. Runge served as Director of Education Services of Oracle
Corporation, a software company, from July 1988 to September 1990. Mr. Runge
holds two bachelors' degrees from the University of Illinois, Champagne-Urbana
and a master's degree in Business Administration (Marketing) from the University
of Illinois, Chicago.
KIRK T. HERRINGTON has served as Executive Vice President, Product
Development since July 2001, Chief Technical Officer since January 2001 and
Deputy Chief Technical Officer from June 2000 to January 2001. Mr. Herrington
co-founded and served as Chief Executive Officer of Simba Technologies Inc., a
leader in ODBC connectivity for proprietary data stores and OLAP data access
solutions, from January 1998 to June 2000, when Simba was acquired by Pivotal.
Mr. Herrington also served as Vice President and Chief Technical Officer of
Simba from July 1992 to December 1997. Prior to co-founding Simba, Mr.
Herrington co-founded Paradigm Development Corporation and served as Vice
President, Research & Development from March 1989 to June 1992. Mr. Herrington
also served as Software Development Manager of Synex Systems Corporation from
1982 to 1989. Mr. Herrington holds a bachelor's degree in Science from
University of British Columbia, Canada and has completed the Advanced Technology
Management Program at Simon Fraser University, Canada.
MARTIN E. PALACIOS has served as Chief Information Officer since January
2001. Before joining Pivotal, Mr. Palacios served as Vice-President of
Information Technology and Facilities of Seagate Software from April 1998 to
February 2000. Mr. Palacios also served as Director of Information Technology of
Seagate Software from December 1995 to April 1998. Prior to joining Seagate, Mr.
Palacios served as Director of Telecommunications and Networks of Memorial
Health Systems from December 1994 to November 1995. Mr. Palacios also served as
Manager of Information Systems of Florida Hospital Healthcare System from
September 1989 to December 1994. Mr. Palacios holds a bachelors degree in
Science and Math from Technical Institute of Higher Studies of Monterey, Mexico
and an Associate of Science in Industrial Electronics with a Computer Science
Specialty from Santa Fe Community College, Gainesville, Florida.
JEREMY A. JAECH has served as a director since July 1996. Mr. Jaech
currently serves as Managing Member, Poseidon Ventures LLC. Prior to Poseidon
Ventures, Mr. Jaech served as Vice President for the Business Tools Division at
Microsoft Corporation. Prior to Microsoft, Mr. Jaech co-founded Visio
Corporation in September 1990, a supplier of enterprise-wide business
diagramming and technical drawing software for Microsoft Windows, which was
later sold to Microsoft. Prior to co-founding Visio Corporation, Mr. Jaech
co-founded Aldus Corporation in 1984 and served as Vice President, Engineering.
Aldus Corporation was purchased by Adobe Systems Incorporation in 1989. Mr.
Jaech holds a bachelor's degree in Mathematics and a master's degree in Computer
Science from the University of Washington.
ROBERT J. LOUIS has served as a director since June 1995. Since March 1999,
Mr. Louis has served as President of Ventures West Management Ltd., a venture
capital firm which he joined as an Executive Vice President in January 1991. Mr.
Louis earned a bachelor of science degree and a master's degree in Science from
the University of Victoria, British Columbia, Canada and a Ph.D. in Physics from
the University of British Columbia, Canada.
81
DOUGLAS J. MACKENZIE has served as a director since July 1992. Mr.
Mackenzie has served as a Limited Partner of Kleiner, Perkins, Caufield & Byers,
a venture capital firm specializing in high-tech companies, since June 1989 and
a General Partner since April 1994. Mr. Mackenzie also serves as a director of
Marimba, Inc. and E.piphany, Inc. Mr. Mackenzie holds a bachelor's degree in
Economics and a master's degree in Industrial Engineering from Stanford
University and a master's degree in Business Administration from Harvard
University.
Steven M. Gordon has served as a director since November 2000. Mr. Gordon
currently serves as Strategic Advisor to Wavelink Corporation. Prior to
Wavelink, Mr. Gordon has served as Vice President of Microsoft Corporation from
January 2000 to August 2000, as Senior Vice President and Chief Financial
Officer of Visio Corporation from February 1997 to January 2000, as Vice
President and Chief Financial Officer of Data I/O Corporation from October 1993
to February 1997, as Vice President, Finance of Data I/O Corporation from May
1992 to October 1993 and as Corporate Controller of Data I/O Corporation from
April 1989 to May 1992. Mr. Gordon holds a Bachelor of Arts degree from
Washington State University and is a Certified Public Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The following table describes the compensation we paid to, or that was earned
by, our Chief Executive Officer, President and our four most highly compensated
executive officers during the fiscal year ended June 30, 2001.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------------------------------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER UNDERLYING
OPTIONS
-----------------------------------------------------------------------------------------------------------------------------------
Norman B. Francis 2001 Cdn.$175,000 Cdn.$ 19,689 -- 25,000
President and Chief 2000 Cdn.$175,000 Cdn.$ 78,983 -- 25,000
Executive Officer (1) 1999 Cdn.$120,000 -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
Keith R. Wales 2001 Cdn.$112,500 Cdn.$ 9,063 -- 25,000
Executive Vice President, Corporate Projects (2) 2000 Cdn.$150,000 Cdn.$ 35,931 -- 25,000
1999 Cdn.$120,000 Cdn.$ 37,064 -- --
-----------------------------------------------------------------------------------------------------------------------------------
Vincent D. Mifsud 2001 Cdn.$225,000 Cdn.$ 108,532 -- 250,000
Chief Operating Officer, Chief Financial Officer 2000 Cdn.$175,000 Cdn.$ 103,755 -- 20,000
and Executive Vice President 1999 Cdn.$85,192 Cdn.$ 47,068 Cdn.$14,269 160,000
-----------------------------------------------------------------------------------------------------------------------------------
Robert A. Runge 2001 US$190,000 -- -- 70,000
Chief Marketing Officer 2000 US$160,000 US$ 53,665 -- 20,000
1999 US$141,282 US$ 39,651 -- 60,000
-----------------------------------------------------------------------------------------------------------------------------------
Kirk Herrington 2001 Cdn.$125,000 -- -- 10,000
Chief Technical Officer and Executive Vice 2000 -- -- -- 80,636
President, Product Development (3)
------------------
(1) On August 27, 2001 Mr. Francis resigned as President and Chief Executive
Officer and Kent Roger (Bo) Manning was appointed President and Chief
Executive Officer
(2) We hired Mr. Mifsud in December 1998. Mr. Mifsud's annual salary was
Cdn.$150,000 of which Cdn. $85,192 was paid to Mr. Mifsud during the fiscal
year ended June 30, 2000. Mr. Mifsud's guaranteed annual bonus was
Cdn.$57,750 of which Cdn.$32,799 was paid to Mr. Mifsud during the fiscal
year ended June 30, 1999. We also have accrued a performance-based bonus of
Cdn.$14,269 to Mr. Mifsud for the year ended June 30, 1999.
(3) Mr. Herrington's salary is from September 1, 2000 to June 30, 2001.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information regarding stock option grants to our
chief executive officer and our named executive officers during the fiscal year
ended June 30, 2001. The potential realizable value of the options is calculated
based on the assumption that the common shares appreciate at the annual rate
shown, compounded annually, from the date of grant until the expiration of their
term.
82
These numbers are calculated based on Securities and Exchange Commission
requirements and do not reflect our projection or estimate of future share price
growth. Potential realizable values are computed by:
-- multiplying the number of common shares subject to a given option by the
exercise price
- assuming that the aggregate share value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table
for the entire term of the option; and
-- subtracting from that result the aggregate option exercise price.
INDIVIDUAL GRANTS
------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF SHARE
NUMBER OF OPTIONS PRICE APPRECIATION FOR OPTION TERM
SECURITIES GRANTED TO EXERCISE ----------------------------------------
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION
NAME OPTIONS FISCAL YEAR SHARE DATE 5% 10%
------------------ --------------- ---------------- -------------- -------------- ------------------- ---------------
Norman B. Francis 25,000 1.06% $ 35.375 Jul. 26, 2010 $ 556,179 $1,409,466
Keith R. Wales 25,000 1.06% $ 35.375 Jul. 26, 2010 $ 556,179 $1,409,466
Vincent D. Mifsud 20,000 0.85% $ 35.375 Jul. 26, 2010 $ 444,943 $1,127,573
80,000 3.40% $ 50.00 Nov. 13, 2010 $2,515,579 $6,374,970
20,000 0.85% $ 23.75 Jan. 8, 2011 $ 298,725 $ 757,028
130,000 5.53% $ 9.4375 Apr. 3, 2011 $ 771,575 $1,955,323
Robert A. Runge 20,000 0.85% $ 35.375 Jul. 26, 2010 $ 444,943 $1,127,573
20,000 0.85% $ 29.8125 Jan. 25, 2011 $ 374,978 $ 950,269
20,000 0.85% $ 22.00 Apr. 26, 2011 $ 276,714 $ 701,247
10,000 0.43% $ 9.4375 April 3, 2011 $ 59,352 $ 150,409
Kirk Herrington 10,000 0.43% $ 9.375 Apr. 3, 2011 $ 59,352 $ 150,409
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information regarding the exercise of options to
purchase common shares by our Named Executive Officers during the fiscal year
ended June 30, 2001. The value of unexercised in-the-money options is based on
the closing price of our common shares on the Nasdaq National Market on July 2,
2001 of $18.20, minus the exercise price per share.
AGGREGATED OPTIONS EXERCISED DURING 2001 FISCAL YEAR
AND FINANCIAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
SHARES ACQUIRED VALUE -------------------------- -----------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ --------------------- ----------- ----------------- ------------------ ----------------- ----------------
Norman B. Francis -- -- 50,762 47,088 $738,307 $ 113,244
Keith R. Wales -- -- 9,375 40,625 $ --
Vincent D. Mifsud 52,500 $1,068,983 28,750 308,750 $127,752 $1,905,635
Robert A. Runge 15,000 $ 503,538 10,000 102,500 $ -- $ 382,695
Kirk Herrington 1,442 $ 84,761 20,157 69,037 $ 22,495 $ 132,631
------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationships exist between our board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
We do not currently pay cash compensation to directors for serving on our board
of directors, but we do reimburse directors for out-of-pocket expenses for
attending board and committee meetings. We do not provide additional
compensation for committee participation or special assignments of the Board of
Directors. Of our directors, Messrs. MacKenzie, Jaech, Gordon, Francis and Wales
received stock options for their participation on our board of directors for the
year ended June 30, 2001. Messrs. Francis and Wales received options to purchase
25,000 common shares at a price of $35.375 per share. Messrs. MacKenzie, Jaech
and Gordon received options to purchase 40,000 common shares at a price of
$36.25 per share.
83
EMPLOYMENT CONTRACTS
We entered into an employment contract with Robert Runge on August 14, 1997. Mr.
Runge's current base salary is $200,000, with a potential incentive compensation
of $90,000. Mr. Runge's salary is reviewed annually by the Compensation
Committee. Mr. Runge was also granted options to purchase common shares and is
eligible to receive further grants in the future.
We entered into an employment contract with Vincent Mifsud on November 16, 1999.
Mr. Mifsud's current base salary is Cdn. $300,000, with a potential incentive
compensation of US$150,000. Mr. Mifsud's salary is reviewed annually by the
Compensation Committee. Mr. Mifsud was also granted options to purchase common
shares and is eligible to receive further grants in the future.
We entered into an employment contract with Kirk Herrington on June 7, 2000. Mr.
Herrington's current base salary is Cdn.$150,000. Mr. Herrington's salary is
reviewed annually by the Compensation Committee. Mr. Herrington was also granted
options to purchase common shares in Pivotal and is eligible to receive further
grants in the future.
We entered into an employment contract with Kent Roger (Bo) Manning on August
22, 2001. Mr. Manning's current base salary is US$350,000 with a potential
incentive compensation of US$300,000. Mr. Manning's salary is reviewed annually
by the Compensation Committee. Mr. Manning was also granted 1,000,000 options to
purchase common shares and is eligible to receive further grants in the future.
REPORT ON EXECUTIVE COMPENSATION BY THE COMPENSATION COMMITTEE
The Compensation Committee currently consists of Jeremy A. Jaech and Robert J.
Louis. The committee is responsible for establishing and monitoring our long
range plans and programs for attracting, training, developing and motivating
employees. The committee reviews recommendations for the appointment of persons
to senior executive positions, considers terms of employment, including
succession planning and matters of compensation, and recommends awards under our
incentive stock option plan and the employee share purchase plan.
Our compensation policies and programs are designed to be competitive with
similar customer relationship management companies in the electronic commerce
environment and to recognize and reward executive performance consistent with
the success of our business. These policies and programs are intended to attract
and retain capable and experienced people.
In addition to industry comparables, the Committee considers a variety of
factors when determining both compensation policies and programs and individual
compensation levels. These factors include our long-range interests, overall
financial and operating performance and the committee's assessment of each
executive's individual performance and contribution towards meeting goals and
objectives.
The total compensation plan for executive officers is comprised of the following
three components: competitive base salary, annual cash bonuses and stock
options.
Base Salary. In establishing base salaries of all executive officers, the
committee reviews competitive market data for each of the executive positions
and determines placement at an appropriate level in a range. Compensation levels
are typically negotiated with the candidate for the position prior to his or her
final selection as an executive officer. Additionally, a review of the chief
executive officer's performance and a general review of our stock price are
considered. The compensation range for executive officers normally moves
annually to reflect external factors such as inflation. The chief executive
officer's annual base salary remained the same at Cdn$175,000 for the years
ended June 30, 2001 and 2000. The base salary of the chief executive officer is
set at an amount the committee believes is competitive with salaries paid to
executives of companies of comparable size in similar industries and located
within the local area.
Bonuses. Cash bonuses are used to reward executive officers for meeting specific
performance targets as mutually agreed upon on an annual basis. During the year
ended June 30, 2001, the chief executive officer was awarded a bonus in the
amount of Cdn$19,689. This bonus was paid to the chief executive officer for his
ongoing contributions to Pivotal during the past fiscal year.
Stock Option Grants. We provide our executive officers and other employees with
long-term incentives through our incentive stock option plan, which is intended
to emphasize management's commitment to our growth and the enhancement of
shareholder value. The committee relies on a variety of subjective factors when
granting options, including the responsibilities of the individual officers and
their expected future contribution. In the year ended June 30, 2001, Norman
Francis, the chief executive officer, was granted options to purchase 25,000
common shares as an incentive for his continued commitment to the our success.
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total shareholder return
for Pivotal, the S&P 500 Index, theXCI and TSE. The graph shows the value of
$100 invested on August 5, 1999 in our common shares, the S&P 500 Index, XCI and
TSE.
84
[PERFORMANCE GRAPH OMITTED]
--------------------------------------------------------------------------------
August 5, 1999 August 4, 2000 August 3, 2001
--------------------------------------------------------------------------------
Pivotal Corporation $ 100.00 $ 275.52 $72.85
S&P 500 $ 100.00 $ 129.15 $92.44
XCI $ 100.00 $ 147.21 $80.94
TSE $ 100.00 $ 153.01 $112.13
85
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information concerning the beneficial ownership of
our common shares as of September 1, 2001:
-- our chief executive officer;
-- all officers whose annual compensation was more than US$100,000 during
fiscal 2001;
-- each of our directors;
-- each shareholder that we know owns more than 5% of our outstanding
common shares; and
-- all our directors and executive officers as a group.
The principal address of each of the shareholders below is 224 West Esplanade,
Suite 300, North Vancouver, BC, Canada V7M 3M6, except where another address is
listed.
NUMBER OF SHARES PERCENT OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED SHARES OWNED
------------------------------------------------- ------------------------- ------------------
Kent Roger (Bo) Manning.......................... 0 0%
Norman B. Francis (1)............................ 2,026,843 8.43%
Keith R. Wales (2)............................... 991,424 4.13%
Vincent D. Mifsud (3)............................ 64,750 0.27%
Jeremy A. Jaech (4).............................. 120,556 0.5%
Robert J. Louis (5).............................. 1,559,458 6.5%
Douglas J. Mackenzie (6)......................... 865,365 3.61%
Steven M. Gordon................................. 0 0%
Robert A. Runge (7).............................. 29,592 0.12%
Kirk Herrington (8).............................. 46,665 0.19
Ventures West Capital Limited (9)................ 1,559,458 6.5%
Kleiner Perkins Caufield & Byers VI (10)......... 865,365 3.61%
2750 Sand Hill Road
Menlo Park, CA 94025
Integral Capital Partners II, L.P. (11).......... 1,350,415 5.63%
2750 Sand Hill Road
Menlo Park, CA 94025
All directors and executive officers as a group
(11 persons) (12)................................ 7,055,068 29.08%
---------
(1) Includes (a) 400,800 shares held of record by The Francis Family
Trust, a family trust for the benefit of Mr. Francis and his three
children; (b) 697,143 shares held of record by Boardwalk Ventures
Inc., a holding company owned 50% by Mr. Francis and 50% by his
spouse; and (c) 60,243 shares subject to options exercisable by Mr.
Francis within 60 days of September 1, 2001.
(2) Includes (a) 378,572 shares held of record by Daybreak Software Inc.,
a holding company owned solely by Mr. Wales, of which Mr. Wales has
sole voting power; (b) 15,624 shares subject to options exercisable by
Mr. Wales within 60 days of September 1, 2001. Mr. Wales disclaims
beneficial ownership of any shares held by his former spouse, Patricia
Wales.
(3) Includes 63,750 shares subject to options exercisable within 60 days
of September 1, 2001.
(4) Includes 65,000 shares subject to options exercisable within 60 days
of September 1, 2001.
(5) Includes (a) 363,514 shares held of record by Bank of Montreal Capital
Corporation which is managed by Ventures West Management TIP Inc., an
entity wholly owned by Ventures West Capital Ltd.; and (b) 1,195,944
shares held of record by VW B.C. Technology Investment Fund Limited
Partnership, of which Ventures West Management B.C. Ltd. is the
general partner. Ventures West Management B.C. Ltd. is wholly owned by
Ventures West Capital Ltd. Mr. Louis, as President of Ventures West
Capital Ltd., a venture capital firm with controlled subsidiaries
which include
86
Ventures West Management TIP Inc. and Ventures West Management B.C.
Ltd., disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest.
(6) Includes (a) 795,296 shares held by Kleiner Perkins Caufield & Byers
VI, an entity affiliated with Kleiner Perkins Caufield & Byers of
which Mr. Mackenzie is a limited partner. Mr. Mackenzie disclaims
beneficial ownership of such shares except to the extent of his
pecuniary interest. Brook Byers, L. John Doerr, Vinod Khosla, E. Floyd
Kvamme, Joseph Lacob, Bernie Lacroute and Jim Lally are the General
Partners of KPCB VI Associates, the General Partner of Kleiner Perkins
Caufield and Byers Vi and (b) 5,000 shares subject to options
exercisable by Mr. Mackenzie within 60 days of September 1, 2001.
(7) Includes 28,750 shares subject to an option exercisable within 60 days
of September 1, 2001. Of the shares held by Mr. Runge, up to 31,250
shares are subject to repurchase by Pivotal at the option exercise
price paid by Mr. Runge if Mr. Runge's employment is terminated.
(8) Includes 22,849 shares subject to an option exercisable within 60 days
of September 1, 2001.
(9) Includes (a) 363,514 shares held of record by Bank of Montreal Capital
Corporation which is managed by Ventures West Management TIP Inc., an
entity wholly owned by Ventures West Capital Ltd.; and (b) 1,195,944
shares held of record by VW B.C. Technology Investment Fund Limited
Partnership, of which Ventures West Management B.C. Ltd. is the
general partner. Ventures West Management B.C. Ltd. is wholly owned by
Ventures West Capital Ltd. Mr. Louis, as President of Ventures West
Capital Ltd., a venture capital firm with controlled subsidiaries
which include Ventures West Management TIP and Ventures West
Management B.C. Ltd., disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest.
(10) Includes 795,296 shares held by Kleiner Perkins Caufield & Byers VI,
an entity affiliated with Kleiner Perkins Caufield and Byers of which
Mr. Mackenzie is a limited partner. Mr. Mackenzie disclaims beneficial
ownership of such shares except to the extent of his pecuniary
interest. Brook Byers, L. John Doerr, Vinod Khosla, E. Floyd Kvamme,
Joseph Lacob, Bernie Lacroute and Jim Lally are the General Partners
of KPCB VI Associates, the General Partner of Kleiner Perkins Caufield
and Byers VI.
(11) Includes (a) 1,025,608 shares held of record by Integral Capital
Partners II, L.P.; (b) 324,807 shares held of record by
Integral Capital Partners International II C.V.
(12) Includes 261,216 shares subject to options exercisable within 60 days
of September 1, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended June 30, 2001, we loaned a total of $320,000 to two of our
officers. Of the $320,000, $250,000 was loaned to Vincent Mifsud, Chief
Operating Officer, Chief Financial Officer and Executive Vice President. The
loan to Mr. Mifsud is non-interest bearing, due within one year and is secured
by certain shares of a private company. The other loan is non-interest bearing,
due within one year and is unsecured.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. Index to Consolidated Financial Statements
Page
Independent Auditor's Report........................................ 53
Consolidated Balance Sheets......................................... 54
Consolidated Statements of Operations............................... 55
Consolidated Statements of Shareholders' Equity 56
Consolidated Statements of Cash Flows............................... 57
Notes to Consolidated Financial Statements.......................... 58
87
2. Index to Financial Statement Schedules
Page
Schedule II - Valuation and Qualifying Accounts..................... 79
(b) Reports on Form 8-K
Not Applicable
(c) Exhibits
EXHIBIT NO. DESCRIPTION
------------ -------------
2.1(1) Share Purchase Agreement by and between Pivotal and Pierre
Marcel, Marc Bahda, Bernard Wach and Other Shareholders of
Transitif S.A., dated December 3, 1999
2.2(2) Stock Purchase Agreement among Pivotal and Industrial & Financial
Systems AB and Eli Barak, Alon Hod and Tony Topaz concerning all
of the Shares of Exactium Ltd. dated April 11, 2000
2.3(3) Share Purchase Agreement among Pivotal and David Pritchard, Kirk
Herrington, Michael Satterfield, Calvin Mah, VW B.C. Technology
Investment Fund, LP, Venrock Associates, Venrock Associates II,
LP, Working Ventures Canadian Fund Inc., Bank of Montreal Capital
Corporation, Sussex Capital Inc. and the Other Shareholders of
Simba Technologies Inc. concerning all of the Shares of Simba
Technologies Inc. dated May 29, 2000
3.2(4) Memorandum and Articles
4.1(4) Specimen of common share certificate
4.2(4) Registration Rights (included in Exhibit 10.15)
4.3(2) Registration Rights Agreement dated June 2, 2000 (included in
Exhibit 2.2)
4.4(3) Registration Rights Agreement dated June 26, 2000 (included in
Exhibit 2.3)
4.5 Specimen of common share certificate as of August 17, 2000
10.1(4) Employee Share Purchase Plan
10.2(4) Lease dated as of July 18, 1997 between Sodican (B.C.) Inc. and
Pivotal for premises located in North Vancouver, B.C.
10.3(4) Lease dated as of May 26, 1998 between Novo Esplanade Ltd. and
Pivotal for premises located in North Vancouver, B.C.
10.4(4) Lease(1) dated as of December 14, 1998 between B.C. Rail Ltd. and
Pivotal for premises located in North Vancouver, B.C.
10.5(4) Lease(2) dated as of December 14, 1998, between B.C. Rail Ltd.
and Pivotal with respect to premises located in North Vancouver,
B.C.
88
10.6(4) Lease dated as of December 11, 1998 between The Plaza at Yarrow
Bay Inc. (previously Yarrow Bay Office III Limited Partnership)
and Pivotal with respect to premises located in Kirkland,
Washington
#10.7(4) Letter agreement dated November 21, 1997 between Pivotal and
Robert A. Runge granting an option to purchase 250,000 common
shares
10.8(4) Canadian Imperial Bank of Commerce Cdn$2,000,000 Committed
Installment Loan dated March 18, 1998
10.9(4) Canadian Imperial Bank of Commerce Cdn$3,000,000 Operating Line
of Credit dated March 18, 1998
10.10(4) Security Agreement with Canadian Imperial Bank of Commerce dated
for reference April 15, 1998
10.11(4) Contract Relative to Special Security under the Bank Act between
Canadian Imperial Bank of Commerce and Pivotal dated April 30,
1998
10.12(4) Canadian Imperial Bank of Commerce Schedule - Standard Credit
Terms dated March 18, 1998
10.13(4) Canadian Imperial Bank of Commerce Schedule-Standard Credit Terms
dated March 18, 1998
10.14(4) Form of Indemnity Agreement between Pivotal and directors and
officers of Pivotal
10.15(4) Investors' Rights Agreement dated January 15, 1999
10.16(5) Assignment Agreement dated July 12, 2000 between Pivotal and Meta
Creations International Limited for premises located in Dublin,
Republic of Ireland; Sub-Lease dated September 22, 1999 between
The H.W. Wilson Company Inc. and Meta Creations International
Limited for premises located in Dublin, Republic of Ireland
10.17(5) Lease dated April 14, 2000 among Deramore Holdings Limited(1),
Pivotal Corporation (NI) Limited (2) and Pivotal for premises
located in Belfast, Northern Ireland
#10.18(5) Employment Agreement between Vince Mifsud and Pivotal dated
November 10, 1998
10.19(6) Exactium Ltd. 1999 Stock Option Plan
10.20(7) Simba Technologies Incentive Stock Option Plan, as amended
10.21 Amended and Restated Incentive Stock Option Plan
10.22 Restated Offer to Lease dated July 28, 2000 between CB Richard
Ellis Limited and Pivotal with respect to premises located in
Vancouver, B.C.
10.23 First Amendment to Restated Offer to Lease dated October 16, 2000
between PCI Properties Corp. and Pivotal with respect to premises
located in Vancouver, B.C.
89
10.24 Second Amendment to Restated Offer to Lease dated May 18, 2001
between PCI Properties Corp. and Pivotal with respect to premises
located in Vancouver, B.C.
10.25 Lease dated June 3, 1996 between Yonge Wellington Property
Limited and Simba Technologies Incorporated with respect to
premises located in Vancouver, B.C.
10.26 Sublease dated January 1, 1999 between Brewster Transport Company
Limited and Simba Technologies Incorporated with respect to
premises located in Vancouver, B.C.
10.27 Lease dated September 1, 2000 between Landgem Office I, Ltd.
(previously Dallas Office Portfolio L.P.) and Software Spectrum
CRM, Inc. for premises located in Dallas, Texas
10.28 Lease dated December 19, 2000 between 485 Properties, LLC and
Pivotal for premises located in Atlanta, Georgia
10.29 Lease dated as of November 24, 2000 between Scholl Consumer
Products Limited and Pivotal for premises located in Luton,
England
#10.30 Employment Agreement between Kirk Herrington and Pivotal dated
June 7, 2000
#10.31 Employment Agreement between Kent Roger (Bo) Manning and Pivotal
dated August 22, 2001
10.32 Amendment No.1 dated June 19, 2001 to the Canadian Imperial Bank
of Commerce Cdn$3,000,000 Operating Line of Credit dated March
18, 1998
10.33 Amendment No.2 dated July 3, 2001 to the Canadian Imperial Bank
of Commerce Cdn$3,000,000 Operating Line of Credit dated March
18, 1998
21.1 Subsidiaries of Pivotal
23.1 Consent of Deloitte & Touche
24.1 Powers of Attorney (included on signature page)
99.1 Notice of Meeting and Management Information and Proxy Circular
for the Annual General Meeting to be held on Thursday, November
15, 2001.
# Indicates management contract.
(1) Incorporated by reference to Pivotal's Form 8-K filed on January 25, 2000.
(2) Incorporated by reference to Pivotal's Form 8-K filed on June 19, 2000.
(3) Incorporated by reference to Pivotal's Form 8-K filed on July 11, 2000.
(4) Incorporated by reference to Pivotal's Registration Statement on Form F-1
(No. 333-82871).
(5) Incorporated by reference to Pivotal's Annual Report on Form 10-K for the
year ended June 30, 2000.
(6) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-39922).
(7) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-42460).
90
SIGNATURES
Registrant. 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, in
Vancouver, British Columbia, Canada, on September 28, 2001.
PIVOTAL CORPORATION
(Registrant)
By: /s/ Kent Roger (Bo) Manning
----------------------------
Kent Roger (Bo) Manning
(President and Chief Executive Officer)
91
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Kent Roger (Bo) Manning and Vincent D.
Mifsud, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Report, and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorneys-in-fact
and agents of them or their substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
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 date(s) indicated.
SIGNATURE TITLE DATE
-------------------------------------------------- ------------------------ -----------
President, Chief Executive September 28, 2001
/s/ Kent Roger (Bo) Manning Officer and Director
--------------------------------------------------
Kent Roger (Bo) Manning
Chief Operating Officer, September 28, 2001
/s/ Vincent D. Mifsud Executive Vice President
--------------------------------------------------
Vincent D. Mifsud
Executive Vice President, September 28, 2001
/s/ Keith R. Wales Director
--------------------------------------------------
Keith R. Wales
/s/ Norman B. Francis Director September 28, 2001
--------------------------------------------------
Norman B. Francis
/s/ Jeremy A. Jaech Director September 28, 2001
--------------------------------------------------
Jeremy A. Jaech
/s/ Douglas J. Mackenzie Director September 28, 2001
--------------------------------------------------
Douglas J. Mackenzie
/s/ Robert J. Louis Director September 28, 2001
--------------------------------------------------
Robert J. Louis
/s/ Steven M. Gordon Director September 28, 2001
--------------------------------------------------
Steven M. Gordon
EXHIBIT NO. DESCRIPTION
------------ -------------
2.1(1) Share Purchase Agreement by and between Pivotal and Pierre
Marcel, Marc Bahda, Bernard Wach and Other Shareholders of
Transitif S.A., dated December 3, 1999
2.2(2) Stock Purchase Agreement among Pivotal and Industrial & Financial
Systems AB and Eli Barak, Alon Hod and Tony Topaz concerning all
of the Shares of Exactium Ltd. dated April 11, 2000
2.3(3) Share Purchase Agreement among Pivotal and David Pritchard, Kirk
Herrington, Michael Satterfield, Calvin Mah, VW B.C. Technology
Investment Fund, LP, Venrock Associates, Venrock Associates II,
LP, Working Ventures Canadian Fund Inc., Bank of Montreal Capital
Corporation, Sussex Capital Inc. and the Other Shareholders of
Simba Technologies Inc. concerning all of the Shares of Simba
Technologies Inc. dated May 29, 2000
3.2(4) Memorandum and Articles
4.1(4) Specimen of common share certificate
4.2(4) Registration Rights (included in Exhibit 10.15)
4.3(2) Registration Rights Agreement dated June 2, 2000 (included in
Exhibit 2.2)
4.4(3) Registration Rights Agreement dated June 26, 2000 (included in
Exhibit 2.3)
4.5 Specimen of common share certificate as of August 17, 2000
10.1(4) Employee Share Purchase Plan
10.2(4) Lease dated as of July 18, 1997 between Sodican (B.C.) Inc. and
Pivotal for premises located in North Vancouver, B.C.
10.3(4) Lease dated as of May 26, 1998 between Novo Esplanade Ltd. and
Pivotal for premises located in North Vancouver, B.C.
10.4(4) Lease(1) dated as of December 14, 1998 between B.C. Rail Ltd. and
Pivotal for premises located in North Vancouver, B.C.
10.5(4) Lease(2) dated as of December 14, 1998, between B.C. Rail Ltd.
and Pivotal with respect to premises located in North Vancouver,
B.C.
10.6(4) Lease dated as of December 11, 1998 between The Plaza at Yarrow
Bay Inc. (previously Yarrow Bay Office III Limited Partnership)
and Pivotal with respect to premises located in Kirkland,
Washington
#10.7(4) Letter agreement dated November 21, 1997 between Pivotal and
Robert A. Runge granting an option to purchase 250,000 common
shares
10.8(4) Canadian Imperial Bank of Commerce Cdn$2,000,000 Committed
Installment Loan dated March 18, 1998
10.9(4) Canadian Imperial Bank of Commerce Cdn$3,000,000 Operating Line
of Credit dated March 18, 1998
10.10(4) Security Agreement with Canadian Imperial Bank of Commerce dated
for reference April 15, 1998
10.11(4) Contract Relative to Special Security under the Bank Act between
Canadian Imperial Bank of Commerce and Pivotal dated April 30,
1998
10.12(4) Canadian Imperial Bank of Commerce Schedule - Standard Credit
Terms dated March 18, 1998
10.13(4) Canadian Imperial Bank of Commerce Schedule-Standard Credit Terms
dated March 18, 1998
10.14(4) Form of Indemnity Agreement between Pivotal and directors and
officers of Pivotal
10.15(4) Investors' Rights Agreement dated January 15, 1999
10.16(5) Assignment Agreement dated July 12, 2000 between Pivotal and Meta
Creations International Limited for premises located in Dublin,
Republic of Ireland; Sub-Lease dated September 22, 1999 between
The H.W. Wilson Company Inc. and Meta Creations International
Limited for premises located in Dublin, Republic of Ireland
10.17(5) Lease dated April 14, 2000 among Deramore Holdings Limited(1),
Pivotal Corporation (NI) Limited (2) and Pivotal for premises
located in Belfast, Northern Ireland
#10.18(5) Employment Agreement between Vince Mifsud and Pivotal dated
November 10, 1998
10.19(6) Exactium Ltd. 1999 Stock Option Plan
10.20(7) Simba Technologies Incentive Stock Option Plan, as amended
10.21 Amended and Restated Incentive Stock Option Plan
10.22 Restated Offer to Lease dated July 28, 2000 between CB Richard
Ellis Limited and Pivotal with respect to premises located in
Vancouver, B.C.
10.23 First Amendment to Restated Offer to Lease dated October 16, 2000
between PCI Properties Corp. and Pivotal with respect to premises
located in Vancouver, B.C.
10.24 Second Amendment to Restated Offer to Lease dated May 18, 2001
between PCI Properties Corp. and Pivotal with respect to premises
located in Vancouver, B.C.
10.25 Lease dated June 3, 1996 between Yonge Wellington Property
Limited and Simba Technologies Incorporated with respect to
premises located in Vancouver, B.C.
10.26 Sublease dated January 1, 1999 between Brewster Transport Company
Limited and Simba Technologies Incorporated with respect to
premises located in Vancouver, B.C.
10.27 Lease dated September 1, 2000 between Landgem Office I, Ltd.
(previously Dallas Office Portfolio L.P.) and Software Spectrum
CRM, Inc. for premises located in Dallas, Texas
10.28 Lease dated December 19, 2000 between 485 Properties, LLC and
Pivotal for premises located in Atlanta, Georgia
10.29 Lease dated as of November 24, 2000 between Scholl Consumer
Products Limited and Pivotal for premises located in Luton,
England
#10.30 Employment Agreement between Kirk Herrington and Pivotal dated
June 7, 2000
#10.31 Employment Agreement between Kent Roger (Bo) Manning and Pivotal
dated August 22, 2001
10.32 Amendment No.1 dated June 19, 2001 to the Canadian Imperial Bank
of Commerce Cdn$3,000,000 Operating Line of Credit dated March
18, 1998
10.33 Amendment No.2 dated July 3, 2001 to the Canadian Imperial Bank
of Commerce Cdn$3,000,000 Operating Line of Credit dated March
18, 1998
21.1 Subsidiaries of Pivotal
23.1 Consent of Deloitte & Touche
24.1 Powers of Attorney (included on signature page)
99.1 Notice of Meeting and Management Information and Proxy Circular
for the Annual General Meeting to be held on Thursday, November
15, 2001.
# Indicates management contract.
(1) Incorporated by reference to Pivotal's Form 8-K filed on January 25, 2000.
(2) Incorporated by reference to Pivotal's Form 8-K filed on June 19, 2000.
(3) Incorporated by reference to Pivotal's Form 8-K filed on July 11, 2000.
(4) Incorporated by reference to Pivotal's Registration Statement on Form F-1
(No. 333-82871).
(5) Incorporated by reference to Pivotal's Annual Report on Form 10-K for the
year ended June 30, 2000.
(6) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-39922).
(7) Incorporated by reference to Pivotal's Registration Statement on Form S-8
(No. 333-42460).
EX-4.5
3
ex4_5.txt
EXHIBIT 4.5
NUMBER SHARES
C08955
PIVOTAL CUSIP 72581R 10 6
INCOPORATED IN THE PROVINCE OF BRITISH COLUMBIA
-------------------------------------------------------------------------
- This certifies that -
- -
- -
- SPECIMEN -
- -
- -
- is the registered holder of -
- -
-------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE COMMON SHARES WITHOUT PAR VALUE IN THE CAPITAL OF
PIVOTAL CORPORATION
subject to the Memorandum and Articles of the Company transferable only on the
books of the Company by endorsement and surrender of this certificate. This
certificate is not valid until countersigned and registerd by the Transfer Agent
and Registrar of the Company.
In Witness Whereof the Company has caused this certificate to be signed by
the facsimile signatures of its duly authorized officers at Vancouver, British
Columbia.
Dated:
/s/ Diane S. Malaher /s/ N. Francis
--------------------- --------------------
Secretary President
The Shares represented by this Certificate are transferable at the offices of
CIBC Mellon Trust Company, Vancouver, B.C. or Toronto, Ontario or at American
Stock Transfer & Trust Company, New York, N.Y.
[Written vertically on left side of certificate]
Countersigned and Registered
American Stock Transfer & Trust Company New York, N.Y.
Transfer Agent and Registrar
By ______________________________________________
Authorized Officer
[Written vertically on right side of certificate]
Countersigned and Registered CIBC Mellon Trust Company Vancouver
Transfer Agent and Registrar Toronto
By ____SPECIMEN__________________________________
Authorized Officer
The Company will furnish to any shareholder without charge upon request to
the Transfer Agent named on the face of this Certificate a statement of the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of shares or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- ______ Custodian ________
TEN ENT - as tenant by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gift to Minors
survivorship and not as tenants Act ______________
in common (State)
Additonal abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
Please insert social security or other
identifying number of assignee
------------------
- -
------------------
_______________________________________________________________________________
(Name and address of transferor)
_______________________________________________________________________________
__________________________________________________________________common shares
registered in the name of the undersigned on the books of the Company named on
the face of this Certificate and represented hereby, irrevocably constitutes and
appoints
________________________________________________________________the attorney of
the undersigned to transfer the said common shares on the register of transfers
and books of the Company with full power of substitution hereunder.
Dated:
___________________________________ ____________________________________
(Signature of Witness) (Signature of Shareholder)
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
The signature(s) must be guaranteed by an eligible guarantor institution (Bank,
Stockbroker, Savings and Loan Associations and Credit Unions with membership in
an approved Signature guarantee Medallion Program), pursuant to S.E.C. Rule 17
Ad-15.
Signature Guaranteed By: ______________________________________________________
EX-10.21
4
ex10_21.txt
EXHIBIT 10.21
PIVOTAL CORPORATION
INCENTIVE STOCK OPTION PLAN
(Amended and Restated as of October 25, 2000)
1. PURPOSES
The purposes of this Incentive Stock Option Plan (the "Plan") are to
attract and retain the best available people for positions of substantial
responsibility with Pivotal Corporation (the "Company") and its subsidiaries, to
provide additional incentives to the directors, officers and employees of and
independent contractors and consultants to the Company and its subsidiaries and
to promote the success of the Company's business by providing to such persons
the opportunity to purchase common shares ("Shares") in the Company pursuant to
options granted hereunder ("Options").
2. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors ("Board") or a
committee or committees appointed by, and consisting of two or more members of,
the Board (the Board or a committee thereof administering the Plan is referred
to below as the ("Administrator"). If and so long as the Shares are registered
under Section 12(b) or 12(g) of the United States Securities Exchange Act of
1934, as amended ("Exchange Act"), the Board shall consider in selecting the
Administrator and the membership of any committee acting as Administrator, with
respect to any persons subject or likely to become subject to Section 16 of the
Exchange Act, the provisions regarding (a) "outside directors" as contemplated
by Section 162(m) of the United States Internal Revenue Code of 1986, as amended
("Codes") and "nonemployee directors" as contemplated by Rule 16b-3 under the
Exchange Act. The Board may delegate the responsibility for administering the
Plan with respect to designated classes of eligible persons to different
committees consisting of two or more members of the Board, subject to such
limitations as the Board deems appropriate. Committee members shall serve for
such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Administrator may
authorize and designate two officers of the Company, acting together, to grant
Options to individuals eligible to receive grants under the Plan, other than
executive officers or directors of the Company, within the limits specifically
prescribed by the Administrator.
(b) Subject to the terms of the Plan and, in the case of a committee of the
Board, the specific duties delegated by the Board to such committee, and subject
to the approval of any relevant authorities, including the approval, if
required, of any stock exchange or market upon which the Shares are listed or
quoted, the Administrator shall have the authority, in its discretion:
(i) to determine the persons to whom Options may be granted;
(ii) to determine the number of Shares covered by each Option;
(iii) to determine the exercise price per Share specified in each Option,
based upon the Fair Market Value of the Shares, determined in
accordance with Section 7;
1
(iv) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of Options granted hereunder or any agreement,
undertaking, representation or covenant required to be executed in
connection with or as a condition of the exercise of any Option;
(v) to set the time or times at which Options may be granted;
(vi) to approve forms of agreements and instruments under the Plan;
(vii) to amend the terms and conditions of the grant of any Option or
Option agreement and accelerate the vesting of Options;
(viii) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option previously
granted by the Administrator;
(ix) to construe and interpret the terms of the Plan and Options granted
under the Plan;
(x) to prescribe, amend and rescind such rules and regulations relating to
the Plan as it may deem advisable; and
(xi) to make all other determinations deemed necessary or advisable for
administering the Plan.
(c) The interpretation and construction by the Administrator of any
provisions of the Plan or of any Option granted hereunder shall be conclusive
and binding upon the Company and the persons holdings Options ("Optionees"). No
member of the Administrator shall be liable for any action or determination made
in good faith with respect to the Plan or any Option granted under it.
(d) Options granted pursuant to this Plan shall be evidenced by written
stock option agreements or certificates ("Option Certificate"), substantially in
the form attached hereto as Exhibit A, or such other form or forms as the
Administrator may from time to time approve.
3. COMPLIANCE WITH LAWS
Transactions under the Plan are intended to comply with all relevant
provisions of law and the rules and regulations of any stock exchange or market
upon which the Shares may be listed or quoted. To the extent any provision of
the Plan or action by the Administrator fails to so comply, it will be deemed
null and void, to the extent permitted by law and deemed advisable by the
Administrator.
4. ELIGIBLE PERSONS
(a) The Administrator may from time to time authorize the grant of Options to
anyone who is at the time of such authorization:
(i) an officer or employee (collectively an "Employee") of the Company or
any subsidiary of the Company ("Subsidiary"), meaning any corporation,
partnership,
2
joint venture or other entity in which the Company owns or controls,
directly or indirectly, not less than 50% of the total combined voting
power, and includes a subsidiary of a subsidiary;
(ii) subject to applicable laws, an independent contractor or other person
providing ongoing consulting services (collectively a "Consultant") to
the Company or a Subsidiary; or
(iii) a member of the Board of the Company or a Subsidiary;
(collectively the "Eligible Persons"). The granting of any Option to an
Eligible Person shall neither entitle him to, nor disqualify him from,
participation in any other grant of Options. Options may be granted to one
or more Eligible Persons without being granted to other Eligible Persons,
as the Administrator may deem fit;
(b) The aggregate number of Shares reserved for issuance upon the exercise of
Options granted to Consultants from time to time shall not exceed 2% of the
issued and outstanding securities of the Company as of the date of the
grant of any Option to a Consultant.
5. STOCK SUBJECT TO PLAN
(a) Subject to the provisions of Section 11 of the Plan, the maximum
aggregate number of Shares which may be optioned by the Company and purchased by
Eligible Persons under the Plan is 6,576,186 Shares, plus an annual increase to
be added on the first day of the Company's fiscal year beginning in 2001 and on
the first day of each fiscal year thereafter equal to the lesser of (i) 800,000
shares or (ii) 4% of the average number of outstanding Shares used to calculate
fully diluted earnings per share as reported in the Company's annual report to
shareholders for the preceding year.
The Shares may be authorized but unissued or reacquired Shares, or may be
Shares which have been allotted to a trustee for purposes of issuance under the
Plan. If an Option expires or becomes unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, return to the Plan and become
available for other Options under the Plan.
(b) If the Company purchases Shares from an Eligible Person pursuant to the
terms of a right of purchase or first refusal as hereinafter described, such
repurchased Shares shall be at the Company's discretion either retained or
cancelled by the Company, and, in the event they are retained by the Company,
may become available for other Options under the Plan.
6. OPTION TERM
The Shares subject to each Option shall vest and the Option shall become
exercisable at the time or times as provided in the Option Certificate. Each
Option shall not be exercisable after the expiration of ten years from the date
granted, subject to earlier termination as provided in Section 9, and may expire
on such earlier date or dates as may be fixed by the Administrator. Any Shares
not purchased prior to expiration of an Option granted hereunder may thereafter
be
3
reallocated and become subject to Options granted in favour of Eligible
Persons in accordance with the provisions of the Plan.
7. OPTION EXERCISE PRICE
(a) In this section and in this Plan "Fair Market Value" means:
(i) if the Shares are listed on a stock exchange or a national market
system, the closing price per Share on the exchange or system as of
the last market trading day prior to the time of determination, or if
no Shares have been traded on such day, then as of the last previous
day for which a trade was reported by such stock exchange or system;
(ii) if the Shares are regularly quoted by a recognized securities dealer
but selling prices are not reported, the average between the high bid
and low asked prices for the Shares on the last market trading day
prior to the date of determination; or,
(iii)in the absence of an established market for the Shares, the Fair
Market Value thereof shall be determined in good faith by the
Administrator.
(b) The per share Option exercise price for the Shares to be issued upon
exercise of an Option shall be determined by the Administrator; provided,
however, that such price shall in no event be less than the Fair Market
Value per Share less, in the case of an Option which is not an Incentive
Stock Option as defined in the Code, any discount permitted by law and by
the regulations, rules and policies of the securities authorities and stock
exchange or market having jurisdiction over the affairs of the Company;
except that the exercise price shall be 110% of the Fair Market Value per
Share in the case of an Option granted to any person who, at the time the
Option is granted, owns shares possessing more than 10% of the total
combined voting power of all classes of shares of the Company or a
Subsidiary.
8. EXERCISE OF OPTION
(a) Subject to the provisions of Section 9 and unless otherwise provided by
the Administrator, each Option granted under the Plan shall be exercisable only
with respect to the portion thereof that is vested in the Optionee to whom the
Option is granted. Unless otherwise provided by the Administrator the right to
exercise any Option shall become vested in increments over a term of four years,
calculated from the date of granting any such Option, according to the following
schedule and subject to the provisions of section 9:
(i) in the case of Options granted to an Optionee that has not
previously been granted an Option under the Plan:
4
Percentage of Option Shares
Vesting Date (calculated from Date with Respect to which Optionee has a
Option Granted) Vested Right to Exercise
----------------------------------------- -----------------------------------------
First Anniversary 25%
The end of each 6 months following 12 1/2%
the First Anniversary
(ii) in the case of Options granted to an Optionee that has previously
been granted an Option under the Plan, the Option shall be
exercisable as to 12 1/2% at the end of each 6 month period
calculated from the date the Option is granted.
(b) Any Option may be exercised in accordance with the provisions of this
Plan as to all or any portion of the Shares then exercisable and vested under an
Option, from time to time during the term of the Option. An Option may not be
exercised for a fraction of a share. The exercise at any time or times of a part
of an Option will not exhaust or terminate the Option as to the balance
unexercised; however, any Option not fully exercised within the times set out to
exercise shall automatically expire.
(c) An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company at its principal business office in
accordance with the terms of the Option by the Optionee and full payment for the
Shares with respect to which the Option is exercised and an amount necessary to
satisfy any applicable withholding taxes has been received by the Company,
accompanied by the executed Option Certificate, or other agreement, undertaking,
covenant or representation required by the terms of this Plan or the Option
granted hereunder. Until the Option is properly exercised hereunder and the
Company receives full payment for the Shares with respect to which the Option is
exercised, no right to receive dividends or any other rights as a shareholder
shall exist with respect to the Shares issuable upon exercise of Options. No
adjustment will be made for a dividend or other rights for which the record date
is prior to the date the Option is properly exercised and payment in full is
received except as provided in Section 12.
(d) All Shares purchased on the exercise of Options and any applicable
withholding taxes shall be paid for in full by certified cheque or cash, or such
other consideration having equivalent value at the time of purchase as the
Administrator may determine.
(e) As soon as practicable after any proper exercise of an Option in
accordance with the provisions of this Plan and payment in full for the Shares
with respect to which the Option is exercised, the Company shall deliver or
cause to be delivered to the person that exercised the Option, at the principal
business office of the Company or at such other place as shall be mutually
acceptable, a certificate or certificates representing the Shares as to which
the Option has been exercised together with the Option Certificate, endorsed or
caused to be endorsed by the Company recording the exercise of the Option. The
time of issuance and delivery of the certificates representing the Shares may be
postponed by the Company for such period as may be
5
required for it to comply with any law or regulation applicable to the issuance
and delivery of such Shares.
(f) Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
9. TERMINATION OF SERVICE, DEATH OR DISABILITY
(a) If an Optionee ceases to be continuously engaged by the Company or any
of its Subsidiaries or a Controlled Entity within the meaning under the Code in
the capacity as a director, an officer, an employee, an independent contractor
or a consultant for any reason other than death or permanent and total
disability, no further instalments of his Options that have not vested as of the
date of such termination shall become exercisable. The Optionee shall be
entitled to exercise his Option only to the extent that he was entitled to
exercise it immediately prior to the date of such termination and his right to
exercise such Option shall terminate after the passage of thirty (30) days from
the date of termination or the date of commencement of leave which has not been
approved by the Company under Section 9(c) but in no event later than on the
Option's specified expiration date. To the extent that the Optionee was not
entitled to exercise the Option at the date of such termination, or if he does
not exercise an Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate. If the Optionee ceases to be
employed, engaged or retained by the Company, a Subsidiary or a Controlled
Entity for cause or if any Optionee is removed from office as a director or
becomes disqualified from being a director by law, any Option or the unexercised
portion thereof granted to such Optionee shall terminate at the time of
termination, removal or disqualification.
(b) If an Optionee ceases to serve as a director, an officer or an employee
of or an independent contractor or a consultant to the Company or any of its
Subsidiaries or Controlled Entities due to death or permanent and total
disability, thereby resulting in the termination of his continuous engagement,
the Option may be exercised, to the extent the individual was entitled to
exercise the Option at the date of his termination of such service by death or
disability, but only within twelve (12) months following the date of death or
termination of such service due to disability (subject to and in no event later
than the Option's specified expiration date), by the individual or his personal
representative in the case of disability, or in the case of death by the
individual's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance or the laws of descent and distribution.
(c) For the purpose of the Plan, "continuously engaged" or "continuous
engagement" in the case of a director, an officer or an employee shall mean the
absence of any interruption or termination of employment or service as a
director, an officer or an employee of the Company or any of its Subsidiaries,
and in the case of an independent contractor or consultant shall mean the
absence of any interruption or termination in the retainer or engagement other
than as a result of termination by effluxion of time or as a result of other
termination on terms agreed to between the independent contractor or consultant
and the Board. Continuous engagement shall not be considered interrupted in the
case of sick leave in excess of the Company's stated policy on paid sick leave
communicated to the Optionee and approved by the Board, maternity or parental
leave in excess of statutory entitlement approved by the Board or any other
leave of absence approved
6
by the Board or in the case of transfers between locations of the Company or in
the case of any change in the nature of service rendered to the Company, any of
its Subsidiaries or Controlled Entities. An Optionee while on any such leave or
other leave of absence approved by the Board shall be entitled to exercise any
Options granted to him under the Plan in respect of and only to the extent that
he was entitled to exercise such Options prior to any such leave and the vesting
period shall be suspended during the period of such leave and shall be extended
and the vesting date for the exercise of any Options shall be delayed by the
length of such leave.
10. TRANSFER RESTRICTIONS
(a) Options shall not be sold, transferred, assigned, encumbered or
otherwise disposed of except by will or the laws of intestate succession,
descent and distribution and, except as otherwise provided in Section 9, may be
exercised only by the Optionee.
(b) (i) In connection with any underwritten public offering by the Company
of its Shares, including the Company's initial public offering, no
person shall sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer
for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares acquired upon exercise of an
Option or any right to acquire any Shares issued under the Plan,
without the prior written consent of the Company or its underwriters.
Such limitations shall be in effect for such period of time from and
after the effective date of such offering as may be requested by the
Company or such underwriters provided, however, that in no event shall
such period exceed one hundred eighty (180) days. The limitations of
this Section 10(b) shall remain in effect for the two-year period
immediately following the effective date of the Company's initial
public offering and shall thereafter terminate and cease to have any
force or effect.
(ii) Employees of and independent contractors or consultants to the
Company or any of its Subsidiaries shall be subject to the market
stand-off provisions of this Section 10(b) provided and only if
the officers and directors of the Company are also subject to
similar arrangements.
(iii) In the event of any stock dividend, stock split,
recapitalization or other change affecting the Company's
outstanding Shares effected as a class without receipt of
consideration, then any new, substituted or additional securities
distributed with respect to the Shares shall be immediately
subject to the provisions of this Section 10(b), to the same
extent the Shares are at such time covered by such provisions.
11. ALTERATION OF CAPITAL
(a) In the event of any increase or decrease in the number of issued Shares
resulting from a share split, share consolidation or share dividend or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company, then the
7
maximum number of Shares subject to the Plan as set forth in Section 5(a) and
the number of Shares covered by each outstanding Option as well as the price per
Share covered by each outstanding Option shall be proportionately adjusted by
the Administrator, whose determination in that respect shall be final,
conclusive and binding. The conversion of any convertible securities of the
Company shall not be deemed to have been effected without receipt of
consideration.
(b) In the event of a proposed sale of substantially all of the assets
of the Company, or the merger, amalgamation, arrangement or consolidation of the
Company with or into another company, the Administrator may, if it so determines
in the exercise of its sole discretion, either declare that any portion of an
Option that has not vested shall terminate as of a date to be fixed by the
Administrator or give the Optionee the right to exercise his Option as to all or
any part of such Shares as to which the Option has not vested and would not
otherwise be exercisable, or accelerate and reduce the period for the exercise
of those portions of Options that have vested or the vesting date of those
portions of Options that have not vested (provided that the exercise period
shall in no event be reduced to less than 30 days and provided that the
acceleration of vesting or vesting dates shall not occur if, in the opinion of
the Company's outside accountants, it would render unavailable "pooling of
interest" accounting for a transaction that would otherwise qualify for such
accounting treatment) or make such provision as it deems appropriate for the
continuance of outstanding and unexercised Options subsequent to such sale,
merger, amalgamation, arrangement or consolidation, including the assumption of
such Options or substitution of equivalent options by a successor company.
(c) No fractional shares shall be issuable on account of any action
aforesaid, and the aggregate number of shares into which Shares then covered by
the Option, when changed as a result of such action, available to be issued,
shall be reduced to the largest number of whole shares resulting from such
action.
12. DIVIDENDS AND DISTRIBUTIONS
If the Company shall at any time during the period in which Options may be
exercised under the Plan pay any dividend, or make any other distribution,
payable in shares of the Company, the Optionee shall be entitled to receive upon
any exercise thereafter of an Option granted under the Plan (in addition to the
number of shares which the Optionee would have been entitled to receive on
exercise of the Option if such dividend or distribution of shares had not been
paid) such additional number of fully paid and non-assessable shares of the
appropriate class as would have been payable on the Shares which would have been
issuable on the exercise of an Option if they had been outstanding on the record
date for the payment of such dividend or distribution, and in the event of the
payment of any dividend or distribution payable in any shares of the Company as
aforesaid the Company will reserve and set aside a sufficient number of shares
in which any such dividend or distribution shall be payable to enable it to
fulfil its obligations hereunder.
13. CONDITIONS UPON ISSUANCE OF SHARES
(a) Shares shall not be issued pursuant to the exercise of an Option unless
the exercise of the Option and the issuance and delivery of Shares pursuant
thereto shall comply
8
with all relevant provisions of law, including, without limitation, the United
States Securities Act of 1933, as amended, the Exchange Act, the Securities Act
(British Columbia) and other applicable provincial securities laws, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange or market upon which the Shares may then be listed or quoted, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance. Without limiting the foregoing, the Company's obligation to
issue Shares upon the exercise of an Option shall in any case be subject to the
Company being satisfied that the Shares purchased are being purchased for
investment purposes and not for the purpose or with the intention to sell or
distribute such Shares, if at the time of such exercise a sale or distribution
of such Shares would otherwise violate any applicable laws.
(b) As a condition to the exercise of an Option, the Administrator may
require the Optionee to execute such agreements or undertakings, and to make any
representation or warranty to the Company as may in the judgment of counsel for
the Company be required under applicable laws or regulation, including but not
limited to a representation and warranty that the Shares are being purchased
only for investment purposes and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is appropriate under any applicable laws.
14. ADDITIONAL PROVISIONS CONCERNING U.S. OPTIONEES
(a) Options granted to an Employee (which term includes, without
limitation, an officer or director who is also an Employee) who is a United
States citizen or resident within the meaning of the Code (such Employee
referred to in this Section as a "U.S. Employee") will generally be Incentive
Stock Options as that term is defined in the Code, provided however, that the
Administrator may, at its discretion, at the time of the grant of the Options,
make a determination as to whether the Options will be deemed Incentive Stock
Options or Non-Qualified Stock Options within the meaning of the Code.
Notwithstanding the foregoing, an Option that is an Incentive Stock Option shall
not be granted to an Employee of a Subsidiary unless such Subsidiary is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.
(b) The maximum aggregate number of Shares which may be subject to
Options that are Incentive Stock Options under the Plan is 6,576,186 Shares,
subject to adjustment as provided in Section 11 and subject to the provisions of
Section 422 or 424 of the Code or any successor provision.
(c) Options granted to an Optionee who is a United States citizen or
resident within the meaning of the Code who is not an Employee will not be
Incentive Stock Options, and any written agreement with such an Optionee for a
grant of Options under the Plan will state that the Options granted thereunder
are Non-Qualified Stock Options for U.S. income tax purposes.
(d) In addition to the terms and conditions of Options granted under the
Plan referred to in the preceding Sections, Options granted to a U.S. Employee
that are granted by the Administrator as Incentive Stock Options will be subject
to the following terms and conditions:
9
(i) Options will be designated in the written Option agreement
between the U.S. Employee and the Company as Incentive Stock
Options;
(ii) if the U.S. Employee is directly or indirectly the beneficial
owner of 10% or more of the combined voting power of all classes
of shares in the capital of the Company or a Subsidiary at the
time an Option is granted to the U.S. Employee, the exercise
price of such Option will be equal to at least 110% of the Fair
Market Value of the Shares, determined in accordance with Section
7, and the term of the Option shall be five years from the date
of grant thereof or such shorter term as may be provided in the
Option Certificate;
(iii) Options may not be transferred, assigned or pledged in any
manner other than by will or applicable laws of descent and
distribution and shall be exercisable during the Optionee's
lifetime only by the Optionee; and
(iv) no Options may be granted after the date immediately preceding
the tenth anniversary of the earlier of the date this Plan was
adopted or was approved by the Company's shareholders, except
that if an amendment and restatement of this Plan has
subsequently been approved by the Company's shareholders, no
Options may be granted after the date immediately preceding the
tenth anniversary of the date of such subsequent approval.
(e) If a U.S. Employee is granted Options under the Plan, the written
Option agreement with the U.S. Employee will contain
acknowledgments by the U.S. Employee that:
(i) notwithstanding a designation of Options granted to a U.S.
Employee as Incentive Stock Options, to the extent that the
aggregate Fair Market Value, determined as of the date such
Options were granted, of the Shares issuable on exercise of
Options which are exercisable for the first time by any U.S.
Employee during any calendar year exceeds US$100,000, such excess
Options shall not be treated as Incentive Stock Options; and
(ii) in order for Options granted under the Plan to be treated as
Incentive Stock Options:
A. Shares purchased on the exercise of an Option must not be
sold or otherwise disposed of within 2 years from the date
the Option was granted, or within 1 year from the date the
Option was exercised; and
B. the U.S. Employee must maintain his status as a U.S.
Employee at all times during the period beginning on the
date the Option is granted and ending 30 days before the
date an Option is exercised.
(f) The acknowledgement of the U.S. Employee in (e)(ii)B above does
not confer upon the U.S. Employee any right with respect to continuation of
his employment relationship with the Company, nor will it interfere in any
way with the Company's right to terminate his employment relationship at
any time, with or without cause.
10
(g) Unless and until Shares issuable upon the exercise of Options are
registered under the United States Securities Act of 1933, Shares issued under
this Plan to an Optionee who is a resident of the United States of America will
contain the following legend, as amended or supplemented by applicable laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND MAY NOT
BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED OR ASSIGNED EXCEPT (A) TO THE
COMPANY, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S
UNDER THE SECURITIES ACT, IF AVAILABLE, OR (C) INSIDE THE UNITED STATES (1)
PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR (2) IN A TRANSACTION THAT DOES NOT
REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAWS, AND, IN CONNECTION WITH ANY TRANSFERS PURSUANT TO (C)(1)
OR (C)(2) ABOVE, THE SELLER HAS FURNISHED TO THE COMPANY AN OPINION OF
COUNSEL OF RECOGNIZED STANDING, REASONABLY SATISFACTORY TO THE COMPANY, TO
THAT EFFECT.
15. TAX CONSEQUENCES OF PLAN
Notwithstanding Section 14, the Company does not assume responsibility for
the income or other tax consequences for Optionees or Eligible Persons under the
Plan and they are advised to consult with their own tax advisors.01
16. AMENDMENT AND TERMINATION OF PLAN
(a) The Board may at any time amend, alter, suspend, discontinue or
terminate the Plan. To the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or with Section 422 of the Code (or any other
applicable law, rule or regulation, including the requirements of any exchange
or market system on which the Shares are listed or quoted), the Company shall
obtain shareholder approval of any Plan amendment in such a manner and to such a
degree as required by the applicable law, rule or regulation.
(b) Without the written consent of the Optionee, and except as otherwise
permitted herein, any such amendment, alteration, suspension, discontinuance or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended, altered, suspended, discontinued or terminated.
17. RESERVATION OF SHARES
(a) The Company, during the term of this Plan, shall at all times reserve
and keep available, and if necessary shall allot to a trustee for the benefit of
the Eligible Persons and to facilitate the granting of Options hereunder, the
number of Shares as shall be sufficient to satisfy the requirements of the Plan.
11
(b) The Company will, if necessary, use its best efforts to seek and to
obtain from appropriate regulatory authorities any requisite authorization in
order to issue and sell such number of Shares as shall be sufficient to satisfy
the requirements of the Plan. The inability of the Company to obtain the
requisite authorization from any regulatory agency having jurisdiction deemed by
the Company's counsel to be necessary to the lawful issuance and sale of any
Shares hereunder or the inability of the Company to confirm to its satisfaction
that any issuance and sale of any Shares hereunder will meet applicable legal
requirements, shall relieve the Company of any liability in respect to the
non-issuance or sale of such Shares as to which such requisite authority shall
not have been obtained.
18. NOTICES
Any notice to be given to the Company pursuant to the provisions of this
Plan shall be addressed to the Company in care of its secretary at its principal
business office in North Vancouver, British Columbia, and any notice to be given
to an Optionee shall be delivered personally or addressed to him at the address
given beneath his signature on his Option Certificate, or at such other address
as such Optionee may hereafter designate in writing to the Company. Any such
notice shall be deemed duly given when made in writing and delivered to the
Company or the Optionee, as the case may be, or if mailed, then on the third
business day following the date of mailing such notice in a properly sealed
envelope addressed as aforesaid, registered or certified mail, postage prepaid,
in a post office or post office branch maintained in Canada or the United States
of America.
19. NO ENLARGEMENT OF RIGHTS
(a) This Plan is purely voluntary on the part of the Company, and the
continuance of the Plan shall not be deemed to constitute a contract between the
Company and any Eligible Person, or to be consideration for or a condition of
the acting by an individual as a director, an officer or an employee of or an
independent contractor or a consultant to the Company or any of its
Subsidiaries. Nothing contained in this Plan shall be deemed to give any
director, officer or employee the right to be retained in such capacity with the
Company of any Subsidiary or successor company, or to interfere with the right
of the Company or any such company or its shareholders to discharge or retire
any director, officer or employee thereof at any time. No Eligible Person shall
have any right to or interest in Options authorized hereunder prior to the grant
of such Option to such Eligible Person, and upon such grant, he shall have only
such rights and interests as are expressly provided herein, subject however, to
all applicable provisions of the Company's memorandum and articles as the same
may be amended from time to time.
(b) Nothing herein contained or done pursuant hereto shall obligate an
Optionee to purchase and/or pay for any Shares, except those Shares in respect
of which the Optionee shall have exercised his Option to purchase hereunder in a
manner hereinbefore provided.
12
20. FINANCIAL STATEMENTS
The Company shall provide to each Optionee at least annually a copy of the
financial statement for the Company for its last completed financial year in the
form and containing the information required under the British Columbia Company
Act.
21. MISCELLANEOUS
(a) The validity and construction of the Plan shall be governed by and
construed exclusively in accordance with the laws of the Province of British
Columbia.
(b) In this Plan, unless the context otherwise requires, words importing
the singular include the plural and vice versa and words importing gender
include all genders.
22. ADOPTION OF PLAN AND TERMINATION
This Plan was adopted by the Company and approved by the directors of the
Company as of the 31st day of July, 1992 and shall terminate fourteen years
thereafter.
13
EXHIBIT A
PIVOTAL CORPORATION
INCENTIVE STOCK OPTION CERTIFICATE
Certificate
Name of Option Holder No. ___________________
Date: ___________________
Number of Shares
Exercise Price Per Share
Expiry Date
INCENTIVE STOCK OPTION granted by Pivotal Corporation (the "Company") to the
above-named option holder (the "Optionee"), pursuant to the Company's Incentive
Stock Option Plan (the "Plan"), the terms of which are incorporated herein by
reference and which, in the event of any conflict, shall control over the terms
contained herein.
1. Grant and Vesting of Option
Subject to the vesting schedule below, the Company hereby grants to the
Optionee an option to purchase on the terms herein provided a total of the
number of voting common Shares of the Company set forth above, at an exercise
price per Share as set forth above.
This option may be exercised only with respect to the portion thereof that
is vested in the Optionee. The Optionee's rights to exercise this option shall
become vested in increments over a term of four years, calculated from the date
of the granting of this option according to the following schedule:
(i) The following Schedule shall apply if this Certificate relates to the
first grant of an option to the Optionee:
Percentage of Option Shares with
Vesting Date (calculated from Date Respect to which Optionee has a
Option Granted) Vested Right to Exercise
---------------------------------------- ------------------------------------
First Anniversary 25%
The end of each 6 months following the First 12 1/2%
Anniversary
14
(ii) If this Certificate relates to an Optionee that has previously been
granted an option under the Plan, then the option hereunder shall be
exercisable as to 12 1/2% at the end of each 6 month period calculated
from the date the Option is granted.
In the case of the first grant of an option to an Optionee, vesting rights
shall be calculated only in terms of a full year, in the case of the first
vesting, and thereafter semi-annually (i.e., from one semi-annual date to the
next). In the case of a subsequent grant of an option to an Optionee, vesting
rights shall be calculated semi-annually. No partial vesting credit shall be
given for partial periods.
This option shall expire and shall not be exercisable after the expiry date
set forth above ("Expiry Date").
2. Exercise of Option
Each election to exercise this option shall be in writing in the form
attached hereto, signed by the Optionee or by the person authorized to exercise
this option under paragraph 5 hereof or otherwise permitted under the Plan, and
delivered to the secretary of the Company at its principal office accompanied by
this certificate.
In the event an option is exercised by the executor or administrator of a
deceased Optionee, or by the person or persons to whom the option has been
transferred by the Optionee's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to deliver Shares
thereunder unless and until the Company is satisfied that the person or persons
exercising the option is or are the duly appointed executor or administrator of
the deceased Optionee or the person to whom the option has been transferred by
the Optionee"s Optionee's will or by the applicable laws of descent and
distribution.
3. Payment for and Delivery of Shares
Payment in full by cash or a certified bank cheque shall be made for all
Shares for which this option is exercised and any applicable withholding taxes
at the time of such exercise, and no Shares shall be delivered until such
payment is made.
4. Conditions upon Issuance of Shares
This option may not be exercised in whole or in part unless the exercise of
the option and the issuance and delivery of Shares pursuant to it complies with
all relevant provisions of law, including, without limitation, the United States
Securities Act of 1933, as amended, the United States Securities Exchange Act of
1934, as amended, the Securities Act (British Columbia) and other applicable
provincial securities laws, the rules and regulations promulgated thereunder,
and the requirements of any stock exchange or market upon which the Shares may
then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance. Without limiting the
foregoing, the Company's obligation to issue Shares upon the exercise of this
option shall in any case be subject to the Company being satisfied that the
Shares purchased are being purchased for investment purposes and not for the
purpose or with the intention to sell or distribute such Shares, if at the time
of such exercise a sale or distribution of such Shares would otherwise violate
any applicable law.
15
The Optionee shall have no rights of a shareholder of the Company until the
Shares are actually delivered to him.
5. Option not Transferable
Subject to the provisions of the Plan, this option may not be transferred
by the Optionee otherwise than by will or the laws of descent and distribution
and during the Optionee's lifetime this option may be exercised only by him.
6. Termination of Service
If the Optionee ceases to be continuously engaged by the Company or any of
its Subsidiaries in the capacity as a director, an officer, an employee, an
independent contractor or a consultant for any reason other than death or
permanent and total disability, the Optionee may exercise this option not later
than 30 days after the date of such cessation but only to the extent to which he
was entitled immediately prior to such cessation. To the extent that the
Optionee was not entitled to exercise this option immediately prior to such
cessation, or if the Optionee does not exercise this option within 30 days of
the date of such cessation, this option shall terminate. If the Optionee ceases
to be employed, engaged or retained by the Company or any of its Subsidiaries
for cause or if the Optionee is removed from office as a director or becomes
disqualified from being a director by law, this option shall terminate
forthwith. Nothing herein shall be construed as extending the exercisability of
this option past its Expiry Date.
7 Disability
In the event of the Optionee ceasing to be a director or officer of the
Company or any of its Subsidiaries or in the event of termination of employment
or termination of the independent contract or consulting agreement of the
Optionee, because of permanent and total disability, this option shall terminate
one year after such termination and the Optionee may exercise this option prior
to such time but only to the extent to which he was entitled immediately prior
to such termination because of disability. Nothing herein shall be construed as
extending the exercisability of this option past its Expiry Date.
8 Death
In the event of death of the Optionee while a director, an officer or an
employee of or an independent contractor or consultant to the Company or any of
its Subsidiaries, this option shall be exercisable within one (1) year after his
death, provided the option does not expire by its terms prior to that date, by
the executor, administrator or other legal representative of the estate of the
deceased Optionee or the person or persons to whom the deceased Optionee's
rights under the option shall pass by will or the laws of descent and
distribution but only to the extent the deceased Optionee was entitled to
exercise this option immediately prior to his death. Nothing herein shall be
construed as extending the exercisability of this option past its Expiry Date.
16
9 Alteration of Shares
(a) In the event of any increase or decrease in the number of issued Shares
resulting from a share split, share consolidation or share dividend or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company, then the number of Shares covered by this option
as well as the purchase price per Share shall be proportionately adjusted by the
Administrator, whose determination in that respect shall be final, conclusive
and binding. The conversion of any convertible securities of the Company shall
not be deemed to have been effected without receipt of consideration.
(b) In the event of a proposed sale of substantially all of the assets of
the Company, or the merger, amalgamation, arrangement or consolidation of the
Company with or into another company, the Administrator may, if it so determines
in the exercise of its sole discretion, either declare that any portion of this
option that has not vested shall terminate as of a date to be fixed by the
Administrator or give the Optionee the right to exercise this option as to all
or any part of such Shares as to which this option has not vested and would not
otherwise be exercisable, or accelerate and reduce the period for the exercise
of those portions of this option that have vested or the vesting date of those
portions of this option that have not vested (provided that the exercise period
shall in no event be reduced to less than 30 days) or make such provision as it
deems appropriate for the continuance of this option if unexercised subsequent
to such sale, merger, amalgamation, arrangement or consolidation, including the
assumption of this option or substitution of equivalent options by a successor
company.
10 Continuance of Employment
This option shall not be deemed to obligate the Company or any subsidiary
to retain the Optionee as a director, an officer, an employee, an independent
contractor or a consultant for any period.
11 Certificate Subject to Terms of Plan
The terms and conditions of this certificate and the agreement constituted
hereby are subject to the provisions of the Plan adopted by the Company as of
July 31, 1992 as amended from time to time, which provisions are incorporated by
reference into this agreement. In the event of an inconsistency between the
provisions of the Plan and this agreement, the provisions of the Plan shall
prevail. The Plan shall be available for review by the Optionee at its principal
office.
IN WITNESS WHEREOF, Pivotal Corporation has caused this certificate to be
duly executed. This option is granted on the date first stated above.
PIVOTAL CORPORATION
By:_________________________
Authorized Signatory
17
RECORD OF PARTIAL EXERCISE
Please do not write in these spaces. Entries will be made by the Company upon
the partial exercise.
--------------------------------------------------------------------------------
Number of Shares Date of Exercise Official Signature
Purchased Under Option
--------------------------------------------------------------------------------
18
FORM OF EXERCISE OF OPTION
(for use by all Optionees other than US Employees)
(for use by US consultants and independent contractors)
Certificate No. _____________________
To: Pivotal Corporation ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee:____________________________
Number of Shares for which
this option is exercised:____________________
Exercise price per Share:____________________
Total Exercise Price:________________________
The Option hereby exercised does not constitute an Incentive Stock Option under
the United States Internal Revenue Code.
The Optionee expressly acknowledges that any Shares to be issued and delivered
to the Optionee by Pivotal hereunder are subject to certain limitations and
restrictions on transfer and first refusal rights of purchase in favour of
Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which this
Option is exercised for his/her own account and not with a view to or for sale
in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount of the
Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, _____.
____________________________________________________
Signature of Optionee
19
FORM OF EXERCISE OF OPTION
(US Employees only - not consultants or independent
contractors)
Certificate No. _____________________
To: Pivotal Corporation ("Pivotal")
The undersigned Optionee hereby exercises his/her right to purchase the
following common Shares of Pivotal in accordance with the terms of the Incentive
Stock Option Certificate issued by Pivotal to the Optionee, and by exercising
this Option the undersigned acknowledges and agrees to be bound by the terms of
the Pivotal Incentive Stock Option Plan.
Name of Optionee:___________________________________________
Number of Shares for which
this option is exercised:___________________________________
Exercise price per Share:___________________________________
Total Exercise Price:_______________________________________
The Option hereby exercised DOES/DOES NOT (delete as applicable and initial)
constitute an Incentive Stock Option under the US Internal Revenue Code.
The Optionee expressly acknowledges that any Shares to be issued and delivered
to the Optionee by Pivotal hereunder are subject to certain limitations and
restrictions on transfer and first refusal rights of purchase in favour of
Pivotal and certain of its shareholders.
The Optionee represents that he/she is purchasing the Shares for which this
Option is exercised for his/her own account and not with a view to or for sale
in connection with any distribution of the Shares.
The Optionee delivers herewith cash or a certified cheque in the amount of the
Total Exercise Price in payment for the Shares for which this option is
exercised.
Dated this _________ day of _______________________, ______.
__________________________________________________
Signature of Optionee
EX-10.22
5
ex10_22.txt
EXHIBIT 10.22
THIS RESTATED OFFER TO LEASE made this 28th day of July, 2000, is a restatement
of an offer to lease made as of May 23, 2000 between the parties noted below and
replaces such offer to lease.
________________________________________________________________________________
To: CB Richard Ellis Limited
#600 - 1111 West Georgia Street
Vancouver, British Columbia
V6E 4M3
Attention: Ms. Lisa D. Ayrton and Mr. Blair Quinn
--------------------------------------------------
Pivotal Corporation (the "Tenant") of 300 - 224 West Esplanade, North Vancouver,
British Columbia, V7M 3M6 hereby offers to lease from PCI Properties Corp. (the
"Landlord") of 1700 - 1030 West Georgia Street, Vancouver, British Columbia, V6E
2Y3 the building currently unbuilt but, subject to the terms herein, to be
constructed as a first class office building taking into consideration the
nature and location of the Site (the "Building") on a portion of 800 Beatty
Street, Vancouver, British Columbia, approximately as shown on the site plan
attached as Schedule "A" (the "Site"), on the following terms and conditions:
1. PREMISES
Approximately one hundred twenty five thousand (125,000) square feet of
rentable area of the Building (the "Premises"). The actual "Rentable
Area" of the Premises will be measured in accordance with Section
2.1(b) of the form of lease attached hereto as Schedule "D" (the
"Lease").
2. TERM
The term of the lease shall be fifteen (15) years (the "Term")
commencing upon that date that is five (5) Business Days after the
Delivery of Possession as defined and described in Section 5.3(a) of
the Lease (the "Commencement Date"), provided that:
(a) the Tenant's Consultant has not caused material delays to the
Project Schedule, in no event shall the Term commence during the
period May 1, 2002 to June 30, 2002 (therefore, if the Delivery
of Possession referred to in the two locations in this clause 2
end during such period, the Commencement Date shall be July 1,
2000); and
(b) if the Landlord's architect, acting reasonably, determines that
the Landlord's Work will be substantially performed prior to
April 1, 2002, then the Landlord may give no less than three (3)
months prior written notice to the Tenant of the expected date of
substantial performance, and if the Landlord's Work has been
substantially performed by April 1, 2002, then the Term shall
commence five (5) Business Days after such date.
INITIAL
-----------
LANDLORD/TENANT
3. RENT
The net annual base rent (the "Rent") shall be as follows:
------------------------------------------------------------------------------------
Years Rent Per Rentable Approximate Annual Rent Approximate
Square Foot Per Annum Monthly Rent
------------------------------------------------------------------------------------
1 - 5 $20.00 $2,500,000.00 $208,333.33
------------------------------------------------------------------------------------
6 - 10 $22.00 $2,750,000.00 $229,166.67
------------------------------------------------------------------------------------
11 - 15 $24.25 $3,031,250.00 $252,604.17
------------------------------------------------------------------------------------
plus Goods and Services Tax ("GST"), and shall be paid in advance in
equal monthly instalments, on the first day of each month of the Term
commencing on the Commencement Date without set off or deduction except
as set out herein and subject to the provisions hereof. Upon
determination of the actual Rentable Area of the Premises by the
Landlord's architect, the Rent shall be adjusted accordingly, on the
basis of the Rent being calculated on the above referenced rent per
square foot per annum basis, plus GST. Payments of Rent, plus GST,
shall be adjusted on a per diem basis if the Term commences other than
on the first day of the month or expires other than on the last day of
the month. No Rent shall be charged on the roofdecks and private patio
areas.
4. PROPERTY TAXES AND OPERATING EXPENSES
The Landlord shall be responsible for repairs as provided in the Lease.
The Tenant shall be responsible and pay for its proportionate share of
Taxes and CAM Costs as those terms are described in the Lease. Except
as otherwise provided in the Lease, the Lease shall be net to the
Landlord. The Tenant shall not be responsible for any portion of the
Landlord's income taxes. The Tenant shall also pay for its business
taxes, telephone charges, utilities and janitorial services. For
information purposes only, the Landlord estimates the CAM Costs and
Taxes for 2002 at Eleven Dollars and Forty Two Cents ($11.42) per
square foot per annum. The estimate of Taxes include the Second
Building (as hereinafter defined) expansion land and Taxes while it is
held undeveloped. As part of the consideration for holding the Second
Building expansion off the market for the Tenant, the Tenant will pay
this as part of the holding costs for the Second Building expansion.
Taxes attributable to the Second Building shall be apportioned across
the Second Building upon completion of the Second Building.
5. OPTION TO EXPAND IN THE BUILDING
The Tenant shall have the option to lease all remaining office area of
the Building (the "Building Option Area") by providing written notice
to the Landlord at any time on or before the date which is three (3)
months after the Building Construction Start (as defined in clause 7).
The Building Option Area shall form part of the Premises and be leased
at the same terms as the rest of the Premises except the Rent shall be:
(a) $22.00 per square foot per annum net during years 1 to 5;
INITIAL
-----------
LANDLORD/TENANT
2
(b) $24.25 per square foot per annum net during years 6 to 10; and
(c) $26.75 per square foot per annum net during years 11 to 15; and
except
for the Smythe and Beatty ground floor commercial space which will be
$25.00 per square foot per annum net and except for parking. There
shall be additional parking added, based on the current City of
Vancouver parking/rentable area ratio, if the floor space ratio in
accordance with the City of Vancouver's applicable bylaw of all
buildings on the Site is greater than 225,000 square feet of rentable
area.
6. OPTION TO TERMINATE
If the Tenant is not then in material default, the Tenant shall have a
one time option to terminate all or any portion of the Premises
(provided such portion shall comprise only complete and contiguous
floors starting from the top floor (and the Tenant, upon the surrender
of the Lease with respect to the top floor shall be deemed to have
automatically surrendered the Lease with respect to the roof decks)
down of the Premises and provided that this option to terminate shall
not apply to any premises leased by the Tenant pursuant to its right of
first refusal to lease in clause 10) at any time after the expiry of
the tenth (10th) year of the Term, so long as the Tenant has provided
nine (9) months' (where the Tenant is terminating at least 25% of the
Rentable Area of the Premises) or six (6) months' (where the Tenant is
terminating less than 25% of the Rentable Area of the Premises), as the
case may be, prior written notice to so terminate after the expiry of
such tenth (10th) year to the Landlord, and the parking allocation to
the Tenant shall be reduced proportionately to reflect the same
proportion of parking stalls to Rentable Area of the Premises as
existed on the Commencement Date, provided that if the Tenant has
exercised its right under clause 8 herein, the right to exercise this
option to terminate shall be rescheduled to any time after the later of
the end of the tenth (10th) year of the Term and the Second Building
Construction Start (defined in clause 7). There will be no penalty or
other consideration whatsoever payable by the Tenant to the Landlord
upon exercise of this right to terminate.
7. SECOND BUILDING - AGREEMENT NOT TO CONSTRUCT
It is the intention of the Landlord that a second building (the "Second
Building") of comparable quality and compatible design may be built on
the Site and comprising a gross area not to exceed 45,000 square feet
with at least 37,000 square feet of rentable area of office area on,
subject to the City of Vancouver's final approval and requirements, not
more than three (3) floors above the ground floor podium and the Second
Building will be located approximately as shown on the site plan
attached as Schedule "A". Subject to clause 8 hereof, the Landlord
covenants and agrees not to commence to construct the Second Building
until construction has started for the Building, defined as the first
date (to be verified by written notice delivered to the Tenant) that
concrete is poured for the footings/foundations to commence
construction of the Building (the "Building Construction Start").
Commencing upon the Building Construction Start, the Tenant shall have
the right to provide written notice for an extension of the Landlord's
agreement not to construct the Second Building from the Building
Construction Start to the 1st Anniversary of the Commencement Date and,
subject to
INITIAL
-----------
LANDLORD/TENANT
3
clause 8(b), the Tenant shall submit payment to the Landlord prior to
the Commencement Date in the amount of $153,750.00 plus GST, based
upon $3.75 per square foot of gross office space multiplied by 41,000
square feet available in the Second Building. The Tenant shall have
the right by providing twelve (12) months' prior written notice to
extend such non-construction agreement as at the 1st and 2nd
anniversary dates of the Commencement Date each for a payment of
$153,750.00 (plus GST), each for a one (1) year period from such
anniversary date. Following is a schedule of the Agreement Not to
Construct:
---------------------------------------------------------------------------------------------------------
Payment Amount Agreement Not To
Notice Deadline Payment Deadline Construct Period
---------------------------------------------------------------------------------------------------------
N/A N/A N/A Between Lease execution and
Building Construction Start (est.
June 2000 to July 2001)
---------------------------------------------------------------------------------------------------------
Within thirty (30) days of Commencement Date $153,750.00 Between Building Construction
of the Tenant being notified (est. July 2002) plus GST Start and 1st Anniversary of
of Building Construction Start Commencement Date (est.July 2001
(est. July 2001) to June 2003)
---------------------------------------------------------------------------------------------------------
Commencement Date 1st Anniversary of $153,750.00 Between 1st and 2nd Anniversary
(est. July 2002) Commencement Date plus GST of Commencement Date
(est. July 2003) (est. July 2003 to June 2004)
---------------------------------------------------------------------------------------------------------
1st Anniversary of 2nd Anniversary of $153,750.00 Between 2nd and 3rd Anniversary
Commencement Date Commencement Date plus GST of Commencement Date
(est. July 2003) (est. July 2004) (est. July 2004 to June 2005)
---------------------------------------------------------------------------------------------------------
If the Tenant does not provide such written notice by the date therefor
or does not make any of the payments by any of the applicable times,
such agreement not to construct shall terminate without further action
upon expiry of the period applicable to the last payment made. If the
parties mutually agree to proceed with construction of the Second
Building in a period after payment has been made by the Tenant, the
Tenant shall be refunded the proportionate amount paid by the Tenant
for that portion of the period from the first date that the Landlord
has poured concrete to commence construction of the Second Building
(the "Second Building Construction Start"). If the Landlord does not
refund such amount within thirty (30) days of such date, such amount
may, in addition to all other rights and remedies that the Tenant may
have against the Landlord, be set off against the Rent. If the Second
Building Construction Starts commences in a period after payment has
been made by the Tenant without the agreement of the parties, the
Tenant shall be refunded the entire amount paid by the Tenant for that
period without prejudice to all its other rights and remedies. Such
amount may be set off against the Rent, CAM Costs and Taxes. The
Landlord acknowledges and agrees that the covenants contained in this
clause 7 may be enforced by injunction and that such remedy is the
appropriate remedy for breach of covenant by the Landlord. If there is
a decrease in the area of the Second Building, the above payment
amounts shall be reduced proportionately.
INITIAL
-----------
LANDLORD/TENANT
4
8. LANDLORD'S AGREEMENT TO CONSTRUCT THE SECOND BUILDING
(a) Provided the Tenant is not then in material default, upon the
Tenant providing the Landlord with an unconditional leasing
commitment for a minimum of 75% of contiguous rentable area of
the Second Building starting from the ground floor or the top
floor on or before the 3rd anniversary of the Commencement Date,
the Landlord agrees:
(i) to deliver to the Tenant an agreement including substantially the
same terms and conditions in clause 11 of this Offer to Lease
modified to reflect that the Second Building is significantly
smaller than the Building, which shall apply to the development
and construction thereof;
(ii) to build the Second Building, subject to Force Majeure, within
ten (10) to fourteen (14) months thereafter, in a good and
workmanlike manner and of a comparable quality to the Building;
(iii) during construction of the Second Building, to use all
reasonable efforts to minimize interference with the Tenant's
rights under the Lease (including access to the Premises); and
(iv) to lease the committed portion thereof to the Tenant at the same
terms as the Premises (except commencing upon substantial
completion of the Second Building and expiring at the end of the
Term) save as to Rent, Leasehold Improvement Allowance and
parking. There shall be no additional parking provided as all
parking for the Building and the Second Building shall be built
at the same time as the Building.
(b) Rent, leasehold improvement allowance, free rent and other
inducements applicable to the additional space shall be at the
then prevailing market terms incorporating any increased
construction costs for the Second Building relative to the
Building in such determination, but not less than the Building
rents. If the Landlord proceeds with construction of the Second
Building in accordance with this clause 8, the Tenant shall not
be obligated to pay the $153,750.00 per year payment outlined in
clause 7 during the construction period. The Landlord's
obligations under this clause 8 are not subject to the Tenant
making payments and sending the notices on time as contemplated
by clause 7, provided that the Landlord's agreement to not
construct the Second Building may not be enforced by the Tenant
if payments required by clause 7 have not been paid when due.
Without limiting any other rights the Landlord may have, until
such overdue payment is made the Landlord may enter into binding
offers to lease and lease agreements for the Second Building
without incurring any liability to the Tenant, even if such
offers to lease and lease agreements prevent the Landlord from
leasing 75% or more of the Second Building to the Tenant. INITIAL
----------- LANDLORD/TENANT
5
9. OPTION TO EXPAND INTO THE SECOND BUILDING
Provided the Tenant is not then in material default and has not
exercised its rights under clauses 6 or 8, the Tenant shall have an
Option to Expand the Premises by taking not less than one complete
floor in the Second Building. The Tenant will take contiguous complete
floors to the extent possible (and the parameters of any area not
comprising a complete floor shall be determined in a reasonable and
businesslike manner) starting with the ground floor (the "Second
Building Option Area"). Such Option to Expand into the Second Building
must be exercised by notice in writing to the Landlord no later than
three (3) months following written notice by the Landlord that the
Second Building Construction Start has occurred . Lease terms
applicable to the Second Building Option Area shall be the same as for
the Premises (except the term which shall commence upon substantial
completion of the Second Building and expire at the latest of five (5)
years after date of substantial completion of the Second Building and
the Term) save as to Rent, leasehold improvement allowance, free rent,
other inducements and parking. There shall be no additional parking
provided as all parking for the Building and the Second Building shall
be built at the same time as the Building. Rent, leasehold improvement
allowance, free rent and other inducements shall be at the then
prevailing market terms (reflecting the actual length of the term) but
not less than the Rent described in clause 3. Failing agreement on the
Rent, leasehold improvement allowance, free rent and other inducements,
such matters shall be determined by arbitration pursuant to Exhibit "G"
of the Lease.
10. RIGHT OF FIRST OFFER ON ALL BUILDINGS ON THE SITE
(a) Provided the Tenant is not then in material default, the Tenant
shall have an on-going right of first opportunity throughout the
Term or any renewal term (the "Right of First Opportunity") to
lease any premises (the "RFO Premises") within the Site that the
Landlord intends to lease from time to time within the Site, upon
the following terms and conditions:
(i) the Landlord shall provide the Tenant with a written notice (the
"Notice") in respect of the portion of the RFO Premises that the
Landlord desires to lease (the "Additional Space"), setting out
the details of the Additional Space and the proposed terms that
the Landlord is willing to lease such Additional Space to the
market, which shall include the rent payable, the term and tenant
inducements, if any. If the Landlord either reduces the rent or
increases the inducements from the Notice first delivered to the
Tenant, the Landlord shall deliver to the Tenant a renewed Notice
and first opportunity to lease applicable to the then available
Additional Space at the improved terms;
(ii) the Tenant shall have five (5) Business Days after delivery to
the Tenant of the Notice or a renewed Notice, as the case may be,
to deliver a written notice (the "Acceptance Notice") to the
Landlord exercising the Right of First Opportunity in respect of
all of the Additional Space; and
INITIAL
-----------
LANDLORD/TENANT
6
(iii) if the Tenant delivers the Acceptance Notice to the Landlord
within the applicable time period, there shall be a binding
agreement to lease between the Landlord and the Tenant with
respect to the Additional Space on the terms and conditions set
out in the Notice and incorporating the terms and conditions of
the Lease to the extent reasonably possible and applicable.
(b) If the Tenant fails to deliver the Acceptance Notice to the
Landlord within the applicable time period:
(i) the Landlord may at any time during the one hundred (100) day
period after delivery of the Notice to the Tenant enter into a
lease or offer to lease of the Additional Space with any third
party on terms and conditions no more favourable to the third
party (and in a size no smaller or larger) than as set out in the
Notice, and failing such agreement as aforesaid the provisions of
the Right of First Opportunity shall again apply to the
Additional Space;
(ii) if the Landlord leases the Additional Space in accordance with
clause 10(b)(i), the Tenant's Right of First Opportunity with
respect to the Additional Space shall lapse and be of no further
force and effect until such Additional Space again becomes
available for lease during the Term or any renewals thereof;
(iii) the Tenant's Right of First Opportunity shall continue to apply
to that portion of the RFO Premises not forming part of the
Additional Space leased in accordance with clause 10(b)(i); and
(iv) if one hundred (100) days has passed between the date that the
Landlord provided the Notice or a renewal Notice, as the case may
be, to the Tenant that the Landlord intends to lease a particular
portion of the RFO Premises, the Landlord shall be required to
continue to provide a renewal Notice to the Tenant for its Right
of First Opportunity to lease so that not more than one hundred
(100) days passes from the last date that the Tenant was entitled
to deliver an Acceptance Notice upon receiving a Notice or
renewal Notice, as the case may be, and the Landlord leasing the
portion of the RFO Premises to a third party.
11. CONSTRUCTION OF THE BUILDING
(a) Definitions
In this clause 11, the capitalized words used in this clause and
elsewhere in this Offer to Lease will have the meanings assigned to
them below. Any capitalized terms not defined in this clause 11 shall
have the meaning set out elsewhere in this Offer to Lease or the
Lease:
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(i) "Base Building Construction Costs" means all costs to construct
the Building in accordance with the Plans and Specifications and
the costs referred to in clause 11(b);
(ii) "Base Building Works" means the construction of the Building in
accordance with the Plans and Specifications;
(iii) "Force Majeure" means if either party hereto is delayed or
hindered in or prevented from the performance of any obligations
required hereunder by reason of strikes, lock-outs, labour
troubles, inability to procure materials, failure of power,
restrictive governmental laws or regulations, riots,
insurrection, war, military or usurped power, sabotage, unusually
severe weather, fire or other casualty or other reason (but
excluding inadequacy of insurance proceeds, financial inability
or the lack of suitable financing) of a like nature beyond the
reasonable control of such delayed party and does not arise from
the neglect or default of that party;
(iv) "Landlord's Work" means the construction of the Base Building
Works and the Leasehold Improvements in accordance with the Plans
and Specifications and the Working Drawings, respectively;
(v) "Leasehold Improvements" means the improvements required by
Tenant to be made by Landlord to the Premises pursuant to the
Working Drawings that the Landlord and the Tenant's Consultant
have agreed the Landlord will carry out and excludes, for greater
certainty, any Tenant's Work;
(vi) "Material Matters" or "Material Design Issues" shall include the
following:
(A) changes to the exterior design, appearance, materials and
finish colours;
(B) material changes to the size, shape and height of the
Building
(or Second Building, as applicable) including the height of the
lobby and the height of each floor and the size of the floor
plate;
(C) material changes to the height of the Tenant's lobby or the
size, configuration, location, colour, materials, fixtures
or other aesthetic features of the Building lobbies and
entry ways;
(D) material changes to entry or exit points in the Building (or
Second Building) or parking areas;
(E) material changes in design or construction that might
increase the cost of the Tenant for utilities, security,
insurance, furnishings, Leasehold Improvements or Tenant's
Work;
(F) material changes to exterior areas, Common Areas and
facilities; and
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(G) changes to locations of the Tenant's space in the Building
(or the Second Building);
(vii)"Plans and Specifications" means the preliminary plans and
specifications for the Base Building Works (excluding the
Leasehold Improvements) as agreed upon between the Landlord and
the Tenant's Consultant acting reasonably, and includes the
Rendering and Schedule "B" hereto, all as supplemented or amended
from time to time in accordance with this Offer to Lease;
(viii)"Project Schedule" means the construction schedule for the
Building approved by the Landlord from time to time after
consulting with the Tenant's Consultant;
(ix) "Rendering" means that certain drawing dated March 29, 2000,
prepared by Busby & Associates Architects Ltd., a copy of which
is attached hereto as Schedule "C";
(x) "Substantial Performance" or "Substantially Performed" means the
later of the date the Landlord's architect has delivered a
certificate to the Landlord and the Tenant certifying that the
Landlord's Work (other than vegetation and ornamental
landscaping) has been substantially performed, the Tenant is able
to take possession of the Premises and the Landlord has received
a temporary or conditional occupancy permit from the City of
Vancouver lawfully permitting the Tenant to occupy and use the
Premises;
(xi) "Tenant's Consultant" means the representative appointed by the
Tenant by notice in writing to the Landlord (or a replacement
consultant appointed by the Tenant, providing no less than ten
(10) Business Days' written notice to the Landlord), to approve
any matter requiring approval by the Tenant pursuant to this
Offer to Lease who shall be the Tenant's sole representative with
respect to the construction of the Base Building Works and the
Leasehold Improvements;
(xii)"Tenant's Work" means any and all work that is to be carried out
by the Tenant at its cost and that is not included in the Plans
and Specifications or the Working Drawings, and is approved by
the Landlord, acting reasonably and without delay, and includes,
without limitation, the costs and installation of communications
equipment, cabling throughout the Building, rooftop equipment,
security systems, furniture and furniture systems, and any office
equipment and appliances; and
(xiii)"Working Drawings" means the detailed and completed plans and
specifications for the Leasehold Improvements including all space
plan services with respect to the Leasehold Improvements approved
by the Landlord pursuant to clause 12(b).
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(b) Landlord's Work
(i) Once construction starts, the Landlord agrees that it will
proceed continuously, subject to Force Majeure, and diligently to
complete all of the Landlord's Work, substantially in accordance
with the Project Schedule, and in a good and workmanlike manner
such that it will be considered a first class office building
taking into consideration the nature and location of the Site,
and shall deliver the Premises to the Tenant in accordance with
clause 11(b)(iii) hereof. The Landlord's cost of constructing
such Building shall include all site costs such as temporary
heat, light and power, Site access, hoisting, temporary toilets,
first aid and safety requirements, Site organisation and storage
and clean up even though the sub-trades for the Tenant's
Leasehold Improvements may benefit from such infrastructure being
in place, provided any additional costs resulting directly from
the usage for the construction of the Leasehold Improvements
shall form part of the costs of the Leasehold Improvements. The
Landlord shall be responsible for the Base Building Construction
Costs for the Premises and/or the Base Building Works, whichever
is applicable. If an open plan for the ceiling design is included
as part of the Base Building Works, credit shall be provided to
the Tenant for the cost of the unused portion of the ceiling that
otherwise would have been provided as part of the Base Building
Works and any costs in excess of the credit amount shall be
charged against the Tenant's Leasehold Improvement Allowance
referenced in clause 12 of this Offer to Lease. The Base Building
Works shall include the work described in Schedule "B" attached
hereto.
(ii) For greater certainty, the Landlord shall be responsible for all
Base Building Construction Costs and all variations in the amount
of Base Building Construction Costs, except if the Base Building
Construction Costs increase as a result of Tenant changes,
modifications or additions to the Plans and Specifications, the
materials with respect to such changes, modifications or
additions cost more than the materials described in the Plans and
Specifications or such changes, modifications or additions extend
the Project Schedule, all in accordance with a Change Request
pursuant to clause 11(d) hereof, in which event such increase in
costs shall be for the account of the Tenant and paid within
fourteen (14) days of invoicing by the Landlord. Any delays in
payment by the Tenant of such amounts shall accrue interest at
the rate of 12% per annum, calculated semi-annually not in
advance from the date of invoicing to the date of repayment by
the Tenant.
(iii)The Premises shall be delivered to the Tenant on the Commencement
Date in the condition described below, free of all Landlord's
personal property, signage or debris and thoroughly cleaned to
the extent that it does not interfere with the Tenant's Work and
otherwise in a condition that is in compliance with the Legal
Requirements (as defined in the Lease) for office property. The
Landlord covenants, that, upon the Commencement Date, all of the
Landlord's Work shall be complete in all material respects,
subject only to the Deficiencies
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(described in clause 11(k) hereof) and all elevators, equipment,
roof walkpads and utilities serving the Premises shall be
installed and operating and in good working order, all corrective
work to comply with the foregoing shall be performed by the
Landlord at its cost and expense and shall be included in the
list setting out the Deficiencies.
(iv) The Landlord and the Tenant acknowledge that the construction of
the Base Building Works and Tenant Improvements by the time set
forth in clause 27 of this Offer to Lease is based on the
Building proceeding within the time schedule set out in the
Project Schedule.
(c) Tenant's Consultant
(i) The Tenant will designate the Tenant's Consultant to consult, on
behalf of the Tenant and as the Tenant's sole representative,
with the Landlord on the design, planning, development and
construction of the Building and Site in accordance with the
terms of this Offer to Lease.
(ii) The Tenant agrees to cause the Tenant's Consultant to deliver its
approval or non-approval, as the case may be, and submit all
documents in a timely manner as set out in this Offer to Lease
and in accordance with the Project Schedule. The Landlord shall
prepare and present to the Tenant's Consultant for the Tenant's
Consultant's approval any matters which requires approval of the
Tenant's Consultant pursuant to this Offer of Lease (who shall
respond within four (4) Business Days of receipt of request by
the Landlord).
(iii)subject to clause 13, the Landlord may modify the Plans and
Specifications during the construction process in a manner
consistent with good, consistent and appropriate construction
practices and in keeping with the Project Schedule, without the
prior written consent of, but upon notice to, the Tenant's
Consultant, provided such changes are not Material Matters (which
changes require the prior written consent of the Tenant's
Consultant).
(d) Change Orders
The Tenant's Consultant will be responsible for making any changes to
the Plans and Specifications and/or the Working Drawings by submitting
a written change request to the Landlord for consideration (the
"Change Request"). The Landlord, acting reasonably, will consider the
Change Request and will advise the Tenant's Consultant, in writing
(the "Change Request Response") as soon as practicable, as to which
changes, if any, are acceptable and will advise the Tenant's
Consultant as to any increase or decrease in the Base Building
Construction Costs or costs of Leasehold Improvements, as the case may
be, resulting from such Change Request and any delays in the Project
Schedule arising from the Change Request. The Tenant's Consultant
will, within four (4) Business Days of receipt of the Change Request
Response, confirm in writing that it has accepted the changes approved
by the Landlord, if applicable, and
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11
the revision to the Base Building Construction Costs and/or cost of
Leasehold Improvements and the changes to the Project Schedule, or
withdraw its Change Request, provided that if the Tenant's Consultant
does not confirm its acceptance of the approved changes or withdraw
its Change Request within the four (4) Business Day period, the
Tenant's Consultant will be deemed to have withdrawn its Change
Request. If the approved Change Request results in an increase in the
Base Building Construction Costs and/or the costs of the Leasehold
Improvements, the amount of such increase shall be payable in
accordance with clause 12(a). If it is not agreed in writing upon
submission of a Change Request Response that such change will extend
the Project Schedule, the Commencement Date shall not be affected.
(e) Pricing
The Landlord agrees to obtain fee proposals for engineering
consultants as a combined package for design of both the Base Building
Work and Leasehold Improvements. Request For Proposals document
("RFPs") are to be agreed upon by the Landlord and the Tenant. RFPs
shall request breakout pricing on fees for Leasehold Improvements. The
Landlord and the Tenant to review proposals and mutually agree on
award of contracts and split between Base Building Works and Leasehold
Improvements. Failing agreement on the above, the Landlord and the
Tenant reserve the right to obtain separate engineering consultants
for the Base Building Works and the Leasehold Improvements. The
Tenant, independent of the Landlord, will retain interior design
services for the Leasehold Improvements.
(f) Design and Tendering
The Landlord's Work will be fully designed by professional consultants
and the Leasehold Improvements will be competitively tendered to
qualified contractors and trades.
(g) General Contractor's Cost Limits
The Landlord will retain a general contractor to construct the
Leasehold Improvements with limits on costing as follows:
(i) maximum profit and overhead fee of 4% (5% on change orders) plus
$15,000.00 for a project manager to be charged on the Leasehold
Improvements. Fee to cover all off-site costs, including but not
limited to office related construction co-ordination/estimating,
project management, value engineering, administration, overhead,
related expenses, and profit;
(ii) only general condition costs attributable specifically to the
Leasehold Improvements will be approved as a Tenant cost. All
general condition costs are subject to review and approval by the
Tenant's Consultant, acting reasonably. It is understood that the
Leasehold Improvements will require a separate site
superintendent at the Tenant's expense;
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(iii)the general contractor will receive a minimum of three (3)
sub-trade prices on all sections of the Leasehold Improvements
and will submit them to the Tenant for review. The Tenant
reserves the right to provide one qualified sub-trade for
consideration in all divisions of the work. The Landlord and the
Tenant shall review the pricing and mutually agree on the award
of sub-trade contracts with respect to the Leasehold
Improvements, failing which, such awarding shall be determined by
arbitration pursuant to Exhibit "G" of the Lease; and
(iv) the general contractor will receive a minimum of two (2)
sub-trade design build bids with appropriate pricing options on
the sprinkler, electrical and HVAC components of the Landlord's
Work and will submit them to the Tenant for review and if the
Tenant, acting reasonably, is not satisfied with the amount of
the Leasehold Improvements portion of a bid that the Landlord
determines is acceptable with respect to the Landlord's Work,
then the Landlord shall tender such Leasehold Improvement portion
one more time, provided that the Landlord, acting reasonably,
shall be entitled to award such sub-trade contracts without the
consent of the Tenant after the Tenant's review or such further
tender, as the case may be.
Maximum change order mark-up of 10% on materials and labour
by sub-trades on Leasehold Improvements.
(h) Separate Pricing
All items of the Landlord's Work that will be affected or revised by
the Leasehold Improvements (lighting, sprinkler heads, etc.) are to be
designed and priced with a request for appropriate price options. This
may be in the form of a request for break-out pricing, unit pricing,
unit relocation pricing, pricing for deletion. This will allow the
Landlord and the Tenant's Consultant to fairly and accurately separate
the cost of the Leasehold Improvements from that of the Base Building
Works. The Landlord and the Tenant's Consultant are to review pricing
and mutually agree on costing of price options.
(i) Reasonableness
The Landlord and the Tenant's Consultant, and each person acting for
the Landlord or the Tenant (as the case may be), in making any
determination (including, without limitation, any determination as to
whether or not to grant any consent or approval required of it),
designation, calculation, estimate, conversion, or allocation under
this Offer to Lease, will act reasonably (except if the Tenant's or
Tenant's Consultant's consent is not expressly required, it shall be
at the Landlord's sole discretion, acting reasonably) and in good
faith and each accountant, architect, engineer, surveyor and other
professional person employed or retained by the Landlord or the Tenant
will act in accordance with the applicable principles and standards of
such person's profession.
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(j) Inspection and Access by the Tenant
The Tenant and the Tenant's Consultant shall have the right, from time
to time, at any reasonable time, to visit the Site and perform Site
inspections, provided such inspections and access do not interfere
with or delay the Landlord from completing the Landlord's Work within
the Project Schedule. The Tenant shall have the right to access the
Premises and the Building prior to the Commencement Date in order to
complete the Tenant's Work; provided, however, that the Landlord's
Work and Tenant's Work shall be co-ordinated as directed by the
Landlord, acting reasonably, in order to allow the Tenant's Work to be
performed concurrently without interference and without delay to the
Project Schedule.
(k) Inspection of Premises for Deficiencies
Prior to the Commencement Date, the Landlord and the Tenant's
Consultant shall conduct an inspection of the Premises for the
purposes of determining any defects or deficiencies in the Landlord's
Work, which Landlord's Work is not in accordance with the Plans and
Specifications and Working Drawings (the "Deficiencies"). The Tenant's
Consultant and the Landlord shall prepare a list of the Deficiencies.
The Landlord agrees to repair the Deficiencies in a timely, diligent
and good and workmanlike manner. In no event will the Tenant be
entitled to claim an offset against Rent under the Lease or be
entitled to a holdback on account of any Deficiencies claimed by the
Tenant.
(l) Warranty
The Landlord agrees to obtain a one (1) year warranty from its general
contractor and the Landlord agrees to diligently enforce such warranty
on materials, labour and workmanship from its general contractor with
respect to the Base Building Works and Tenant Improvements for the
benefit of the Tenant.
(m) Conflict
Nothing shall be binding as between the Landlord and the Tenant,
except to the extent set forth in this Offer to Lease or in the Lease
or as otherwise agreed to in writing by the Landlord and the Tenant.
In the event of a conflict or inconsistency between:
(i) the schedules attached to this Offer to Lease, other than the
Lease;
(ii) the provisions of clause 13 hereof;
(iii) the provisions of the Lease;
(iv) the Plans and Specifications; and
(v) the Working Drawings,
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the following order of priority shall be determinative in
resolving such conflicts or inconsistencies among various
documents:
(A) the schedules attached to this Offer to Lease, other
than the Lease;
(B) the Plans and Specifications;
(C) the provisions of clause 13 hereof;
(D) the Lease; and
(E) the Working Drawings.
(n) Reimbursement to Tenant
If this Offer to Lease or the Lease is terminated in accordance with
clause 27 of this Offer to Lease, the Landlord covenants and agrees to
forthwith repay to the Tenant all amounts paid by the Tenant for
Leasehold Improvements or increased costs associated with Change
Orders or other changes generated by the Tenant.
12. LEASEHOLD IMPROVEMENTS AND LEASEHOLD IMPROVEMENT ALLOWANCE
(a) The Landlord agrees to construct the Leasehold Improvements in
the Premises diligently and in a good and workmanlike manner in
accordance with the Working Drawings and in a manner in keeping
with the Project Schedule for the Building and approved by the
Landlord's architect, acting reasonably. The Landlord agrees to
pay for the first Thirty Dollars ($30.00) per square foot of
Rentable Area (excluding roof decks and private patio areas) for
the Premises with respect to the Leasehold Improvements (the
"Leasehold Improvement Allowance") and shall be payable within
fourteen (14) days of invoicing from the Landlord, subject to
approval of such invoicing by the Tenant's Consultant, acting
reasonably and without delay. The Leasehold Improvement Allowance
may be used to pay the cost of all plans, permits, consultants,
materials and labour for design, construction and installation of
the Leasehold Improvements and voice and data cabling and any
other costs that the Tenant's Consultants approves in writing.
Any amount incurred over the amount of the Leasehold Improvement
Allowance shall be to the account and responsibility of the
Tenant, and the Tenant, upon receipt of a draw request including
confirmation that the Leasehold Improvements described in such
draw request have been completed and approval of such draw
request by the Tenant's Consultant, acting reasonably and without
delay, covenants to pay such amounts within fourteen (14) days of
invoicing, failing which such amount shall be treated as Rent in
arrears and as a debt due and owing. Any unused portion of the
Leasehold Improvement Allowance shall be credited to the Tenant's
account in the form of net free rent from the Commencement Date.
Subject to payment of the Leasehold Improvement Allowance by the
Landlord, the Tenant shall be liable for and shall pay for all
amounts owing on account of the Leasehold Improvements that is in
excess of the Leasehold Improvement Allowance
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within fourteen (14) days of invoicing from the Landlord. Any
delays in payment by the Tenant of such amounts shall accrue
interest at the rate of 12% per annum calculated semi-annually
not in advance from the date of invoicing to the date of
repayment by the Tenant. The Landlord will not charge any
management fee for construction of the Leasehold Improvements.
(b) Notwithstanding anything to the contrary contained in this Offer
to Lease, the Tenant may, if it advises the Landlord in writing
on or before August 15, 2000 that it intends to do so, select in
a timely manner their own design team and project consultants to
prepare the Working Drawings for the Leasehold Improvements. The
Tenant's Consultant shall provide to the Landlord the Working
Drawings in accordance with the Project Schedule for the
Building, approved for permitting and pricing by the Landlord, in
a timely manner in accordance with clause 11(c)(ii) hereof to
facilitate the Landlord meeting the Project Schedule and the
terms contained in this Offer to Lease.
13. TENANT'S APPROVAL ON BUILDING DESIGN / OTHER TENANT USES
The Landlord understands and agrees that the Building shall be
constructed for the Tenant's use and the Tenant, provided it is
occupying the majority of the Rentable Area in the Building, acting
reasonably and without delay, shall have approval rights on the
proposed use of premises in the Building and the Second Building by
other tenants and Material Design Issues for the Building and the
Site. The Landlord shall work with the Tenant and the Tenant's
Consultant to create a design for the Second Building that is approved
by the Tenant's Consultant, acting reasonably and without delay. The
Landlord must obtain written approvals from the Tenant's Consultant,
acting reasonably and without delay, for Material Matters and Material
Design Matters, and shall invite the Tenant's Consultant to attend all
design meetings throughout the design process. The Tenant agrees to
provide written responses to the Landlord's requests for approvals on
leases, Material Matters, Material Design Issues and other design
issues that require the Tenant's or the Tenant's Consultant's
approval, as the case may be, within four (4) Business Days of receipt
by the Tenant's Consultant of the request and all plans and
information needed by the Tenant's Consultant, acting reasonably, to
consider the request.
14. PERMITS
It is the Landlord's responsibility to secure all the necessary
building permits and approvals required by the City of Vancouver for
the Leasehold Improvements and the Base Building Works. The Landlord
shall also be responsible for making application for a partial or
conditional certificate of occupancy, if available, and a final
certificate of occupancy as issued by the City of Vancouver as they
apply to the Leasehold Improvements and the Building.
15. BUILDING NAME
The Landlord agrees to name the Building "Pivotal Corporation
Building" on the terms set out in the Lease.
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16. PARKING
The Landlord agrees to lease the number of parking stalls to the
Tenant on the terms and conditions set out in Section 26.7 of the
Lease. Parking charges per parking stall shall be fixed at:
(a) One Hundred Ten Dollars ($110.00) per month for years 1 - 5;
(b) One Hundred Twenty Five Dollars ($125.00) per month for years 6 -
10; and
(c) One Hundred Forty Five Dollars ($145.00) per month for years 11 -
15.
After the Second Building is developed the parking shall be
re-apportioned based on the Tenant's proportionate share of Rentable
Area on the Site.
17. USE OF PREMISES
The Premises are to be used for general business use.
18. LEASE FORM AND AMENDMENTS TO LEASE AT COMMENCEMENT
(a) Not later than September 1, 2000, the parties will sign in
duplicate the Lease in the form attached hereto as Schedule "D"
and deliver all copies to Koffman Kalef, Business Lawyers, to
hold in trust until notice is received from the Landlord or the
Tenant, as the case may be, that either:
(i) this Offer to Lease has been terminated or otherwise
cancelled; or
(ii) that the upset dates described in clauses 26 and 27 of this
Offer to Lease have expired and this transaction has not
otherwise been cancelled or terminated,
provided that the Landlord may deliver to any proposed lender or
purchaser of the Site a certified true copy of the Lease on a
confidential basis, pursuant to a confidentiality agreement, a
copy of which is provided to the Tenant.
(b) In the event this Offer to Lease or the Lease is terminated in
accordance with the aforementioned provision or otherwise
cancelled then, in addition to any other provisions of this
Offer, all executed copies of the Lease will be returned to the
Tenant for destruction.
(c) In the event the upset dates have expired and this transaction
has not otherwise been cancelled or terminated, one copy of the
Lease will be delivered to each of Landlord and Tenant on the
date of Delivery of Possession of the Premises to the Tenant,
subject to the parties first agreeing upon the changes described
in the next paragraph.
(d) The parties agree that at any time, upon the request of the other
party, to re-execute and re-deliver the Lease modified and
updated to reflect the following:
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(i) the actual size of the Premises (as defined in the Lease) as
constructed (Section 2.1 of the Lease);
(ii) the actual Commencement Date (Article 5 of the Lease); and
(iii)such other amendments and modifications as the parties,
acting reasonably, shall agree to from time to time.
If either the Landlord or the Tenant refuses or neglects to sign
the Lease, the Landlord and the Tenant agree that they are
nonetheless bound by the terms of the Lease which are
incorporated by reference into this Offer to Lease.
19. END INVESTOR
The Landlord and the Tenant understand and agree that the Building and
the Site may be sold to a third party investor (the "End Investor"),
and that the Tenant shall have the right to approve the identity and
financial standing of the End Investor, such approval not to be
unreasonably withheld or delayed. The End Investor will assume all the
obligations of the Landlord and the Landlord will not be released
until the Commencement Date has occurred and the End Investor has
delivered to the Tenant an agreement in favour of the Tenant whereby
the End Investor assumes all obligations of the Landlord in the Lease.
20. ENTIRE AGREEMENT
It is understood and agreed that the terms and conditions of this
Offer to Lease shall be those expressly set out herein and in the
Schedules attached hereto and, except as expressly set out herein and
in the attached Schedules hereto, there are no collateral or other
representations, warranties, conditions or agreements of the Landlord
and none shall be implied.
21. BINDING AGREEMENT
This Offer to Lease and its Schedules and the Landlord's acceptance
hereof shall constitute a binding agreement by the parties on and
subject to the terms and conditions herein contained. Such agreement
may not be assigned or otherwise transferred by the Tenant without the
prior written consent of the Landlord. The Landlord shall obtain a
written assumption in favour of and delivered to the Tenant of its
obligations under this Offer to Lease from any party it transfers its
interest in the Site to provided that the Landlord will not be
released until the Commencement Date has occurred. If there are two
(2) or more offerors hereunder comprising the Tenant, the liability of
such offerors shall be joint and several.
22. TIME OF ESSENCE
Time shall be of the essence of this Offer to Lease.
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23. OPTIONS TO RENEW
(a) If the Tenant is not then in material default of the covenants in
the Lease to be performed and observed by the Tenant, the
Landlord shall grant to the Tenant, upon six (6) months' written
notice prior to the expiration of the Term or the applicable
renewal term, as the case may be, two (2) renewal leases each for
a term of three (3) years upon the same terms and conditions
contained herein, save as to Rent, parking charges, Leasehold
Improvement Allowance and any other inducements and clauses 5, 6,
7, 8 and 9 inclusive of this Offer to Lease (unless the Tenant
still has its original rights under such provisions).
(b) The Rent and parking charges payable by the Tenant and any
inducements during each renewal term shall be negotiated and
agreed upon between the parties prior to the commencement of such
renewal term based on the prevailing fair market rent with fair
market inducements and fair market parking charges at the
commencement of such renewal term for similarly improved premises
of similar size, quality, use and location in office buildings of
a similar size, quality and location in Vancouver less the value
of improvements paid by the Tenant in excess of the Leasehold
Improvement Allowance (depreciated on a straight line basis).
Failing such agreement, then within two (2) months prior to the
commencement of such renewal term, Rent, parking charges and any
inducements shall be determined by arbitration as set out in
Section 6.1(a)(ii) and Exhibit "G" to the Lease.
24. ASSIGNMENT BY LANDLORD
The rights and obligations in this Offer to Lease may not be assigned
by the Landlord without the prior written consent of the Tenant, which
consent may not be unreasonably withheld, provided that the Landlord
may assign to an affiliate or a subsidiary of the Landlord or as part
of a corporate reorganization, in which case, such assignment may take
place without the said consent of the Tenant, but nevertheless, the
Landlord shall not be released from its obligations herein, and,
subject to the terms and conditions of clause 19, the rights and
obligations in this Offer to Lease may be assigned to the End
Investor. Notwithstanding the foregoing, representatives of PCI
Properties Corp. shall remain project manager and the primary contact
personnel with the Tenant for the completion of the Landlord's Work.
25. INTENTIONALLY DELETED
26. CITY OF VANCOUVER APPROVALS
The Tenant shall assist the Landlord in meeting with the City of
Vancouver officials throughout the Site rezoning process as shall be
reasonably necessary. Subject to Force Majeure, the Landlord shall use
reasonable commercial efforts to have the Site rezoned and a
development permit in place prior to April 1, 2001. Subject to Force
Majeure, if such development permit and rezoning are not enacted by
December 31, 2001, the Landlord and the Tenant shall each have the
option of terminating this Offer to Lease by written notice to the
other delivered within five (5) Business Days of such date, and
neither party shall have any further obligation to the
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LANDLORD/TENANT
19
other and the Security Deposit plus GST shall be returned to the
Tenant.
27. CONSTRUCTION COMMENCEMENT DEADLINE - UPSET DATE AND REMEDY
If the development permit for the Building has not been issued by
December 1st, 2001, the permit or permits authorizing the Landlord to
construct the Building to at least the state that it is in on November
30, 2001 have not been issued and the Building Construction Start (as
defined in clause 7) has not occurred for any reason on or before
December 1st, 2001, then, provided that the Landlord is unable to
satisfy the Tenant, acting reasonably, by such date that the Building
can be substantially performed and that the entire premises will be
ready of occupancy by Tenant on or before October 1, 2002, on receipt
of written notice from the Tenant to the Landlord received by December
5, 2001, this Offer to Lease and the Lease shall be null and void and
the Security Deposit (as defined in clause 28) shall be forthwith
returned to the Tenant and neither party shall have any further claim
against the other with respect to this Offer to Lease and Lease.
Notwithstanding the foregoing, Force Majeure shall not apply to extend
the dates in this clause 27.
28. SECURITY DEPOSIT
Within two (2) days of execution by both parties of this Offer to
Lease, the Tenant will provide a letter of credit issued to the
Landlord in an amount of $1,000,000.00 to be held upon the terms and
conditions contained in section 6.3 of the Lease (the "Security
Deposit"). Not later than July 3, 2001, the Security Deposit will be
increased to $3,750,000.00 and, not later than July 2, 2002, the
Security Deposit will be increased to $7,855,000.00 (calculated as two
(2) years' gross rent of approximately $62.84 per square foot
multiplied by 125,000 square feet). The terms of Exhibit "F" attached
to the Lease, as well as the provisions in section 6.3 of the Lease
requiring that cash proceeds be held in trust in interest-bearing
certificates shall apply to all of the security provided under this
clause, mutatis mutandis.
29. TENANT'S COVENANTS
The Tenant covenants and agrees with the Landlord that:
(a) that it will not assign or sublet the Lease or the Premises, or
any portions thereof, or permit same to be used or occupied by,
Costco Wholesale Canada Ltd. or any of its affiliates for office
use or for a wholesale/retail outlet prior to January 1, 2010 or
Seagate Software Information Management Group (Canada) Inc. or
any of its affiliates for office use prior to January 1, 2010 and
that Pacific Place Holdings Ltd. as the owner of the lands
comprising Concord Pacific Place, may register a restrictive
covenant to secure this restriction against the Site for the
benefit of adjacent lands;
(b) it will not object, directly or indirectly, to any lawful aspect
of the development of the lands comprising Concord Pacific Place;
and
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LANDLORD/TENANT
20
(c) the nature of developments in Concord Pacific Place, including
height, size and location of developments and any art piece on
these developments are not material to the Tenant proceeding with
the transaction as contemplated in this Offer to Lease.
30. COMMUNICATIONS EQUIPMENT
(a) The Tenant shall be responsible for the installation and
maintenance of its telephones, computers and special
communications equipment, including satellite dishes or other
antennae (herein collectively called "Communications Equipment").
The Tenant acknowledges that the Landlord has authorized Novus
Entertainment (B.C.) Inc. ("Novus") to provide cable television
and Telus to provide certain other communications links, services
and facilities for the Project including, without limitation,
voice data and video communications services and facilities (the
"Communications Services and Facilities") to the Project. To the
extent that Novus and Telus are unable to meet the requirements
of the Tenant or any Related Party (as defined in the Lease):
(i) on reasonably competitive commercial terms; or
(ii) from a technological or timetable standpoint,
then the Tenant and Related Party shall have no obligation
whatsoever to use either Novus or Telus, as the case may be.
(b) The Landlord covenants and agrees that the Tenant shall have the
right to supply or designate one or more additional carriers to
supply Communications Services and Facilities to the Tenant, any
Related Party and others doing business with the Tenant. Without
limiting the generality of the foregoing, the Tenant shall have
the right to install or cause to be installed from time to time
Communications Equipment in the Building, including on the roof
of the Building or the Second Building. There shall be no
additional charge payable by the Tenant to the Landlord for the
Communications Services and Facilities or for the use of such
areas in the Project or for the installation of the
Communications Equipment. The Tenant's vendor, as the designee of
the Tenant, shall have the right to install the Communications
Equipment and such vendor and the Tenant, jointly and severally,
shall indemnify the Landlord and be solely responsible, at their
cost and expense, for the maintenance and repair of the
Communications Equipment, and the Landlord shall have no
responsibility with respect thereto unless the same was made
necessary by the negligence or wilful act of the Landlord or
Landlord's Agents (as defined the Lease).
(c) The Landlord and the Tenant acknowledge and agree to enter into
and execute an amendment to this Offer to Lease that sets out the
final terms and conditions for clause 30(a) upon agreement to
such terms by the Tenant and Pacific Place Holdings Ltd.
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LANDLORD/TENANT
21
31. SIGNAGE
The Tenant shall have the right to erect signage as described in
Section 2.4 of the Lease.
32. TITLE MATTERS
The Landlord agrees with the Tenant that on or before the Commencement
Date, it shall have received, to the extent it is lawfully entitled to
same after complying, or causing to be complied with, the terms and
conditions of the following described encumbrances, the written
agreement or written assurance of the City of Vancouver to discharge
from the title to the Site those encumbrances described in Schedule
"E" (Part 1) hereto and, furthermore, the Landlord agrees with the
Tenant to indemnify and save harmless the Tenant for any claims, costs
or liabilities that the Tenant may incur with respect to the Landlord
failing to pay any financial obligations or comply with any conditions
or requirements contained in those encumbrances described in Schedule
"E" (Part 2) hereto.
33. NOTICES
(a) Notice
All notices to be given hereunder shall be in writing and may be
served personally or forwarded by registered or certified mail, return
receipt requested or may be forwarded by private overnight delivery
service or by facsimile, provided that a receipt or proof of delivery
thereof can be produced and shall be addressed to the respective
parties as follows:
(i) to the Landlord:
PCI Properties Corp.
1700 - 1030 West Georgia Street
Vancouver, British Columbia
V6E 2Y3
Attention: Dan Turner
Facsimile: (604) 688-2328
with a copy delivered concurrently to:
Koffman Kalef
Business Lawyers
1900 - 885 West Georgia Street
Vancouver, British Columbia
V6C 3H4
Attention: Patrick J. Julian
Facsimile: (604) 891-3788
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LANDLORD/TENANT
22
(ii) to the Tenant:
Pivotal Corporation
300 - 224 West Esplanade
North Vancouver, British Columbia
V7M 3M6
Attention: Andre Beaulieu
Facsimile: (604) 983-6658
with a copy delivered concurrently to:
Owen, Bird
Barristers and Solicitors
2900 - 595 Burrard Street
Vancouver, British Columbia
V7X 1J5
Attention: Jack Grant
Facsimile: (604) 688-2827
or to such other address as may be contained in a notice from
either party to the other given pursuant to this clause 33.
(b) Effectiveness of Notice
Notice shall be deemed given when delivered or when receipt is
refused.
34. SUCCESSORS AND ASSIGNS
The covenants, conditions and agreements contained in this Offer to
Lease shall be binding upon and shall enure to the benefit of the
Landlord and the Tenant and their respective permitted successors and
assigns.
35. OFFER TO LEASE SHALL GOVERN
The provisions of this Offer to Lease formed by the acceptance of this
Offer to Lease by the Landlord shall, except as hereinafter provided,
survive the execution of the Lease. In the event of any inconsistency
between the provisions of this Offer to Lease and the provisions of
the Lease or any difference in language covering the same subject
matter, the provisions of the Lease shall govern, provided that until
the Lease is executed and delivered, the provisions of this Offer to
Lease shall govern.
36. AGENCY DISCLOSURE
(a) The Tenant has an agency relationship with CB Richard Ellis
Limited (Agent) and Lisa Ayrton (Salesperson) and Blair Quinn
(Salesperson) for this Lease negotiation.
INITIAL
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LANDLORD/TENANT
23
(b) The Landlord has an agency relationship with CB Richard Ellis
Limited (Agent) and Lisa Ayrton (Salesperson) and Blair Quinn
(Salesperson) and Jim Szabo (Salesperson) in the sale of the
Building and the Site to the End Investor.
37. FACSIMILE TRANSMISSION
A party hereto may signify its agreement to the terms hereof by
facsimile transmission. A facsimile of this Offer to Lease received by
a party hereto which shows the signature(s) of the authorized
signatory(ies) of the other party will be good proof of execution by
that other party.
38. TIME FOR ACCEPTANCE
This Offer to Lease is open for acceptance until 3:00 p.m. Pacific
Time, on July 31, 2000, after which time, if not accepted by the
Tenant, this Offer to Lease shall be null and void. Upon execution of
this Offer to Lease (Restated), the Offer to Lease dated May 23, 2000
shall be automatically terminated and at an end.
DATED at Vancouver, British Columbia, this ______ day of July, 2000.
PIVOTAL CORPORATION
Per:___________________________ _____________________________
(Authorized Signatory) Witness
We hereby accept this Offer to Lease and agree to be bound by the terms and
conditions contained herein.
DATED at Vancouver, British Columbia, this 31st day of July, 2000.
PCI PROPERTIES CORP.
Per:___________________________ _____________________________
(Authorized Signatory) Witness
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LANDLORD/TENANT
24
SCHEDULE "A"
SITE PLAN
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-----------
LANDLORD/TENANT
SCHEDULE "B"
BASE BUILDING WORK
[To be attached]
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LANDLORD/TENANT
SCHEDULE "C"
RENDERING OF THE BUILDING
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LANDLORD/TENANT
SCHEDULE "D"
LEASE
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LANDLORD/TENANT
SCHEDULE "E"
PART 1
ENCUMBRANCES TO BE DISCHARGED
1. Section 219 Covenant BG426186
2. Section 219 Covenant BG426191
3. Section 219 Covenant BG426192 (BM268189)
4. Section 219 Covenant BG426198
5. Section 219 Covenant BG426205 (BK209354 and BL261871)
6. Option to Purchase BG426206 (BK209355 and BL261872)
7. Section 219 Covenant BG426207 (BK209356 and BL261873)
8. Section 219 Covenant BG426208 (BK209363)
9. Section 219 Covenant BG426212
10. Section 219 Covenant BG426214
11. Section 219 Covenant BG426216
12. Section 219 Covenant BG426219 (BK320655 and BM268178)
13. Section 219 Covenant BG426224
14. Section 219 Covenant BG426231
15. Mortgage BK372839
16. Option to Purchase BM34056
17. Mortgage BN285252
18. Assignment of Rents BN285253
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LANDLORD/TENANT
19. Mortgage BN294061
20. Option to Purchase BN294063
PART 2
ENCUMBRANCES FOR LANDLORD TO INDEMNIFY FOR UNTIL
MATTERS CONTAINED THEREIN ARE COMPLETED
1. Easement and Indemnity Agreement R103403
2. Easement GB48625
3. Equitable Charge GD114771 (GH426165, BN281110 and BH411859)
4. Equitable Charge BG266332 (BG426166 and BN281111)
5. Equitable Charge BG426163 (BN281115 and BN315895)
6. Section 219 Covenant BG426216
7. Section 219 Covenant BG426219
8. Section 219 Covenant BG426224
9. Section 219 Covenant BG426331
INITIAL
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LANDLORD/TENANT
2
EX-10.23
6
ex10_23.txt
EXHIBIT 10.23
FIRST AMENDMENT TO RESTATED OFFER TO LEASE
THIS AGREEMENT made as of the 16th day of October, 2000.
BETWEEN:
PCI PROPERTIES CORP., a company incorporated under the laws of the
Province of British Columbia and having an office at 1700 - 1030 West
Georgia Street, Vancouver, British Columbia, V6E 2Y3
(the "Landlord")
AND:
PIVOTAL CORPORATION, a company incorporated under the laws of the
Province of British Columbia and having an office at 300 - 224 West
Esplanade, North Vancouver, British Columbia, V7M 3M6
(the "Tenant")
WHEREAS:
A. Pursuant to a restated offer to lease made the 28th day of July, 2000
between the parties (the "Offer to Lease"), the Landlord agreed to lease to
the Tenant, and the Tenant agreed to lease from the Landlord, the Premises
in the Building (currently unbuilt) on the terms and conditions therein;
B. In connection with the Offer to Lease, the parties agreed to enter into a
definitive office lease agreement substantially in the form and upon the
terms and conditions as set forth in the form of office lease attached as
Schedule "D" to the Offer to Lease (the "Lease");
C. The parties have made and agreed to certain changes to the provisions
relating to the security deposit in section 6.3 of the Lease, which changes
the parties have determined should form part of the Offer to Lease;
D. The parties have agreed to amend the Offer to Lease on the terms and
conditions provided for herein.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained the parties hereto agree as follows:
1. Definitions
Unless the context otherwise requires, terms which are used in this
Agreement (including the Recitals), and not otherwise defined herein, have
the meanings given to them by the Offer to Lease.
2. Amendments to Offer to Lease
(a) The Offer to Lease is hereby amended by deleting section 28 thereof in
its entirety and substituting the following therefor:
"28. Within two (2) days of execution by both parties of this Offer to
Lease, the Tenant covenants and agrees to provide a letter of
credit issued to the Landlord in an amount of $1,000,000.00 to be
held upon the terms and conditions contained in section 6.3 of
the Lease (the "Security Deposit"). Upon five (5) business days'
notice that the Landlord will commence pouring for the
foundations/footings for the Building, the Tenant covenants and
agrees to increase the Security Deposit to $3,750,000.00 on or
before the date the Landlord commences such pouring. Thereafter,
the Tenant covenants and agrees to increase the Security Deposit
to an amount equal to two (2) years' gross rent (for example, the
Security Deposit would be $7,855,000.00 if the gross rent was
$62.84 per square foot and the Rentable Area of the Premises was
125,000 square feet) on or before the Commencement Date. The
terms of Exhibit "F" attached to the Lease, as well as the
provision of section 6.3 of the Lease requiring that cash
proceeds be held in trust in interest-bearing certificates shall
apply to all of the security provided under this clause, mutatis
mutandis."
3. Effect on Offer to Lease
(a) This Agreement is supplemental to and shall be read with and deemed to
be part of the Offer to Lease and the Offer to Lease shall from the
date of this Agreement be read in conjunction with this Agreement.
(b) This Agreement shall henceforth have effect so far as practical as
though all of the provisions of the Offer to Lease and this Agreement
were, as appropriate, contained in one instrument.
(c) All of the provisions of the Offer to Lease, except only insofar as
the same may be consistent with the express provisions of this
Agreement, shall apply to this Agreement.
(d) The Offer to Lease as changed, altered, amended, modified and
supplemented by this Agreement shall be and continue in full force and
effect and be binding upon the parties and is hereby confirmed in all
respects, and for the purposes of the Lease reference to the term
"Offer" therein shall be deemed to refer to the Offer to Lease as
amended hereby and as further amended and modified from time to time.
2
IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed as
of the day and year first above written.
PCI PROPERTIES CORP.
Per: _____________________
Authorized Signatory
PIVOTAL CORPORATION
Per: _____________________
Authorized Signatory
3
EX-10.24
7
ex10_24.txt
EXHIBIT 10.24
SECOND AMENDMENT TO RESTATED OFFER TO LEASE
THIS AGREEMENT made as of the 18th day of May, 2001.
BETWEEN:
PCI PROPERTIES CORP., a company incorporated under the laws of the
Province of British Columbia and having an office at 1700 - 1030 West
Georgia Street, Vancouver, British Columbia, V6E 2Y3
(the "Landlord")
AND:
PIVOTAL CORPORATION, a company incorporated under the laws of the
Province of British Columbia and having an office at 300 - 224 West
Esplanade, North Vancouver, British Columbia, V7M 3M6
(the "Tenant")
WHEREAS:
A. Pursuant to a restated offer to lease made the 28th day of July, 2000 and a
first amendment to restated offer to lease made as of the 16th day of
October, 2000 between the parties (together, the "Offer to Lease"), the
Landlord agreed to lease to the Tenant, and the Tenant agreed to lease from
the Landlord, the Premises in the Building (currently unbuilt) on the terms
and conditions therein;
B. In connection with the Offer to Lease, the parties executed a definitive
office lease agreement made and entered into the 28th day of December, 2000
(the "Lease");
C. The parties have agreed to changes to specific provisions in the Offer to
Lease and have agreed to amend the Offer to Lease on the terms and
conditions in this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements herein contained the parties hereto agree as follows:
1. Definitions
Unless the context otherwise requires, terms which are used in this
Agreement (including the Recitals), and not otherwise defined herein,
have the meanings given to them by the Offer to Lease.
2. Amendments to Offer to Lease
The Offer to Lease is hereby amended as follows:
(a) delete clause 11(a)(vii) in its entirety and substitute the following
therefor:
""Plans and Specifications" means the preliminary plans and
specifications for the Base Building Works (excluding the
Leasehold Improvements) in the form of the Rendering and Schedule
"B" hereto, all as supplemented or amended from time to time as
agreed between the Landlord and the Tenant's Consultant acting
reasonably or as supplemented or amended from time to time in
accordance with this Offer to Lease.";
(b) in the last sentence of clause 9,change "Exhibit "G"" to "Exhibit "F"";
(c) delete clause 18 in its entirety and substitute the following therefor:
"(a) Not later than December 28, 2000, the parties will execute
in duplicate the Lease in the form attached hereto as
Schedule "D" (and thereafter all references to the Lease in
this Offer to Lease shall mean the executed form) and
deliver all executed copies to Koffman Kalef, Business
Lawyers, to hold in trust to be delivered pursuant to
paragraph (c) below, unless notice is received from the
Landlord or the Tenant, as the case may be, that it has
terminated this Offer to Lease pursuant to clauses 26 or 27,
provided that the Landlord may deliver to any proposed
lender or purchaser of the Site a certified true copy of the
Lease on a confidential basis, pursuant to a confidentiality
agreement, a copy of which is provided to the Tenant.
(b) In the event this Offer to Lease and the Lease is terminated
in accordance with clauses 26 or 27 of this Offer to Lease
then, in addition to any other provisions of this Offer to
Lease, all executed copies of the Lease will be returned to
the Tenant for destruction.
(c) In the event the upset dates described in clauses 26 and 27
have expired and this transaction has not been terminated
pursuant to clauses 26 and 27, one copy of the Lease will be
delivered to each of Landlord and Tenant on the date of
Delivery of Possession of the Premises to the Tenant, and,
thereupon the Lease shall be in full force and effect
provided that nothing herein shall limit the terms of clause
28 of this Offer to Lease pursuant to which the terms and
conditions of section 6.3, section 20.1(d) and Exhibit "E"
of the Lease are incorporated by reference into this Offer
to Lease and are in full force and effect on the date
hereof.
(d) The parties agree that at any time, upon the request of the
other party, to re-execute and re-deliver the Lease modified
and updated to reflect the following:
2
(i) the actual size of the Premises (as defined in the Lease) as
constructed (section 2.1 of the Lease);
(ii) the actual Commencement Date (Article 5 of the Lease); and
(iii)such other amendments and modifications as the parties, acting
reasonably, shall agree to from time to time;
provided that if the parties cannot agree to such changes within ten
(10) days of such request, such changes shall be determined by
arbitration pursuant to Exhibit "F" of the Lease. If either the
Landlord or the Tenant refuses or neglects to re-execute the Lease,
the Landlord and the Tenant agree that they are nonetheless bound by
the terms of the Lease as agreed by the parties or as determined by
arbitration as aforesaid.";
(d) in the last sentence of clause 23, change "Exhibit "G"" to "Exhibit "F"";
(e) delete clause 28 in its entirety and substitute the following therefor:
"28. The Tenant has provided a letter of credit issued to the
Landlord in the amount of $1,000,000.00 to beheld upon the
terms and conditions contained in section 6.3 of the Lease
(the "Security Deposit"). Not later than July 3, 2001, the
Tenant covenants and agrees to increase the Security Deposit
to $3,750,000.00. Thereafter, the Tenant covenants and
agrees to increase the Security Deposit to an amount equal
to two (2) years' gross rent (for example, the Security
Deposit would be $7,855,000.00 if the gross rent was $62.84
per square foot and the Rental Area of the Premises was
125,000 square feet) on or before the Commencement Date. The
terms of Exhibit "E" attached to the Lease, as well as the
provision of section 6.3 of the Lease requiring that cash
proceeds be held in trust in interest-bearing certificates
shall apply to all of the security provided under this
clause, mutatis mutandis. Notwithstanding that the executed
copies of the Lease are held in trust pursuant to clause 18
or anything else to the contrary in this Offer to Lease, the
Lease or at law, the parties acknowledge and agree that the
terms and conditions of section 6.3, subsection 20.1(d), and
Exhibit "E" of the Lease are in full force and effect as
from the date of this Offer to Lease as if such terms and
conditions were set out in full and incorporated in this
Offer to Lease as terms and conditions hereof and references
in the letter of credit to such terms and conditions of the
Lease shall also refer to such terms and conditions as
incorporated in this Offer to Lease."; and
3
(f) delete clause 32 in its entirety and substitute the following
therefor:
"The Landlord agrees with the Tenant that on or before the
Commencement Date, it shall have received, to the extent it
is lawfully entitled to same after complying, or causing to
be complied with, the terms and conditions of the following
described encumbrances, the written agreement or written
assurance of the City of Vancouver to discharge from title
to the Site those encumbrances described in Schedule "E"
(Part 1) hereto, provided that the Landlord and the Tenant
acknowledge and agree that the failure of the Landlord to
obtain such agreement or assurance shall not delay or extend
the Commencement Date and the Lease shall remain in full
force and effect. Furthermore, the Landlord agrees with the
Tenant to indemnify and save harmless the Tenant for any
claims, costs or liabilities that the Tenant may incur with
respect to the Landlord failing to pay any financial
obligations or comply with any conditions or requirements
contained in those encumbrances described in Schedule "E"
(Part 2) hereto.";
(g) delete the second sentence of clause 35 and substitute the following
therefor:
"In the event of any inconsistency between the provisions of
this Offer to Lease and the provisions of the Lease or any
difference in language covering the same subject matter, the
provisions of the Lease shall govern (notwithstanding that
the executed copies of the Lease are held in trust pursuant
to clause 18), provided that clause 11(m) of this Offer to
Lease shall govern with respect to all matters arising
during the construction of the Building."
3. Effect on Offer to Lease
(a) This Agreement is supplemental to and shall be read with and deemed to
be part of the Offer to Lease and the Offer to Lease shall from the
date of this Agreement be read in conjunction with this Agreement.
(b) This Agreement shall henceforth have effect so far as practical as
though all of the provisions of the Offer to Lease and this Agreement
were, as appropriate, contained in one instrument.
(c) All of the provisions of the Offer to Lease, except only insofar as
the same may be consistent with the express provisions of this
Agreement, shall apply to this Agreement.
4
(d) The Offer to Lease as changed, altered, amended, modified and
supplemented by this Agreement shall be and continue in full force and
effect and be binding upon the parties and is hereby confirmed in all
respects, and for the purposes of the Lease reference to the term
"Offer" therein shall be deemed to refer to the Offer to Lease as
amended hereby and as further amended and modified from time to time.
IN WITNESS WHEREOF the parties have caused this Agreement to be duly executed as
of the day and year first above written.
PCI PROPERTIES CORP.
Per: _____________________
Authorized Signatory
PIVOTAL CORPORATION
Per: _____________________
Authorized Signatory
5
EX-10.25
8
ex10_25.txt
EXHIBIT 10.25
LEASE
BETWEEN: YONGE WELLINGTON PROPERTY LIMITED
AND: SIMBA TECHNOLOGIES INCORPORATED
COMMENCEMENT DATE: The 1st day of October, 1996
TERMINATION DATE: The 31st day of January, 2002
PREMISES: Suite 400, 885 Dunsmuir Street
Vancouver, British Columbia
INITIAL
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LANDLORD/TENANT
INDEX
Page
1. INTERPRETATION
1.01 Definitions 1
1.02 1
1.03 1
1.04 1
1.05 2
1.06 2
1.07 2
1.08 2
1.09 2
1.10 2
1.11 2
1.12 2
1.13 2
1.14 2-3
1.15 3
1.16 3
1.17 3
1.18 3
1.19 3
1.20 3-4
2. PREMISES
2.00 4
3. TERM
3.00 4
4. RENT
4.00 4
5. TENANT'S COVENANTS
5.00 4
5.01 Rent 4
5.01.01 4
5.02 Tenant's Taxes 4
5.03 Utilities 4-5
5.04.01 Taxes 5
5.04.02 5
5.04.03 5
5.05.01 Operating Costs 5
5.05.02 5
5.06 Net Lease 5
5.07 Evidence of Payment 5
5.08.01 Repair and Notice 5-6
5.08.02 Care of Premises 6
5.08.03 Failure of Tenant to Repair 6
5.09 Damage Caused by Tenant 6
5.10.01 Assignment and Sub-letting 6
5.10.02 7
5.10.03 7
5.10.04 7
5.10.05 7
5.11 Rules and Regulations 7
5.12 Use of Premises 7-8
5.13 Acts of Tenants Causing Cancellation of
Insurance 8
5.14 Observance of Law 8
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5.15 Waste and Nuisance 8
5.16 Entry by Landlord 8
5.17 Indemnity 8-9
5.18 Tenant's Insurance 9-10
5.19 Goods and Chattels Not to be Removed 10
5.20 Showing Premises and Displaying Signs 10
5.21.01 Alterations 10
5.21.02 10
5.21.03 10
5.22 Interior Finishing 10-11
5.23 Signs 11
5.24 Keep Tidy 11
5.25 Certificates 11
5.26.01 Surrender of Possession 11
5.26.02 11
5.27.01 Additional Services 11
5.27.02 11-12
5.28 Energy Conservation 12
6. LANDLORD'S COVENANTS
6.00 12
6.01 Quiet Enjoyment 12
6.02 Premises to be Ready for Occupancy or
Rent to Abate 12
6.03 To Maintain the Structure 12
6.04 Taxes 12
6.05 Heating 12
6.06 Air-Conditioning 12
6.07 Elevator 12-13
6.08 Access 13
6.09 Washrooms 13
6.10 Janitor Service 13
6.11 Light Fixtures 13
6.12 Insurance 13-14
7. MUTUAL CONDITIONS
7.00 14
7.01 Removal of Fixtures 14
7.02.01 Alterations and Additions 14
7.02.02 14
7.02.03 14
7.03.01 Damage to Premises 14
7.03.02 14
7.03.03 14-15
7.04 Damage to Tenant's Property 15
7.05 Impossibility of Performance 15
7.06 Directory Board 15
7.07.01 Payments to Landlord 15
7.07.02 15-16
7.08.01 Landlord's Right to do Work 16
7.08.02 16
7.09 No Liability for Indirect Damages 16
8. REMEDIES OF LANDLORD ON DEFAULT
8.00 Landlord May Perform Tenant's Covenants 16
8.01.01 Re-Entry 16
8.01.02 16-17
8.01.03 17
8.01.04 Waiver of Exemptions 17
8.01.05 Bankruptcy 17
8.01.06 Right to Terminate 17
8.01.07 Remedies Cumulative 17
8.01.08 Distress 17-18
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9. MISCELLANEOUS
9.01 Notice 18
9.02 Non-Waiver 18
9.03 Overholding 18
9.04.01 Calculation and Allocation of Taxes
and Operating Expenses 18-19
9.04.02 19
9.04.03 19
9.04.04 19
9.04.05 19-20
9.04.06 20
9.05 Landlord's Determinations Conclusive 20
9.06 Subordination of Lease 20
9.07 Lease Entire Relationship 20
9.08 Registration 20
9.09.01 Foreign Investment Review Act 20
9.09.02 21
9.09.03 21
9.10.01 Right to Relocate 21
9.10.02 21
9.10.03 21
9.10.04 21
9.11 21
9.12 21
9.13 21-22
10. GUARANTEE
10.01.01 22
10.01.02 22
10.01.03 22
10.01.04 22
10.01.05 22
10.01.06 23
10.01.07 23
11. ADDITIONAL COVENANTS
11.01 23
SCHEDULES
Schedule "A" Premises
Schedule "B" Rules and Regulations
Schedule "C" Additional Covenants
1. Deposit
2. Option to Renew
3. Fixturing Period
4. Parking
5. Option to Lease Additional Premises
6. Right of First Refusal
7. Right to Terminate
8. Net Lease
9. Asbestos
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LANDLORD/TENANT
THIS LEASE MADE the 3 day of June, 1996
PURSUANT TO THE LAND TRANSFER FORM ACT, PART 2
BETWEEN:
YONGE WELLINGTON PROPERTY LIMITED a company duly incorporated
under the Laws of Ontario, having its Head office at 48 Yonge
Street, in the City of Toronto, in the Province of Ontario, being
duly licenced to carry on business in the Province of British
Columbia and having its Head Office in British Columbia at 3110 -
650 West Georgia Street, in the City of Vancouver, in the
Province of British Columbia.
(hereinafter called the "Landlord")
OF THE FIRST PART
AND:
SIMBA TECHNOLOGIES INCORPORATED a company duly incorporated under
the laws of British Columbia, having its head office at 400 - 885
Dunsmuir Street, in the Province of British Columbia.
(hereinafter called the "Tenant")
OF THE SECOND PART
1. INTERPRETATION
Definitions 1.01 For the purposes of this Lease the following
definitions shall apply:
1.02 "Additional Rent" means and refers to any and all sums
of money or charges required to be paid by the Tenant under this
Lease (except rent) whether or not the same are designated as
Additional Rent or whether or not payable to the Landlord or
otherwise and all such sums are payable in lawful money of Canada
without deduction, abatement, set-off or compensation whatsoever.
1.03 "Additional Services" means and refers to the services
and supervisions supplied by the Landlord referred to in Clause
5.27 and to all other services of any nature or kind supplied by
the Landlord to the Tenant in addition to those required to be
supplied by the Landlord to the Tenant pursuant to this Lease,
save and except any services which the Landlord elects to supply
to tenants generally, and the costs of which are included in
Operating Costs.
1.04 "architects" means and refers to an architect or firm
of architects licensed to practice architecture pursuant to the
laws of the Province of British Columbia designated by the
Landlord from time to time as architects.
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LANDLORD/TENANT
1.05 "auditors" means and refers to a chartered accountant
or a firm of chartered accountants licensed to practice as
chartered accountants pursuant to the laws of the Province of
British Columbia, designated by the Landlord from time to time as
auditors.
1.06 "Building" means and refers to the office building
situated on the Lands.
1.07 "Commencement Date" means and refers to the first day
of the term.
1.08 "fire cross-over corridors" means and refers to
corridors connecting staircases on any floor of the Building
constructed at any time pursuant to any regulation, requirement,
or request of the Fire Marshall of the City of Vancouver, or of
any other competent governmental authority which are designated
as fire cross-over corridors by the Landlord.
1.09 "insured damage" means and refers to that part of any
damage occurring to the Premises of which the entire cost of
repair (or the entire cost of repair other than a deductible
amount properly includible in Operating Costs) is actually
recoverable by the Landlord under a policy or policies of
insurance from time to time effected by the Landlord. Where an
applicable policy of insurance contains an exclusion for damages
recoverable from a third party, claims as to which the exclusion
applied shall be considered insured damage only if the Landlord
successfully recovers from the third party.
1.10 "Lands" means and refers to the Lands and Premises
located at 885 Dunsmuir Street,
Lot `A' (reference Plan 10751), Block 31, District Lot 541,
Group I, New Westminster District, Plan 210.
1.11 "life safety rooms" means and refers to office space in
the Building designated by the Landlord from time to time for the
exclusive housing of controls installed to assist fire and
emergency personnel, which space would otherwise be rentable.
1.12 "major expenditure" means and refers to any expenditure
incurred by the Landlord during the term of this Lease for
replacement of machinery, equipment, building elements, systems
or facilities used in connection with the Building, or for
modifications or additions to the Building (if one of the
principal purposes of any such modification or addition is to
reduce energy consumption, or to reduce Operating Costs, or if
such modification or addition is required by any governmental
authority or regulation) and which expenditure is greater than
Ten per cent (10%) of the total Operating Costs for the previous
year.
1.13 "normal business hours" means and refers to the hours
from 8:00 a.m. to 6.00 p.m. Monday to Friday, inclusive, of each
week, holidays excepted, or such hours as the Landlord may,
acting reasonably, designate from time to time.
1.14 "Operating Costs" means and refers to the total amount
paid or payable whether by the Landlord or others on behalf of
the Landlord for the complete maintenance and operation of the
Building, the Lands and the improvements thereon to maintain the
Building to the standard of a first class commercial building,
all repairs and replacements required for such maintenance
including the cost of major expenditures amortized over the
period of the economic life of the major expenditures as
determined by generally accepted accounting principles, but not
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2
to exceed fifteen (15) years and provided that the amortized cost
of the major expenditure shall be calculated on the basis of
equal monthly installments of principal and interest of Ten per
cent (10%) per annum compounded semi-annually, heating and
air-conditioning costs including the purchase of fuel, gas and
steam for heating or other purposes and the costs of making
repairs to the heating and air-conditioning equipment, the costs
of providing hot and cold water, the costs of providing
electricity not otherwise chargeable to tenants, the costs of
painting interior areas not normally rented to tenants and the
costs of painting and otherwise maintaining the outside of the
said Building, the costs of snow removal, landscape maintenance,
refuse removal and window cleaning, fire, casualty, liability and
other insurance costs, telephone and other utility costs, service
contracts with independent contractors and all other expenses
including [reasonable][preceding language was inserted]
management fees paid or payable by the Landlord in connection
with the operation of the Building, improvements and Lands but
shall not include real estate brokers leasing commissions or
similar fees, interest on debt or capital retirement of debt or
any amounts directly chargeable by the Landlord to any tenant or
tenants as otherwise provided herein, but in no case shall
include repairs which fall within insured damage.
1.15 "Premises" shall mean that portion of the Building
shown outlined in red on the Plan attached hereto as Schedule
"A";
1.16 "Proportionate Share" means [Eleven Decimal
Three][preceding language was inserted] per cent (11.3%);
1.17 "rentable area" in the case of the Building, shall be
calculated as if the entire Building were let to tenants
occupying whole floors; in the case of premises occupying a whole
floor, shall include the area occupied, measured from the inside
finish of the permanent outer building wall and the glass line of
exterior glazing with no deductions made for columns and
projections necessary to the Building and shall include life
safety rooms or the area of fire cross-over corridors, washrooms,
electrical closets, and other closets within and exclusively
serving that floor; in the case of premises occupying less than a
whole floor, shall include the area occupied measured from the
inside finish of the permanent outer building wall and the glass
line of exterior glazing, with no deductions made for columns and
projections necessary to the Building, to the office side of
corridor walls and to the centre of partitions separating the
Premises from adjoining premises, to which shall be added a
pro-rated portion of the area of the corridors, wash rooms,
electrical, closets, life safety rooms, the area of fire
cross-over corridors, and other closets within and exclusively
serving that floor; but in no case shall any rentable area
include mechanical equipment areas, the lobby and entrances on
the ground floor, sub-surface areas, stairs (unless installed for
the exclusive benefits of a tenant), elevator shafts, the
vertical conveyor shaft, flues, stacks, pipe shafts or vertical
ducts and the wall enclosing them ----- [provided that if the
foregoing varies from BOMA standards of measurement, BOMA shall
govern.][preceding language was inserted]
1.18 "Rules and Regulations" shall mean the Rules and
Regulations set out in Schedule
1.19 "Special Tenant Operating Expenses" means and refers
to, for any given period, the excess, as reasonably determined by
the Landlord, of any expenses incurred by the Landlord for such
period relating to the Premises as a result of the distinctive
configuration of the Premises, or the distinctive nature of the
operation of the Tenant's business, or the distinctive nature of
any of the Tenant's leasehold improvements, which expenses would
otherwise be Operating Costs, including but not limited to any
excess of air-conditioning., heating, lighting, water, electrical
power, and cleaning.
1.20 "Taxes" means and refers to an amount equivalent to all
taxes, rates, duties, levies and assessments whatsoever,
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3
whether municipal, parliamentary, school or otherwise charged
upon the Building, the Lands, and all improvements now or
hereafter located thereon or upon the Landlord on account thereof
including all taxes, rates, duties, levies and assessments for
local improvements but excluding any tax which has been attracted
by the Tenant's improvements and equipment and excluding such
taxes as corporate, capital, income, profits or excess profits,
taxes assessed upon the income of the Landlord and shall also
include any and all taxes which may in the future be levied in
lieu of Taxes as hereinbefore defined.
2. PREMISES 2.00 In consideration of the rents, covenants, and agreements
hereinafter reserved and contained on the part of the Tenant to
be paid observed and performed, the Landlord hereby leases the
Premises to the Tenant.
3. TERM 3.00 To have and to hold the Premises for the term of Five years
Four months (herein called the "Term") commencing on the 1st day
of October, 1996 and ending on the 31st day of January, 2002.]
4. RENT 4.00 Yielding and paying therefor unto the Landlord at the office
of the Landlord in the Building or at such other place as the
Landlord may direct in writing, during the Term in lawful money
of Canada the rent of Four Hundred Fifty-Eight Thousand Five
Hundred Fifty-Five DOLLARS and Fifty CENTS ($458,555.50) payable
without set-off or deduction by equal consecutive monthly
instalments of Zero DOLLARS ($0.00) for the period commencing
October 1, 1996 and ending January 31, 1997 and equal monthly
instalments of Seven Thousand Four Hundred Twenty Six DOLLARS
($7,426.00) for the period commencing February 1, 1997 and ending
September 30, 1999 and equal monthly instalments of Seven
Thousand Eight Hundred Ninety DOLLARS and Thirteen CENTS
($7890.13) for the period commencing October 1, 1999 and ending
January 31, 2002 in advance on the first day of each and every
month during the Term the first instalment to be paid on or
before the Commencement Date. If the Term should commence on a
day other than the first, or end on a day other than the last day
of a month, the rent for the fraction of a month shall be
calculated on a per diem basis at a rate per day equal to one
three hundred and sixty-fifth part of the annual rent. The last
instalment of rent shall be adjusted to reflect any difference
between the aggregate of the monthly instalments and the total
rent payable during the Term.
5. TENANT'S 5.00 The Tenant covenants with the Landlord as follows:
COVENANTS
Rent 5.01 To pay rent.
5.01.01 If the Tenant occupies all or any portion of the Premises
before the Commencement Date, the Tenant shall pay to the
Landlord on the Commencement Date a rental amount in respect of
the period from the date the Tenant so occupies any portion of
the Premises to the Commencement Date. The rental amount shall be
calculated at the same rental rate that is payable pursuant to
paragraph 4 hereof adjusted for the number of days of occupation.
The Tenant shall be bound by all the terms, conditions and
provisos of this Lease during any such period of. occupation
prior to the Commencement Date.
Tenant's 5.02 To pay when due, all taxes, business taxes, business licence
Taxes fees, and other charges, levied or assessed in respect of the use
and occupancy of the Premises by the Tenant, the business or
businesses carried on therein, or the improvements, equipment,
machinery or fixtures brought thereon or belonging to the Tenant,
or to anyone occupying the Premises with the Tenant's consent,
and to pay to the Landlord upon demand the portion of any tax
levied or assessed upon the Lands and Building that is
attributable to any improvements, equipment, machinery or
fixtures on the Premises which are not the property of the
Landlord, or which may be removed by the Tenant. Utilities
Utilities 5.03 The Tenant shall pay all telephone, electric and other
utility charges in connection with the Premises that are not
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LANDLORD/TENANT
4
being supplied by the Landlord as provided herein and in the
event that there is not a separate meter for measuring the
consumption of and charging for electricity used in the Premises,
the Tenant shall pay to the Landlord as Additional Rent in
advance by monthly instalments such amount as may be required by
the Landlord from time to time as a reasonable estimate of the
cost of such electricity; the Tenant shall advise the Landlord of
any appliances or business machines installed by the Tenant
consuming or likely to consume large amounts of electricity and
further, on request from time to time, shall provide the Landlord
with a list of all electrical appliances and business machines
used in the Premises.
Taxes 5.04.01 The Tenant shall pay to the Landlord as additional rent
its Proportionate Share of Taxes as estimated by the Landlord for
the ensuing year. The amount so estimated by the Landlord shall
be paid by the Tenant in equal monthly instalments on account in
advance on each monthly rental payment date. Any adjustment for
over-payment or under-payment of Taxes by the Tenant shall be
made by the Landlord and the Tenant from time to time.
5.04.02 If Taxes shall be increased by reason of any
installations made in or upon or any alterations made in or to
the Premises by the Tenant or by the Landlord on behalf of the
Tenant, the Tenant shall pay the amount of such increase as
Additional Rent.
5.04.03 Any expense incurred by the Landlord in obtaining or
attempting to obtain a reduction in the amount of Taxes shall be
added to and included in the amount of such Taxes.
Operating 5.05.01 The Tenant shall pay to the Landlord as additional rent
Costs the Proportionate Share of Operating Costs on receipt of notice
from the Landlord. Such Proportionate Share payable hereunder may
be estimated by the Landlord, in which event, the amount so
estimated shall be paid by the Tenant in equal monthly
instalments on account in advance on each monthly rental payment
date. In the event of any overpayment or underpayment with
respect to Operating Costs adjustment shall be made by the
Landlord and Tenant from time to time.
5.05.02 To pay any and all Special Tenant Operating Expenses as
herein set forth. Net Lease
Net Lease 5.06 The Tenant acknowledges and agrees that it is intended that
this Lease shall be a completely net lease to the Landlord,
except as expressly set out herein. The Landlord shall not be
responsible during the Term for any costs, charges, expenses and
outlays of any nature whatsoever arising from or relating to the
Premises, or the contents thereof and the Tenant shall pay all
charges, impositions, costs and expenses of every nature and kind
relating to the Premises and a Proportionate Share of all
charges, impositions, costs and expenses of every nature and kind
relating to the Building and those parts of the Building not
intended for leasing and the Tenant covenants with the Landlord
accordingly.
Evidence of 5.07 The Tenant shall produce to the Landlord from time to time
Payment at the request of the Landlord satisfactory evidence of the due
payment by the Tenant of all payments required to be made by the
Tenant under this Lease.
Repair and 5.08.01 To repair, maintain and keep the Premises in a condition
NOtice of good repair, reasonable wear and tear and damage by fire,
lightning, earthquake, and tempest or other casualty against
which the Landlord is insured only excepted; to permit
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5
the Landlord to enter and view the state of repair, at all
reasonable times, to repair according to notice in writing and,
except as aforesaid, to leave the Premises in good repair; to
give immediate notice to the Landlord of any defect in the
foundations, outer walls, roof, spouts, and gutters of the
Building, all of the common areas therein, and the plumbing,
sewage, electrical, heating and air-conditioning systems.
Care of 5.08.02 The Tenant shall take good care of the Premises and keep
Premises same in a clean, tidy and healthy condition at all times. The
Tenant shall, at its own expense, replace or repair, under the
direction and to the reasonable satisfaction of the Landlord, the
glass, box and trimmings of the door and windows in or about the
Premises which become damaged or broken except any glass, locks
or trimmings, damaged or broken by the Landlord, its employees,
agents or contractors.
Failure of 5.08.03 If the Tenant should fail to repair in accordance with to
Tenant to the provisions hereof, the Landlord, its agents, or employees may
Repair forthwith enter the Premises and make the required repairs and
for that purpose the Landlord may bring and leave upon the
Premises all necessary tools, materials and equipment, and the
Landlord will not be liable to the Tenant for any inconvenience,
annoyance or loss of business or any injury or damages suffered
by the Tenant by reason of the Landlord effecting such repairs
unless caused by the negligence of the Landlord, its agents or
employees, and the expense of such repairs will be borne by the
Tenant who shall pay it to the Landlord forthwith upon demand
together with an administrative charge of fifteen per cent (15%)
of such expense, which amounts shall be recoverable by the
Landlord as if it were rent in arrears.
Damage Caused 5.09 Notwithstanding paragraph 5.08.01, if the Building,
by Tenant including the Premises, the elevators, boilers, engines, pipes
and other apparatus (or any of them) used for the purpose of
heating 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 become damaged or destroyed through negligence,
carelessness or misuse by the Tenant, his servants, agents,
employees, or anyone permitted by him to be in the Building, or
through him or them in any way damaging the heating apparatus,
elevators, water pipes, drainage pipes, or other equipment or
part of the Building, the expense of the necessary repairs, plus
an administrative charge of Fifteen per cent (15%) of such
expense shall be recoverable by the Landlord as if it were rent
in arrears.
5.10.01 The Tenant shall not assign this Lease or any of its
rights hereunder or sublet Sub-letting all or any part of the
Premises without the prior written consent of the Landlord. If,
in the [reasonable][preceding language was inserted] opinion of
the Landlord, the proposed assignee or sublessee meets the
[reasonable][preceding language was inserted] requirements of the
Landlord as to:
(a) Financial condition and stability;
(b) General commercial reputation; and
(c) Compatibility with the other tenants in the Building;
the consent of the Landlord will not be unreasonably withheld,
provided however, as a condition to the giving of such consent,
the total rent to be paid by the assignee, transferee or
sublessee which exceeds the rent referred to in Article 4.00
herein and Additional Rent (on a proportionate basis relative to
the space occupied) to be paid by the Tenant to the Landlord
under the terms of the Lease, shall be paid to the Landlord.
[The Tenant may assign without the Landlord's consent to an
affiliate or subsidiary company.][preceding language was
inserted]
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6
5.10.02 If the Tenant intends to assign or sublet, the Tenant
shall first give to the Landlord written notice of the proposed
transaction setting out in detail the terms and conditions
thereof, and provide all other information relating thereto
requested by the Landlord. Notwithstanding the generality of the
foregoing the Tenant shall provide to the Landlord:
(a) full particulars of the proposed transaction with copies
of all documents relating thereto;
(b) full particulars of the financial worth, residence and
identities of all parties to the transaction and if a
corporation, of all its directors, officers, shareholders or
members and the intended business to be carried on.
5.10.03 In the event that the Tenant desires to assign, sublet,
or part with possession of all or any part of the Premises, or
transfer this Lease and the Tenant gives notice to the Landlord
of such desire, specifying therein the proposed assignee,
transferee or sublessee the Landlord shall, within thirty (30)
days thereafter, notify the Tenant in writing either, that (i) it
consents or (ii) it does not consent, or (iii) that it elects to
cancel this Lease in preference of the giving of such consent. In
the event that the Landlord elects to cancel this Lease as
aforesaid, the Tenant shall notify the Landlord in writing within
fifteen (15) days thereafter of the Tenant's intention either to
refrain from assigning, subletting or parting with or sharing
possession or to accept the cancellation of this Lease. Should
the Tenant fail to deliver such notice within such period of
fifteen (15) days, this Lease will be terminated thirty (30) days
from the date the Landlord elects to cancel the Lease thereafter.
5.10.04 In no event shall any assignment or subletting to which
the Landlord may have consented release or relieve the Tenant
from his obligations to fully perform all of the terms, covenants
and conditions of this Lease on his part to be performed and in
any event the Tenant shall be liable for the Landlord's
reasonable costs incurred in connection with the Tenant's request
for consent.
5.10.05 [If the Tenant is an incorporated company the sale
transfer, or disposition of any of its shares which would give
rise to a change in control of such company shall be deemed, for
the purposes hereof, to be an assignment of this Lease. The prior
written consent of the Landlord shall be required for such a
transfer, sale or dispositon accordingly. [The preceding language
was struck through]
Rules and 5.11 To observe and perform, and to cause its employees, invitees
Regulations and others over whom the Tenant can reasonably be expected to
exercise control to observe and perform, the Rules and
Regulations, and such further and other reasonable rules and
regulations and amendments and changes therein as may hereafter
be made by the Landlord and notified to the Tenant, except that
no change may be made that is inconsistent with this Lease unless
the Tenant consents thereto. The Tenant acknowledges and agrees
that the Rules and Regulations, as from time to time amended, are
not necessarily of uniform application, but may be waived in
whole or in part in respect of other tenants without affecting
their enforceability with respect to the Tenant and the Premises,
and may be waived in whole or in part with respect to the
Premises without waiving them as to future application to the
Premises; and the imposition of such rules and regulations shall
not create or imply any obligation of the Landlord to enforce
them or create any liability of the Landlord for their
non-enforcement.
Use of 5.12 To use the Premises only for general office purposes and not
Premises to carry on or permit to be carried on therein any other
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7
trade or business and not to do or omit or permit to be done or
omitted upon the Premises anything which shall cause the rate of
insurance upon the Building to be increased and if the rate of
insurance on the Building shall be increased by reason of the use
made by the Tenant of the Premises, or by reason of anything done
or omitted, or permitted to be done or omitted by the Tenant or
by anyone permitted by the Tenant to be upon the Premises, to pay
on demand to the Landlord the amount of such increase.
Acts of 5.13 That if any policy of insurance upon the Building or any
Tenants part thereof shall be Causing cancelled by the insurer by reason
Causing of the use or occupation of the Premises or any part thereof of
Cancellation by the Tenant or by any Assignee or sub-tenant of of Insurance
of Insurance the Tenant or by anyone permitted by the Tenant Insurance to be
upon the Premises, the Landlord may at its option terminate this
Lease forthwith by leaving upon the 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 termination and
the Tenant shall immediately deliver up possession of the
Premises to the Landlord and the Landlord may re-enter and take
possession of them.
Observance 5.14 To comply with all provisions of law including federal and
of Law provincial legislative enactments, building by-laws, and any
other governmental or municipal regulations which relate to the
partitioning, equipment, operating and use of the Premises, and
to the making of any repairs, replacements, alterations,
additions, changes, substitutions or improvements to the
Premises, and to comply with all police, fire and sanitary
regulations imposed by any federal, provincial or municipal
authority 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 Premises.
Waste and 5.15 Not to do or suffer any waste or damage, disfiguration or
Nuisance injury to the 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
Premises for any dangerous, noxious or offensive trade or
business and not to cause or permit any nuisance on the Premises.
Entry by 5.16 To permit the Landlord, its servants or agents, to enter the
Landlord Premises at any time and from time to time for the purpose of
inspecting and of making repairs, alterations or improvements to
the Premises or to the Building where, in the discretion of the
Landlord, such repairs, alterations, or improvements are
necessary for the safety of the Building or the proper operations
of the Building's services, 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 enter upon the Premises to remove any article or remedy
any condition which in the opinion of the Landlord would be
likely to lead to cancellation of any policy of insurance upon
the Building or any part thereof, and such entry by the Landlord
shall not be deemed to be a re-entry.
Indemnity 5.17 The Tenant shall indemnify and save harmless the Landlord
from any and all liabilities, damages, costs, claims, suits or
actions which arise out of any breach, violation or
non-performance of any covenant, condition or agreement in this
Lease set forth and contained on the part of the Tenant to be
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8
observed and performed, any damage to property while such
property is on the Premises and any injury to any licensee,
invitee, agent or employee of the Tenant, including death which
occurs in or about the Premises and or the Buildings and Lands of
which the Premises are situate. This indemnity shall survive the
termination of this Lease.
Tenant's 5.18 That the Tenant shall, during the entire term hereof and
Insurance during any period of occupation of the Premises prior to the
Commencement Date, at its sole cost and expense, take out and
keep in full force and effect and in the name(s) of the Tenant,
the Landlord and the mortgagees of the Landlord as their
respective interests may appear, the following insurance:
(a) insurance upon property of every description and kind
owned by the Tenant, in the custody and control of the
Tenant, or for which the Tenant is legally responsible,
is legally liable, or installed by or on behalf of the
Tenant (and which is located within the Building),
including without limitation fittings, installations,
alterations, additions, partitions, fixtures and
anything in the nature of a Leasehold Improvement in an
amount not less than Ninety per cent (90%) of the full
replacement cost thereof, with coverage against at
least the perils of fire and standard extended coverage
including sprinkler leakages (where applicable),
earthquake, flood and collapse. If there is a dispute
as to the amount which comprises full replacement cost,
the decision of the Landlord or the mortgagee of the
Landlord shall be conclusive;
(b) business interruption insurance in such amounts as will
reimburse the Tenant for direct or indirect loss of
earnings attributable to all perils commonly insured
against by prudent tenants or attributable to
prevention of access to the Premises or to the Building
as a result of such perils;
(c) public liability and property damage insurance
including personal injury liability, contractual
liability, non-owned automobile liability and owners'
and contractors' protective insurance coverage with
respect to the Premises and the Tenant's use of any
part of the Building and which coverage shall include
the activities and operations conducted by the Tenant
and any other person on the Premises. Such policies
shall be written on a comprehensive basis with limits
of not less than FIVE MILLION DOLLARS ($5,000,000.00)
for bodily injury to any one or more persons, or
property damages, and such higher limits as the
Landlord or the mortgagee of the Landlord may
reasonably require from time to time, and all such
policies shall contain a severability of interest
clause and a cross liability clause;
(d) Tenant's legal liability insurance for the full
replacement cost of the Premises; coverage to include
the activities and operations conducted by the Tenant
and any other persons on the Premises; and
(e) any other form or forms of insurance as the Tenant or
the Landlord or the mortgagees of the Landlord
reasonably require from time to time in form, in
amounts and for insurance risks against which a prudent
tenant would protect itself.
All policies required to be written on behalf of the Tenant
pursuant to this sub-clause shall contain a waiver of any
subrogation rights which the Tenant's insurers may have against
the
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Landlord and against those for whom the Landlord is, in law,
responsible whether any such damage is caused by the act,
omission, or negligence of the Landlord or by those for whom the
Landlord is, in law, responsible. All policies shall be taken out
with insurers acceptable to the Landlord and in a form
satisfactory from time to time to the Landlord. The Tenant agrees
that certificates of insurance or, if required by the Landlord or
the mortgagees of the Landlord, certified copies of such
insurance policies will be delivered to the Landlord as soon as
practicable after the placing of the required insurance coverage
prior to any material change, cancellation or other termination
thereof.
Goods and 5.19 The Tenant agrees that all goods, chattels and fixtures when
Chattels moved into the Premises shall not, except in the normal course of
Not to be business, be removed from the Premises until Removed all rent and
Removed other amounts due or to become due during the Term of this Lease
are fully paid. Showing Premises Chattels
Showing 5.20 To permit the Landlord or its agents to show the Premises to
Premises prospective tenants during normal business hours of the last and
and Displaying three (3) months of the Term and to display a notice of
Signs reasonable size stating that the Premises are for rent.
Alterations 5.21.01 Not to make or erect in the Premises any installations,
alterations, additions or partitions without submitting drawings,
and specifications to the Landlord and obtaining the Landlord's
prior written consent in each instance [not to be unreasonably
withheld], [preceding language was inserted] and further to
obtain the Landlord's prior written consent to any change in such
drawings and specifications submitted as aforesaid, subject to
payment of the cost to the Landlord of having its architects or
appropriate consultant approve such changes, before proceeding
with any work based on such drawings or specifications; such work
may be performed by contractors engaged by the Tenant and
approved by the Landlord, but in each case only under written
contract approved in writing by the Landlord and subject to all
conditions which the Landlord may impose; provided nevertheless
that the Landlord may at its option require that the Landlord's
contractors be engaged for any mechanical or electrical work;
without limiting the generality of the foregoing 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 Tenant shall
permit the Landlord to supervise construction.
5.21.02 The Tenant covenants with the Landlord that the Tenant
shall promptly pay all charges incurred by the Tenant for any
work, materials or services that may be done, supplied or
performed in respect of the Premises and shall forthwith
discharge any liens at any time filed against and keep the Lands
free from liens. In the event that the Tenant fails to do so, the
Landlord may, but shall be under no obligation, to pay into court
the amount required to obtain a discharge of any such lien in the
name of the Tenant and any amount so paid together with all
disbursements and costs in respect bf such proceedings on a
solicitor and client basis shall be forthwith due and payable by
the Tenant to the Landlord as Additional Rent. The Tenant shall
allow the Landlord to post and keep posted on the Premises any
notices the Landlord may desire to post under the provisions of
the Builders' Lien Act or other applicable legislation.
5.21.03 The cost and expense of any alterations, additions,
installations or partitions shall be at the sole cost and expense
of the Lessee and shall be paid for in a manner and according to
such terms and conditions as the Lessor may prescribe. No work
shall commence without arrangements for the payment of the work
being approved by the Landlord.
Interior 5.22 To install in the Premises only such window shades, drapes
Finishing or floor coverings, and to apply only such wall coverings, and
paints, as are first approved in writing by the Landlord [not to
be unreasonably withheld], [preceding language was inserted] and
to install or apply the same by competent workmen,
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and to repair, clean or replace the window shades, drapes, or
floor coverings when required to do so by the Landlord.
Signs 5.23 Not to paint, display, inscribe, place or affix any sign,
picture advertisement, notice, lettering or direction on any part
of the outside of the Building or which is visible from the
outside thereof. The Landlord shall prescribe a uniform pattern
of identification signs for tenants to be placed on the outside
of the doors in the Building, and apart from such identification
sign the Tenant shall not paint, display, inscribe, place or
affix any such sign, picture, advertisement, notice, lettering or
direction without the written consent of the Landlord.
Keep Tidy 5.24 At the end of normal business hours to leave the Premises in
a reasonably tidy condition for the performance of the Landlord's
cleaning services hereinafter referred to.
Certificates 5.25 At any time upon not less than ten (10) days' prior notice
to execute and deliver to the Landlord a statement in writing
certifying that this Lease is unmodified (or, if modified,
stating the modifications) and that it is in full force and
effect, the amount of the annual rent paid hereunder, the dates
to which such rents and other charges hereunder have been paid,
by instalments or otherwise, and whether there is any existing
default on the part of the Landlord of which the Tenant has
notice. The failure to provide the statement requested shall be
deemed to be an event of default for the purposes of this Lease.
Surrender of 5.26.01 The Tenant shall, at the expiration or sooner
Possession determination of the said Term, peaceably surrender and yield up
unto the Landlord the Premises, together with all fixtures,
erections, additions or improvements made to the Premises during
the Term in good and substantial repair and condition and deliver
to the Landlord all keys to the Premises which the Tenant has in
its possession.
5.26.02 The Tenant further covenants that it will not, upon
expiration or sooner determination leave any rubbish or waste
material upon the Premises and will leave the Premises in a clean
and tidy condition.
Additonal 5.27.01 If the Tenant wishes any Additional Services to be
Services performed in or relating to the Premises it shall so advise the
Landlord in writing, and the Landlord shall have the right, but
not the obligation, to perform any such Additional Services. If
the Landlord performs any such Additional Services the Tenant
shall pay the Cost of Additional Services so performed, plus an
administrative charge of Ten per cent (10%) of such cost,
forthwith on demand upon receipt of the invoice therefor from the
Landlord. If the Landlord does not wish to exercise its rights to
perform any Additional Services, the Tenant shall not cause any
such Additional Services to be performed by any person unless and
until he has obtained the consent of the Landlord in writing to
the performance of such Additional Services by such person, such
consent not to be unreasonably withheld.
[Notwithstanding paragraph 5.27.01, if the Tenant requires
additional services such as air conditioning or other
requirements to enable the Tenant to operate outside normal
business hours, then the Landlord will be required to do so upon
reasonable notice from the Tenant and the Tenant shall pay the
cost of Additional Services plus Ten per cent (10%) as herein
provided.] [preceding language was inserted]
5.27.02 If the Tenant disputes the calculation of Cost of
Additional Services as set out on the Landlord's invoice
therefore, he shall so notify the Landlord in writing, and the
Landlord shall upon receipt of such notice request its auditors
to prepare a statement of calculation of the said Cost of
Additional Services, and such statement of calculation shall be
conclusive of such Cost of Additional Services and shall be
binding upon the Landlord and the Tenant. The cost of preparation
of the said statement shall be at the expense of the Tenant and
shall be added to the Cost of Additional Services.
Notwithstanding any such objection taken by the Tenant to the
Landlord's calculation of the Cost of Additional Services, the
full amount as calculated
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by the Landlord in its invoice shall be due and payable on
receipt, and shall be re-adjusted, if necessary, upon receipt of
the auditors' statement.
Energy 5.28 To comply with reasonable measures introduced by the
Conservation Landlord or measures introduced by legislative authority from
time to time in the interest of energy conservation and to
control Operating Costs whereby the Landlord may by the use of a
pulse or other system turn out or reduce all lighting in the
Building except emergency lighting and lighting which the Tenant
may separately control by local switching for the Premises (the
Landlord to communicate from time to time to the Tenant the
schedule for the use of such a system) and reduce energy
consumption in the Premises, provided that if the Tenant does not
participate in such approved measures with respect to the
Premises, the Tenant may be required to pay, as Special Tenant
Operating Expenses, for the additional energy consumed in the
Premises as a result of its not participating in such measures.
6. LANDLORD'S COVENANTS
6.00 The Landlord covenants with the Tenant as follows:
Quiet Enjoyment 6.01 That provided the Tenant shall pay the rent hereby
reserved when due and perform the Tenant's covenants herein,
he shall peaceably hold the Premises during the Term of this
Lease without interruption by the Landlord or any person
rightfully claiming through or in trust for him.
Premises to be 6.02 To complete the Premises ready for occupancy by the
Ready for date of the commencement of the Term provided that if the
Occupancy for Premises are not available for occupancy by the Tenant at
Rent to Abate the date of the commencement of the Term by reason of delays
in the completion of the construction of the Building, or
any cause beyond the control of the Landlord, the rent under
this Lease shall abate until the Premises are available for
occupancy by the Tenant. [and the Tenant hereby agrees to
accept such abatement of rent in full settlement of all
claims which the Tenant might otherwise have because the
Premises were not available at the commencement of the Term]
[the preceding language was struck through]
To Maintain the 6.03 To keep in good repair and condition the foundations,
Structure outer walls, roof, spouts, and gutters of the Building, all
of the common areas therein, and the plumbing, sewage,
electrical, heating and air-conditioning systems, except
those installed by the Tenant in the Premises, or by other
tenants of the Building.
Taxes 6.04 To pay, subject to the provisions of paragraphs 5.02
and 5.04, all taxes and rates, municipal, parliamentary or
otherwise, levied against the Premises or against the
Landlord on account thereof except as herein otherwise
provided.
Heating 6.05 To provide heating of the Premises to an extent
sufficient to maintain a reasonable temperature therein at
all times during normal business hours, except during the
making of repairs; but should the Landlord make default in
so doing, it shall not be liable for indirect or
consequential damages for personal discomfort or illness.
Air Conditioning 6.06 To provide air-conditioning of the Premises to an
extent sufficient to maintain a reasonable temperature
therein at all times during normal business hours, except
during the making of repairs; but should the Landlord make
default in so doing, it shall not be liable for indirect or
consequential damages for personal discomfort or illness.
Elevator 6.07 To furnish, except when repairs are being made,
passenger elevator service during normal business hours; and
to
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permit the Tenant and its employees to have the free use of such
elevator service in common with others, but the Tenants and such
employees and all other persons using the same shall do so at
their sole risk and under no circumstances shall the Landlord be
responsible for any damage or injury happening to any person
while using the elevator or occasioned to any person by any
elevator or any of its appurtenances, unless caused by the
negligence of the Landlord, its agents or employees.
Access 6.08 To permit the Tenant and its employees and all persons
lawfully requiring communication with them to have the use during
normal business hours in common with others of the main entrance
and stairways, corridors and elevators leading to the Premises.
At times other than during normal business hours the Tenant and
the employees of the Tenant and persons lawfully requiring
communication with the Tenant shall have access to the Building
and to the Premises and use of the elevators only in accordance
with the Rules and Regulations attached hereto.
Washrooms 6.09 To permit the Tenant and its employees in common with others
entitled thereto to use the washrooms in the Building on the
floor or floors in which the Premises are situate.
Janitor 6.10 To [provide janitorial services for and][preceding language
was inserted] maintain the Premises in keeping with first class
office building maintenance and such work shall be done by or at
the Landlord's discretion without interference by the Tenant, his
servants or employees. The Landlord shall not be responsible for
any acts or omissions on the part of any person employed to clean
the Premises.
Light 6.11 To clean and maintain the light fixtures provided by the
Fixtures Landlord in the Premises, it being agreed by the Tenant that such
cleaning and maintenance shall be performed exclusively by the
Landlord or its contractors. The Landlord shall not be
responsible for any acts or omissions on the part of any person
employed to clean, repair or maintain the light fixtures.
Insurance 6.12 To insure and keep insured the Building and all improvements
and installations made by the Landlord in the Premises (other
than improvements made in the Premises on behalf of the Tenant or
any previous occupant of the Premises) against loss or damage by
fire, lightning, tempest, and such other standard extended
coverage insurance perils as are normally entered into from time
to time during the term by owners of similar buildings in the
City of Vancouver for such an amount as in the opinion of the
Landlord is necessary to protect the Landlord against such loss
or damage, and on such terms and with such insurer as the
Landlord may in its absolute discretion determine; provided that
and it is agreed, that the Landlord shall not be required to
insure any Leasehold Improvements in the Premises; and further
provided, and it is further agreed, that the Landlord shall not
be liable:
(a) for any damage, (other than Insured Damage) which is
caused by steam, water, rain or snow which may leak into,
issue or flow from any part of the Building, or from the
pipes or plumbing works, including the sprinkler system, 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 of sprinkler heads or for any
damage caused by anything done or omitted by any other
tenant;
(b) for any act or omission (including theft, malfeasance or
negligence) on the part of any agent, contractor, or person
from time to time employed by it to perform janitor
services, security services, supervision or any other work
in or about the Premises or the Building; or
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(c) for loss or damage, however caused, to money,
securities, negotiable instruments, papers or other
valuables of the Tenant.
6.13 [See Page 14a To provide electricity to the
Premises to a standard in keeping with comparable buildings
in Vancouver.][preceding language was inserted]
7. MUTUAL CONDITIONS
7.00 Provided always and it is hereby agreed as follows:
Removal of 7.01 The Tenant may remove his fixtures from the Premises in
Fixtures the manner provided in the Lease.
Alterations and 7.02.01 All installations, alterations, additions,
Additions partitions, and fixtures other than trade or Tenant's
fixtures in or upon the 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 proviso, shall not be removed from the Premises by
the Tenant at any time either during or after the Term.
7.02.02 The Landlord shall be under no obligation to repair
or maintain the Tenant's installation, alterations,
additions, partition and fixtures or anything in the nature
of a leasehold improvement made or installed by the Tenant.
7.02.03 [The Landlord shall have the right upon the
termination of this Lease by effluxion of time or otherwise
to require the Tenant to remove his installations,
alterations, additions, partitions and fixtures or anything
in the nature of a leasehold improvement made or installed
by the Tenant and to make good any damage caused to the
Premises by such installation or removal.] [ preceding
language was struck through]
Damage to 7.03.01 In the event of damage to the Premises by fire,
Premises lightning, earthquake, tempest or other casualty, rent shall
abate in the proportion that the part of the Premises
rendered unfit for occupancy bears in relation to the area
of the Premises until the Premises are again fit for
occupancy; and the Landlord agrees that it will with
reasonable diligence repair the Premises unless the Tenant
is obliged to repair under the terms hereof, or unless this
Lease is terminated as hereinafter provided; subject always
to the provisions of clauses 7.03.02 and 7.03.03.
7.03.02 If the Premises are damaged or destroyed by any
cause whatsoever, and if, in the opinion of the Landlord
reasonably arrived at, the Premises cannot be rebuilt or
made fit for the purposes of the Tenant within One Hundred
and Twenty (120) days of such damage or destruction, the
Landlord, or the Tenant may terminate this Lease by giving
notice to the other party within Fifteen (15) days of the
delivery of the Landlord's opinion to the Tenant. The
opinion of the Landlord shall be delivered to the Tenant in
writing within Thirty (30) days of such damage or
destruction. In the event that notice of termination is
given by either party rent and any other payments for which
the Tenant is liable under this Lease shall be apportioned
and paid to the date of such damage and the Tenant shall
immediately deliver up possession of the Premises to the
Landlord.
7.03.03 Irrespective of whether the Premises are damaged or
destroyed, in the event that fifty per cent (50%) or more of
the rentable area in the Building is damaged or destroyed by
any cause whatsoever, and if, in the opinion of the Landlord
reasonably arrived at, the rentable area cannot be rebuilt
or made fit for the purposes of the tenants of such space
within one hundred and eighty (180) days of the damage or
destruction, the Landlord may at its option determine this
Lease by giving to the Tenant within, thirty (30) days after
such damage notice of termination requiring vacant
possession of the Premises sixty (60) days after delivery of
the notice of termination and thereupon rent and any other
payments for which the Tenant is liable under this Lease
shall be apportioned and paid to the date on
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14
which vacant possession is given and the Tenant shall
deliver up possession of the Premises to the Landlord in
accordance with such notice of termination.
7.04 The Landlord shall not, without proof of
negligence liable or responsible in any way for any loss,
injury to any person or loss of or damage or injury to any
property belonging to the Tenant or to employee of the
Tenant or to any other person while such person or property
is on the Premises or in the Building or in any way conected
therewith whether such property has been entrusted to
employees of the Landlord or not and without limiting the
generality of the foregoing, the Landlord shall not be
liable for any damage to a person or any such property
caused by theft or breakage, steam, water, rain or snow
which may leak into, issue or flow from any part of the
Building or from the water, steam or draingae 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 anything done or omitted by the
Tenant or any other tenants of the Building.
Impossibility 7.05 Whenever and to the extent that the Landlord [despite
of Performance making reasonable efforts][preceding language was inserted]
shall be unable to fulfill, or shall be delayed or
restricted in fulfilling any obligations 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 fulfill 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 government
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
fulfillment 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 or discomfort thereby occasioned or be entitled to
a deduction in rent or set off of any kind.
Directory 7.06 The Tenant shall be entitled to have his name shown
Board upon the directory board in the Building, but the Landlord
shall in its sole discretion design the style of such
identification and allocate the space on the directory board
for each Tenant.
Payments to 7.07.01 All payments required to be made by the Tenant under
Landlord or in respect of this Lease shall be made, at such place or
places as the Landlord may designate in writing, to the
Landlord or to such agent or agents of the Landlord as the
Landlord shall hereinafter from time to time direct in
writing to the Tenant. The Tenant shall pay to the Landlord
interest at the rate which is five percentage points above
the lowest rate of interest at the date or dates such amount
becomes owing quoted by the Landlord's bank to the most
creditworthy borrowers for prime business loans, as
determined by any officer of such bank, on all payments of
rent and other sums required to be made under provisions of
this Lease which have become overdue so long as such
payments remain unpaid.
7.07.01 All payments required to be made by the Tenant under
or in respect of this Lease
7.07.02 Other than rent, all payments required to be made
hereunder by the Tenant to the Landlord shall be considered
Additional Rent. Without limiting the generality of the
foregoing, this shall include all sums paid or expenses
incurred hereunder by the Landlord, which ought to have been
paid or incurred by the Tenant, or for which the Landlord
hereunder is entitled to reimbursements from the Tenant, and
any interest owing to the Landlord hereunder. Additional
Rent may be
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15
recovered by the Landlord by any and all remedies available
to it for the recovery of rent in arrears.
Landlord's Right 7.08.01 The Landlord shall have the right to make additions
to do Work to and/or improvements or installations in and/or repairs to
the Building and/or the common outside areas and the
Landlord may cause such reasonable obstructions of and
interference with the use or enjoyment of the Building, the
Premises and/or common outside areas as may be reasonably
necessary for the purposes aforesaid and may interrupt or
suspend the supply of electricity, water or other services
when necessary and until said additions, improvements,
installations or repairs shall have been completed there
shall be no abatement in rent nor shall the Landlord by
liable by reason thereof provided that all such additions,
improvements, installations or repairs shall be made as
expeditiously as reasonably possible [and the Landlord shall
make reasonable efforts to minimize the effect and
inconvenience to the Tenant].[preceding language was
inserted]
7.08.02 The Landlord and any persons authorized by the
Landlord shall have the right to use, install, maintain
and/or repair pipes, wires, ducts or other installations in,
under or through the Premises for or in connection with the
supply of any services to the Premises or any other Premises
in the Building. Such services shall include, without
limiting the generality of the foregoing, gas, electricity,
water, sanitation, heating, air-conditioning and
ventilation.
No Liability for 7.09 Under no circumstances shall the Landlord be liable
Indirect Damages for indirect or consequential damage or damages for personal
discomfort or illness by reason of the non-performance or
partial performance of any covenants of the Landlord herein
contained, including the heating of the Premises or the
operation of the air-conditioning equipment, elevators,
plumbing or other equipment in the Building or the Premises.
8. REMEDIES OF LANDLORD ON DEFAULT Landlord may
Landlord may 8.00 If the Tenant shall fail to perform or cause to have
Perform Tenant's performed each of the Perform Tenant's covenants and
Covenants obligations of the Tenant in this Lease the Landlord shall
have the right (but Covenants shall not be obligated) to
perform or cause the same to be performed and to do or cause
to be done such things as may be necessary or incidental
thereto (including without limiting the foregoing, the right
to make repairs, installations, erections and extend monies)
and all payments, expenses, charges, fees and disbursements
incurred or paid by or on behalf of the Tenant in respect
thereof shall be paid by the Tenant to the Landlord
forthwith.
Re-Entry 8.01.01 Provided, and it is hereby agreed, that if and
whenever the rent hereby reserved, or any part thereof,
shall be unpaid for seven (7) days after any of the days on
which the same ought to have been paid, although no formal
demand shall have been made therefor, or in case of the
breach or non-performance of any of the covenants or
agreements herein contained on the part of the Tenant, then
and in either of such cases it shall be lawful for the
Landlord at any time thereafter to enter into and upon the
Premises or any part thereof, in the name of the whole, and
the same to have again, repossess and enjoy, as of the
Lessor's former estate, anything hereinafter contained to
the contrary notwithstanding.
8.01.02 The Landlord, in addition to all of the rights
herein shall have the right to enter the Premises as the
agent of the Tenant either by force or otherwise, without
being liable therefore to relet the Premises as the agent of
the Tenant, to receive the rent therefor as the agent of the
Tenant and to take possession of any furniture or other
property on the Premises and sell such furniture or other
property at public or private sale without notice and apply
the proceeds of such sale and any rent
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derived from reletting the Premises on account of the rent
under this Lease.
8.01.03 In case the Landlord shall re-enter the Premises
prior to the expiry of this Lease by reason of default by
the Tenant hereunder, the Tenant shall be liable to the
Landlord for the amount of the rent for the remainder of the
Term of this Lease as if such re-entry had not been made
less the actual amount received by the Landlord after such
re-entry in respect of any subsequent leasing applicable to
the remainder of the Term.
Waiver of 8.01.04 That in consideration of the Premises and of the
Exemptions leasing and letting by the Landlord to the Tenant of the
Premises for the Term hereby created (and it is upon that
express understanding that these presents are entered into)
that notwithstanding anything contained in any Statute or in
any Statute which may hereafter be passed, none of the goods
or chattels of the Tenant at any time during the continuance
of the Term hereby created on the Premises shall be exempt
from levy by distress for rent in arrears by the Tenant as
provided for in any such Statute or any amendment or
amendments thereto, and that upon any claim being made for
such exemption by the Tenant or on distress being made by
the Landlord this covenant and agreement may be pleaded as
an estoppel against the Tenant in any action brought to test
the right to the levying upon any such goods as are named as
exempted in any such Statute or amendment or amendments
thereto; the Tenant waiving as the Tenant hereby does all
and every benefit that could or might have accrued to the
Tenant under and by virtue of any such Statute or any
amendment or amendments thereto but for this covenant.
Bankruptcy 8.01.05 The Tenant covenants that if the Term hereby granted
shall be at any time seized or taken in execution or in
attachment by any creditor of the Tenant or if the Tenant
shall make any assignment for the benefit of creditors, or
becoming bankrupt or insolvent shall take the benefit of any
Act that may be in force for bankrupt or insolvent debtors,
then in any such case the said Term shall at the option of
the Landlord, immediately become forfeited and void and the
then current month's rent and the rent for the three (3)
months next following shall immediately become due and
payable and in such case it shall be lawful for the Landlord
at any time thereafter into and upon the Premises, or any
part thereof, in the name of the whole to re-enter and the
same to have again, repossess and enjoy as of its former
estate; anything herein contained to the contrary
notwithstanding.
Right 8.01.06 If and whenever the Landlord becomes entitled to
to Terminate re-enter the Premises under any provision of this Lease, the
Landlord, in addition to all of the rights and remedies,
shall have the right to terminate this Lease forthwith by
leaving upon the Premises notice in writing of such
termination.
Remedies 8.01.07 The Landlord may from time to time resort to any or
Cumulative all of the rights and remedies available to it in the event
of any default hereunder by the Tenant, either by provision
of this Lease or by Statute or the General Law, all of which
rights and remedies are intended to be cumulative and not
alternative, and the express provisions hereunder as to
certain rights and remedies are not to be interpreted as
excluding any other or additional rights and remedies
available to the Landlord by Statute or the General Law.
Distress 8.01.08 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 Premises at any time during
the term shall be exempt
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17
from levy by distress for rent or any other charges. All
goods and chattels brought by the Tenant onto the Premises
shall be the unencumbered property of the Tenant and they
shall not be subjected to any claim or other encumbrance at
any time without the written consent of the Landlord. If the
Tenant shall leave the Premises leaving any rent or other
amounts owing under this Lease unpaid, the Landlord, in
addition to any other available remedy, may seize and sell
the goods and chattels of the Tenant at any place to which
the Tenant or other person may have removed them in the same
manner as if such goods and chattels had remained and been
distrained upon the Premises.
9. MISCELLANEOUS
Notice 9.01 Any notice required by any provision of this Lease may
be given in writing enclosed in a sealed envelope addressed,
in the case of notice to the Landlord to it at the office of
the Landlord in the Building, and in the case of notice to
the Tenant to him at the Premises, and mailed in the City of
Vancouver, registered and postage prepaid. The time of
giving such notice shall be conclusively deemed to be the
third business day after the day of such mailing. Such
notice shall be sufficiently given when it shall have been
delivered, in the case of notice to the Landlord, to it at
the office of the Landlord in the Building, and in the case
of notice to the Tenant, to him at the Premises. 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 delivered
personally to any of such persons. 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.
Non-Waiver 9.02 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.
Overholding 9.03 If the Tenant shall continue to occupy the 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
of 1.5 times the last in effect] [preceding language was
inserted] and such tenancy shall be on the terms and
conditions herein set out except as to the rent and the
length of tenancy.
Calculation and 9.04.01 The Landlord shall determine from time to time the
Allocation of rentable area of the Premises and of the Building and shall
Taxes and Taxes and determine from time to time the Tenant's Operating
Operating Expenses Proportionate Share. If the Tenant does not Expenses dispute
the Landlord's determination of the rentable area, or of the
Tenant's Proportionate Share within one (1) year of receipt
of notice of such determination, the Tenant shall be deemed
to accept the accuracy of such determination, and the Tenant
shall not be entitled to dispute the amount of its
Proportionate Share of Operating Costs or Taxes on the
grounds of any error in accuracy in the determination of
rentable area or of the Tenant's Proportionate Share. If the
Tenant disputes the said determination within one (1) year
of receipt of notice of the said determination, the Landlord
shall request the architects to measure the rentable area of
the
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18
Premises and the rentable area of the Building and the
determination so made by the architects shall be binding
upon the Landlord and the Tenant. The cost of the
preparation of the certificate of measurement by the
architects shall be at the expense of the Tenant. It is
understood and agreed that the determination of the Tenant's
Proportionate Share may be recalculated by the Landlord from
time to time to reflect changes in the rentable area of the
Building, of the Premises, or of other premises.
9.04.02 Insofar as the determination of Tenant's
Proportionate Share of Operating Costs and Taxes is
dependent upon calculations other than area measurement, the
same shall be binding upon the Tenant. Further, if taxes are
assessed separately by the relevant taxing authority for the
Premises then the Tenant shall pay its share of Taxes in
accordance therewith. In the event that the Tenant requests
that an audited statement of the calculations be submitted,
the Landlord shall have prepared such audited statement, the
cost of which shall be payable by the Tenant [unless the
Tenant was over charged]. [preceding language was
inserted] Any expenses not directly incurred by the Landlord
but which are included in Operating Costs may be estimated
by the Landlord on whatever reasonable basis the Landlord
may select.
9.04.03 Prior to the commencement of the Term and to the
commencement of each year thereafter which commences during
the Term, the Landlord may estimate the Tenant's
Proportionate Share of Operating Costs and Taxes for the
ensuing year or, if applicable, broken portion thereof, as
the case may be, and shall notify the Tenant in writing of
the estimate. The amount so estimated shall be payable in
equal monthly instalments in advance over the year or broken
portion of the year in question, each instalment being
payable on each monthly rental payment date provided in
Article 4. From time to time during a year the Landlord may
re-estimate the amount of the Tenant's Proportionate Share
of Operating Costs and Taxes for the year or broken portion
thereof, in which event the Landlord shall notify the Tenant
in writing of the re-estimate and shall fix monthly
instalments for the then remaining balance of such year or
broken portion thereof in order that, after giving credit
for the estimates, the Tenant's entire estimated
Proportionate Share of Operating Costs and Taxes will have
been paid during such year or broken portion thereof.
9.04.04 When the necessary information becomes available,
the Landlord shall re-calculate the Tenant's Proportionate
Share of Operating Costs and Taxes for each year or broken
portion thereof referred to in 9.04.03, after the expiry of
the yearly portion thereof. The Landlord and the Tenant
shall expeditiously make between them any re-adjustment
which such re-calculation may show to be necessary, so that
the Tenant shall be credited for any overpayment or debited
for any deficiency. Neither party may claim a re-adjustment
in respect of the Tenant's Proportionate Share of Operating
Costs or Taxes based upon any error of estimation,
determination or calculation thereof unless claimed in
writing prior to the expiration of one (1) year after the
date on which the Tenant has been notified of the
re-calculation referred to herein, other than any claim of
re-adjustment based upon other matters, including without
limitation the outcome of litigation or negotiation
affecting expenses which constitute component parts of the
Taxes or Operating Costs.
9.04.05 In the event that the Landlord shall change its
accounting system or procedures so that it shall become more
convenient for the provisions of Clauses 9.04.03, 9.04.04
and 9.04.06 to be administered on the basis of some twelve
(12) month period other than one ending on December 31, then
the Landlord may determine upon not less than six (6)
months' written notice to the Tenant and other tenants that
such provisions of this Lease and comparable provisions of
other leases of premises in the Building shall be so
administered and after the
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LANDLORD/TENANT
19
expiry of the notice period Clauses 9.04.03, 9.04.04 and
9.04.06 shall be and be deemed to be appropriately amended
to that end.
9.04.06 Notwithstanding the preceding provisions of this
Paragraph, if, during any period for which a computation of
Operating Costs or Taxes must be made, the Building is less
than Ninety per cent (90%) occupied, then the Operating
Costs and Taxes for such period shall be adjusted by adding
to the actual Operating Costs and Taxes for such period an
amount equal to the additional operating expenses and taxes,
as the case may be, which would have been incurred if the
Building had been Ninety per cent (90%) occupied for such
period.
[Notwithstanding the terms of this Paragraph, the Tenant
shall in no event be required to pay more than its
Proportionate Share of Taxes.][preceding language was
inserted]
Landlord's 9.05 Notwithstanding anything to the contrary contained
Determinations herein, in any case where the Landlord is entitled to make a
Conclusive determination relating to the area of the Building or the
Premises, or relating to the allocation or calculation of
any amounts payable pursuant to this Lease, and the Tenant
does not dispute the Landlord's determination within one (1)
year of receipt of notice of such determination having been
made, the Tenant shall be deemed to accept the accuracy of
such determination, and the Tenant shall not be entitled to
dispute any such determination.
Subordination of 9.06 This Lease is subject and subordinate to all ground or
Lease underlying leases and to all mortgages including any deed of
trust and mortgage securing bonds and all indentures
supplemental thereto which may now or hereafter affect such
leases and the parcel of leasehold land constituted thereby,
and to all renewals, modifications, consolidations,
replacements and extensions thereof. The Tenant agrees to
execute promptly any certificate in confirmation of such
subordination as the Landlord may request and hereby
constitutes the Landlord the agent or attorney of the Tenant
for the purpose of executing any such certificate and of
making application at any time and from time to time to
registered postponements of this Lease in favour of any such
mortgage in order to give effect to the foregoing provisions
of this clause.
Lease Entire 9.07 The Tenant acknowledges that there are no covenants,
Relationship 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 executed by the Landlord and the
Tenant. This Lease includes the Schedules attached hereto.
Registration 9.08 The parties agree that the Landlord shall not be
obliged to deliver this Lease in a form registerable under
the Land Title Act of the Province of British Columbia.
Foreign 9.09.01 The Tenant hereby warrants and represents that it is
Investment not a non-eligible person with the meaning of the Foreign.
Review Act Investment Review Act, S.C. 1974, c. 46, as amended or that
it is authorized pursuant to the said Act to carry on all
business carried on or to be carried on by it in the
Premises.
9.09.02 If the Tenant is a non-eligible person within the
meaning of the said Act, or if the Tenant becomes a
non-eligible person within the meaning of the said Act, it
shall not carry on business, or continue to carry on
business, in the Premises without first supplying the
Landlord with all relevant documents and information to
satisfy the Landlord that the Tenant is not carrying on
business in violation of any such legislation, and without
first obtaining the consent of the Landlord to the carry-
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LANDLORD/TENANT
20
ing on of such business, such consent not to be withheld
upon receipt of proof that such business is lawfully carried
on.
9.09.03 The Tenant shall indemnify the Landlord and hold the
Landlord harmless from and against any and all fines,
claims, costs, losses, damages, expenses, liabilities and
demands arising out of the breach by the Tenant of the
warranty or any obligation set forth in this Clause.
Right to 9.10.01 [The Landlord shall have the right at any time
Locate during the term of this Lease to relocate the Tenant to
other reasonably similar or comparable premises within the
Building of approximately the same area as the Premises.
Such right shall be exercisd by the giving of not less than
sixty (60) days notice in writing to the Tenant.
9.10.02 The Landlord shall be responsible for all
reasonable costs and expenses attributable to the relocation
of the Tenant, including the cost of partitioning the new
premises, the cost of the physical movement of the Tenant's
chattels and the relocation of leasehold improvements. The
Landlord shall have no liability for any loss occasioned by
the interruption of the Tenant's business.
9.10.03 If the Landlord relocates the Tenant as aforesaid,
this Lease shall continue in full force with the following
amendments:
(a) The description of the Premises in Schedule "A"
of this Lease shall be amended to contain a
description of the Premises to which the Tenant
has been relocated.
(b) The Proportionate Share definition shall be
amended in light of any change in the area of the
relocated Premises.
(c) The basic annual rent set forth in Article 4
hereof shall be amended by increasing it or
decreasing it by a percentage equal to the
percentage increase or decrease in the area of
the relocated Premises relative to the area of
the Premises formerly occupied by the Tenant.
9.10.04 If the Tenant refuses to allow the Landlord to
relocate the Tenant as aforesaid or if the Tenant attempts
to obstruct such relocation in any manner, the Landlord may,
at its option, terminate this Lease upon thirty (30) days'
written notice to the Tenant without prejudice to any other
rights or remedies it may have and rent and any other
payments for which the Tenant is liable shall be apportiond
and paid to the date of such termination together with the
reasonable expenses of the Landlord attibutable to the
termination of the Lease and the Tenant shall immediately
deliver possession of the Premises to the Landlord.]
[preceding language was struck through]
9.11 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 provisions of this Lease be
illegal or not enforceable 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 provisions had never been included.
9.12 The headings to the Clauses 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 any provision hereof.
9.13 This Lease and everything herein contained shall enure
to the benefit of and be binding upon the heirs, executors,
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LANDLORD/TENANT
21
administrators, successors, assigns and other legal
representatives, as the case may be, of each of the parties
hereto, subject to the granting of consent by the Landlord
as provided in clause 5.10 to any assignment or sublease,
and every reference herein to any part thereto shall include
the heirs, executors, administrators, 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 chances thereby rendered necessary and all
covenants shall be deemed joint and several.
10. GUARANTEE
[10.01.01 In consideration of the sum of ONE DOLLAR ($1.00)
now paid by the Landlord to the Guarantor and other valuable
consideration the receipt whereof is hereby acknowledged the
Guarantor hereby covenants with the Landlord that the Tenant
shall duly perform and observe each and every covenant,
proviso, condition and agreement in this Lease on the part
of the Tenants to be performed and observed, including the
payment of rent and all other payments agreed to be paid or
payable under this Lease on the days and at the times and in
the manner herein specified, and that if any default be made
by the Tenant, whether in payment of rent or other sums from
time to time falling due hereunder as and when they become
due and payable or in the performance or observance of any
of the covenants, provisos, conditions or agreements which
under the terms of this Lease are to be performed, or
observed by the Tenant, the Guarantor shall forthwith pay to
the Landlord on demand such rent and other sums in respect
of which such default shall have occurred and all damages
that may arise in consequence of the non-observance or
non-performance of any of the said covenants, provisos,
conditions or agreements.
10.01.02 The Guarantor covenants with the Landlord that the
Guarantor is jointly and severally bound with the Tenant for
the fulfillment of all obligations of the Tenant under this
Lease. In the enforcement of its rights hereunder the
Landlord may provide against the Guarantor as if the
Guarantor were the named Tenant herein.
10.01.03 The Guarantor hereby waives any right to require
the Landlord to proceed against the Tenant or to proceed
against or to exhaust any security held from the Tenant or
to pursue any other remedy whatsoever which may be available
to the Landlord before proceeding against the Guarantor.
10.01.04 No neglect or forbearance of the Landlord in
endeavoring to obtain payment of the rent reserved herein or
other payments required to be made under the provisions of
this Lease as and when they become due, no delay of the
Landlord in taking any steps to enforce performance or
observance of the several covenants, provisos or conditions
contained in this Lease to be performed or observed by the
Tenant, no extension or extension of time which may be given
by the Landlord shall release, discharge or in any way
reduce the obligations of the Guarantor hereunder.
10.01.05 Any account settled or statement or any other
settlement made between the Landlord and the Tenant, and any
determination made pursuant to any provision of this Lease
which is expressed to be binding upon the Tenant shall be
binding upon the Guarantor.
10.01.06 In the event of the termination of this Lease,
except by surrender accepted by the Landlord, or in the
event of disclaimer of this Lease pursuant to any statute,
then at the option of the Landlord the Guarantor shall
forthwith upon demand of the landlord and at the expense of
the Guarantor, execute a new lease of the Premises between
the Landlord as Landlord and Guarantor as Tenant for a term
equal in duration to the residue of the term remaining
unexpired at the date of such termination or such
disclaimer. Such lease shall contain the like landlord's and
tenant's obligations respectively and the like covenants,
provisos, agreements and conditions in all respects
(including the provisos for re-entry) as are contained in
this Lease.
10.01.07 The Guarantor hereby submits to the jurisdiction of
the Courts of the Province of British Columbia in any action
or proceeding whatsoever by the Landlord to enforce its
rights hereunder.] [preceding language was struck through]
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22
11. ADDITIONAL COVENANTS
11.01 The covenants set out in Schedule "C" hereto shall apply in
addition to the general covenants of this Lease and, in the event
of conflict therewith, shall be considered as exceptions to such
general covenants:
IN WITNESS WHEREOF the Landlord and Tenant have duly
signed and executed these presents at the City of Vancouver,
as of the day, month and year first above written.
The Corporate Seal of )
YONGE WELLINGTON )
PROPERTY LIMITED )
was hereunto affixed in the )
presence of: )
)
)
[s/ Illegible] )
---------------------------- )
Authorized Signatory )
)
[/s/ Illegible] )
---------------------------- )
Authorized Signatory )
)
)
The Corporate Seal of )
SIMBA TECHNOLOGIES )
INCORPORATED )
was hereunto affixed in the )
presence of: )
)
)
[/s/ Illegible )
--------------------------- )
Authorized Signatory )
)
------------------------ )
Authorized Signatory )
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23
SCHEDULE "A"
DEFINITION OF PREMISES
The Premises consist of an area of approximately 11,139 square feet and are
situate in Suite 400 on the 4th floor of the Building as more particularly
set forth on the plan attached hereto in the area outlined in red.
[Floor Plan Description]
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LANDLORD/TENANT
SCHEDULE "B"
RULES AND REGULATIONS
1. No Tenant shall obstruct or encumber any of the
sidewalks, entrances, elevators, stairways, corridors,
halls or any other areas of the Building or the Lands
which is for the use of other persons or any windows,
doors or other areas that reflect or admit light or air
into any part of the Building, for any purpose other
than access to and from the Premises.
2. The water closets and wash basins and other plumbing
fixtures shall not be used for any purposes other than
those for which they were constructed, and no other
substances shall be put therein. All damages resulting
from any misuse of the fixtures shall be borne by the
Tenant who, or whose employees, agents, invitees or
licensees, shall have caused such damages. The Tenant
shall not let the water run unless it is in actual use.
3. No Tenant shall make, paint, drill into, or in any way
deface any part of the [Premises of the] [preceding
language was struck through] Building. No boring,
cutting or stringing of wires shall be permitted,
except with the prior written consent of the Landlord.
No Tenant shall lay any floor covering, so that the
same shall be attached to the floor of the Premises
without the prior consent of the Landlord. If the
Tenant desires telegraph or telephone connections, the
Landlord will direct the electricians as to where and
how the wires are to be introduced, and without such
directions no boring or cutting for wires will be
permitted. No gas pipe or electric wire will be
permitted which has not been ordered or authorized in
writing by the Landlord.
4. No bicycles, vehicles or animals of any kind shall be
brought into or kept in or about the Premises and,
without the prior written consent of the Landlord, no
cooking shall be done on the Premises. No Tenant shall
cause or permit any unusual or objectionable odors to
be produced upon or to emanate from the Premises. Any
hand trucks, carryalls, or similar appliances used in
the Building shall be equipped with rubber tires,
sideguards and other safeguards as the Landlord shall
require.
[The Tenant may provide a parking stall, fenced
and capable of being locked up, for bicycle
storage, subject to the Landlord's reasonable
approval.][[preceding language was inserted]
5. No space in the Building shall be used for
manufacturing, for the storage of merchandise or for
the sale of merchandise, goods or property of any kind
at auction.
6. No Tenant shall, at any time, while on any part of the
Lands, feed or leave any foodstuffs for any birds or
other animals.
7. Each Tenant shall keep its Premises free of waste,
rubbish and debris at all times and provide proper
receptacles in the Premises for waste and rubbish.
8. The Tenant shall not install or permit the installation
or use of any machine dispensing goods for sale in the
Premises or the Building or permit the delivery of any
food or beverage to the Premises without the approval
of the Landlord or in contravention of any regulations
fixed or to be fixed by the Landlord. Only persons
authorized by the Landlord shall be permitted to
deliver or to use the elevators in the Building for the
purpose of delivering food or beverages to the
Premises.
9. No tenants shall make, or permit to be made, any
unseemly or disturbing noises or disturb or interfere
with occupants
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LANDLORD/TENANT
of the Building or any neighbouring buildings or those
having business with them in any way. No animals or
birds shall be brought into the Premises.
10. No Tenant shall throw anything out of the doors or down
the passageways or stairways.
11. No Tenant shall at any time bring or keep upon or allow
to be brought onto the Premises any inflammable,
combustible or explosive fluid, chemical or other
substance.
12. No additional locks or bolts of any kind shall be
placed upon any of the doors, or windows of the
Premises, nor shall any changes be made in existing
locks or the mechanisms thereof. No duplicate keys
shall be made and additional keys may be obtained from
the Landlord at the cost of the Tenant. Each Tenant
shall, upon the termination of his tenancy, return to
the Landlord all keys to the Premises or to any other
part of the Building.
13. The Tenant, his agents, servants, contractors, invitees
or employees, shall not bring in or take out, position,
construct, install or move any safe, business machine
or other heavy office equipment without first obtaining
the consent in writing of the Landlord. In giving such
consent, the Landlord shall have the right in its sole
discretion to prescribe the weight permitted and the
position thereof, and the use and design of planks,
skids, or platforms to distribute the weight thereof.
All damage done to the Building by moving or using any
heavy equipment or other office equipment or furniture
shall be repaired at the expense of the Tenant. The
moving of all heavy equipment or other office equipment
or furniture shall be carried out only between 6:00
p.m. and 7:00 a.m. and at no other time unless
consented to by the Landlord, and the persons employed
to move such equipment or furniture in and out of the
Building must be acceptable to the Landlord. Safes and
other heavy office equipment will be moved through the
halls and corridors only upon steel bearing plates. No
freight or bulky matter of any description shall be
received into the Building or carried in the elevators
except during hours approved by the Landlord.
14. Except as may be otherwise approved by the Landlord, no
Tenant shall occupy or permit to be occupied any
portion of the Premises as an employment bureau, or
advertise for labourers giving the Premises as an
address.
15. All persons entering and leaving the Building at any
time except during normal business hours shall register
in the books kept by the Landlord at or near the night
entrance and the Landlord shall have the right to
prevent any person from entering or leaving the
Building unless provided with a pass in a form to be
approved by the Landlord. Any person found in the
Building at such times without such pass will be
subject to the surveillance of the employees and agents
of the Landlord. The Landlord shall be under no
responsibility for failure to enforce this rule.
16. No one shall use the Premises for sleeping apartments
or residential purposes, or for the storage of personal
effects or articles not required for business purposes.
17. Canvassing, soliciting and peddling in the Building is
prohibited and each Tenant shall co-operate to prevent
the same.
18. The Tenant shall permit window cleaners to clean the
windows of the Premises during normal business hours.
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LANDLORD/TENANT
19. All deliveries to the Premises of bulky goods shall be
made during such hours and by using such entrances,
hallways, corridors and elevator as the Landlord may
from time to time prescribe for such purposes.
20. The Tenant shall permit and facilitate the entry of the
Landlord or those designated by it, into the Premises
for the purpose of inspection, repair, window cleaning
and the performance of other services.
21. The foregoing regulations, as from to time amended, are
not necessarily of uniform application, but may be
waived in whole or in part in respect of other tenants
without affecting their enforceability with respect to
the Tenant and the Premises, and may be waived in whole
or in part with respect to the Premises without waiving
them as to future application to the Premises, and the
imposition of such regulations shall not create or
imply any obligation of the Landlord to enforce them or
create any liability of the Landlord for their
non-enforcement.
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SCHEDULE "C"
ADDITIONAL COVENANTS
1. Deposit
A security deposit in the amount of Forty Thousand Five Hundred Nine
Dollars and Thirteen Cents including G.S.T. ($40,509.13) has been paid
by the Tenant to the Landlord as partial consideration for the
execution of this Lease, and such deposit shall be held by the
Landlord, without liability for interest, as security for the faithful
performance by the Tenant of all the terms, covenants and conditions of
this Lease, and if at any time during the Term the Rent, Taxes,
Operating Costs or other charges properly made by the Landlord
hereunder are overdue and unpaid, then the Landlord may at its option
apply any portion of such security deposit toward the payment of such
overdue Rent, Taxes, Operating Costs or other charge without thereby
limiting or excluding any other rights which the Landlord may have
hereunder or at law, and if such security deposit is not so applied
during the Term then such sum shall be applied towards Rent, Taxes and
Operating Costs for the last Two (2) month's of the Term. In the event
the entire security deposit or any portion thereof is applied towards a
default by the Landlord, such sum as is sufficient to restore the
security deposit to the amount that would have been held by the
Landlord if it had not been applied towards a default, shall be paid by
the Tenant to the Landlord forthwith.
2. Option to Renew
If the Tenant duly and regularly pays the said rent and performs each
and every of the covenants, conditions, provisos, and agreements herein
and in accordance with the provisions of the Lease, the Landlord shall,
at the expiration of the said Term, upon receiving written notice from
the Tenant at least Six (6) months prior to the expiration of the said
Term, grant to the Tenant a renewal lease for the Demised Premises for
a further term of Five (5) years on the same terms and conditions as
the present Lease and this offer except as to this clause, the amount
of any inducements or improvements and except as to the amount of rent
which is to be based upon the fair market rent for the Demised Premises
as they exist at that time, as comparable with premises of similar
size, quality, improvements and location at the time of review (the
"Time Of Review" is the four month period preceding the 5th anniversary
of the Term), as negotiated between the Parties at arm's length and
negotiated during the Time of Review. In the event the Landlord and
Tenant do not agree as to the fair market rent during the Time of
Review, the rent shall be set by arbitration under the provisions of
the Commercial Arbitration Act of British Columbia, provided however,
that the annual rent for the renewal term shall not be less than the
rent payable during the last year of the initial Term.
Notwithstanding the above paragraph, the Tenant may exercise the Option
to Renew so long as the Lease is in good standing at the time of
renewal (i.e. if a default has occurred but has been remedied, that
does not affect the Tenant's right to renew).
INITIAL
-----------
LANDLORD/TENANT
3. Fixturing Period
Commencing June 1, 1996 the Landlord shall provide the Premises to the
Tenant prior to the lease commencement date of October 1, 1996 for the
purposes of installing their tenant improvements and occupancy by the
Tenant. During this period the Tenant shall not be responsible for any
Basic Rent or Building Expenses whatsoever.
4. Parking
The Landlord shall provide the Tenant with Three (3) parking stalls in
the Building at the prevailing monthly rate which is presently $185.00
reserved per stall per month. The rental for stalls is subject to
adjustment to prevailing rates by the Landlord from time to time.
5. Option To Lease Additional Premises
The Tenant shall have an option to lease additional premises on the
third or fifth floors with the rentable area to be between 3,000 and
3,400 square feet with the location of the option space and the exact
size to be determined by the Landlord acting reasonably. The option
space shall have the same term as for the Demised Premises and shall
commence October 1, 1996. The option space shall be provided "as is"
except the Landlord will provide demising walls and entry/exit doors.
The Landlord will also provide the $5.00 p.s.f. allowance payable upon
occupancy of the option space by the Tenant.
The Tenant must give the Landlord written notice that it is exercising
this option on or before September 30, 1996. In the event notice is not
given by the Tenant within the time specified, this option shall
terminate.
6. Right of First Refusal
If at any time after signing the Lease and throughout the Term hereof
(or any renewal term) the Landlord receives an acceptable written offer
to lease the whole or any part of the rentable space on the 3rd or Sth
floors (hereinafter called "Additional Space") of the Building from a
third party, the Landlord shall notify the Tenant in writing and the
Tenant shall have the right to lease the Additional Space upon the same
terms and conditions as are contained in the said acceptable offer to
lease, provided that such right of Tenant shall be exercised by notice
in writing to the Landlord to such effect within Three (3) business
days after the date of receipt of the said notice. If the Tenant shall
fail to exercise such right to lease the said Additional Space within
such Three (3) day period, its Right of First Refusal thereupon shall
terminate for that particular offer to lease.
If the aforesaid right of first refusal is not exercised and further
space on the 3rd or 5th floors becomes available for rental during the
Term hereof or any renewal term, the Tenant shall have the further
right of first refusal concerning a subsequent offer to lease on the
space, and so on from time to time.
INITIAL
-----------
LANDLORD/TENANT
7. Notes to Option and Right Of First Refusal
The Tenant understands that the Right of First Refusal is secondary to
an existing right of first refusal for approximately 500 square feet on
the 3rd floor.
Where the Option to Lease or Right of First Refusal is exercised, the
Tenant's rights for these new premises shall for all purposes of the
lease be the same as for the main Premises. That is, the Option to
Renew shall extend to the revised space, the Termination Right also,
etc.
8. Right to Terminate
The Landlord shall grant to the Tenant a one (1) time right to
terminate the Lease on January 31, 2000, provided that the Tenant gives
to the Landlord written notice of its intention to terminate no later
than July 31, 1999. In order for this termination notice to be valid,
the Tenant shall pay to the Landlord on delivery of notice a
cancellation penalty of $80,000.00 towards the Landlord's costs and
real estate fees. If the Tenant exercise the option to lease additional
premises the penalty will increase proportionately with the increase in
area (if the cancellation is exercised).
If the Tenant exercises one or more rights of refusal, the penalty for
this or these spaces (in the event of cancellation) will be the
unamortized costs of any Landlord's inducements or improvements and
real estate fees.
It is understood that the cancellation shall not be valid without
payment of the appropriate cancellation fee being paid.
9. Net Lease
This is a net lease, but in no case shall the provisions hereof operate
to require the Tenant to effectively subsidize other tenants or
occupants or rentable areas of the Lands, and Operating Costs and Taxes
shall be calculated and determined without duplication or (except as
expressly stipulated herein) profit to the Landlord. Operating Costs
and Taxes shall exclude taxes assessed referable to the Landlord's
income or profit (i.e. income taxes). Operating Costs and Taxes shall
not include any costs relating to asbestos removal. The Landlord shall
make reasonable efforts to minimize operating Costs and Taxes.
10. Asbestos
To the best of the Landlord's knowledge, all asbestos has been removed
from the Building or has been appropriately remediated.
INITIAL
-----------
LANDLORD/TENANT
EX-10.26
9
ex10_26.txt
EXHIBIT 10.26
S U B L E A S E
THIS INDENTURE OF LEASE made this 1st day of January, A.D. 1999, at the Town of
Banff, in the Province of Alberta.
PURSUANT TO THE LAND TRANSFER FORM ACT, PART 2.
BETWEEN:
BREWSTER TRANSPORT COMPANY LIMITED, a company duly incorporated under
the laws of Alberta, having its head office at 100 Gopher Street, P.O.
Box 1140, Banff, Alberta, TOL OCO
(hereinafter called the "Sub-Landlord")
OF THE FIRST PART
-AND-
SIMBA TECHNOLOGIES INCORPORATED, a company duly incorporated under the
laws of British Columbia and carrying on business at Suite 400, 885
Dunsmuir Street, in the City of Vancouver, in the Province of British
Columbia
(hereinafter called the "Sub-Tenant")
OF THE SECOND PART
WHEREAS by a Lease dated the 1st day of November, A.D. 1995, made between
YONGE WELLINGTON PROPERTY LIMITED as Landlord and BREWSTER TRANSPORT COMPANY
LIMITED as Tenant, the said Landlord did lease to said Tenant, premises
comprising the 6th floor of a building located at 885 Dunsmuir Street,
Vancouver, British Columbia, as identified in Schedule "A" of said Lease;
AND WHEREAS in consideration of the rents herein reserved and subject to
the terms, covenants, conditions and agreements hereinafter contained, the
Sub-Landlord agrees to Sub-Lease to the Sub-Tenant that portion of the 6th floor
of the building located on the 6th floor, 885 Dunsmuir Street, Vancouver,
British Columbia, outlined in red on a plan attached hereto as Schedule "A" and
forming a part hereof, hereinafter referred to as the "demised premises".
The Sub-Landlord does hereby sub-let to the Sub-Tenant herein the demised
premises, comprising approximately FOUR THOUSAND NINE HUNDRED SEVENTY-TWO
(4,972) square feet, shown outlined in red on the attached Schedule "A" to be
held by the Sub-Tenant for a term of ONE (1) YEAR AND TEN (10) MONTHS from the
commencement of said term as hereinafter provided, at an annual base rent of
FORTY-FOUR THOUSAND SEVEN HUNDRED FORTY-EIGHT ($44,748.00) DOLLARS, to be
payable in equal monthly instalments of THREE THOUSAND SEVEN HUNDRED TWENTY-NINE
($3,729.00) DOLLARS plus GST, on the first day of each and every calendar month
for the duration of the said term, commencing as hereinafter provided, and
subject to the covenants and powers implied and to the conditions, restrictions
and covenants hereinafter provided, reserved and contained as follows:
1. COMMENCEMENT AND TERM
To have and hold the demised premises for and during the said term as
hereinafter provided from the 1st day of January, 1999 to the 31st day of
October, 2000.
The Sub-Landlord acknowledges that the Sub-Tenant may occupy the demised
premises free of base rent and additional costs until such time as the
Sub-Landlord has completed the work as outlined in the attached Schedule "B",
forming a part of this agreement. The Sub-Landlord and the Sub-Tenant agree that
while the Sub-Tenant's obligation to pay rent is determined by the provisions of
this clause 1, the Sub-Tenant's occupancy of the demised premises prior to the
payment of base rent and additional costs in all other respects be subject to
the conditions, restrictions and covenants implied and contained herein.
2. DEPOSIT
The Sub-Tenant agrees to provide to the Sub-Landlord a deposit equivalent to two
(2) months base rent and additional costs plus GST, which deposit shall be
applied to the first and the last month's base rent and additional costs due.
3. ADDITIONAL COSTS
The Sub-Landlord and Sub-Tenant agree that the monthly installments paid to the
Sub-Landlord shall include the Sub-Tenant's contribution to additional rent
hereunder during the term of this Sub-Lease and shall include the real estate
taxes and operating expenses, as the same are identified in the Lease dated
November 1st, 1995, between Yonge Wellington Property Limited as Landlord and
Brewster Transport Company Limited as Tenant (the "Head Lease").
The Sub-Landlord and the Sub-Tenant agree that the Sub-Tenant's proportionate
share of additional costs and operating costs shall be Forty-Four point Six Four
(44.64%) per cent of the Sub-Landlord's proportionate share of said additional
costs, which calculation is based on the ratio of the area of the demised
premises to the total leasable area leased by the Sub-Landlord from Yonge
Wellington Property Limited.
The Sub-Tenant will pay all business taxes and all floor space or personal
property taxes, rates, charges, and license fees assessed or imposed from time
to time in respect of its occupancy and use of the demised premises, together
with any goods and services tax or general sales tax which may now or in the
future be imposed, as well as all telephone, electrical power and natural gas
charges separately metered to the demised premises, as and when they become due
and payable.
4. PAYMENT OF RENT
The Sub-Tenant will pay the rent as herein set forth, together with such amounts
as may be by virtue of this Sub-Lease treated as rent or additional costs, or
amounts payable by the Sub-Tenant to the Sub-Landlord, at the times herein
mentioned, at the Sub-Landlord's office in Vancouver, British Columbia, without
any deduction or right of set off whatsoever.
2
The Sub-Tenant agrees that in the event the Sub-Tenant shall default in payment
of rent or in payment of any sums required to be paid by it under this
Sub-Lease, the Sub-Landlord may pay the same and the amount thereof and all
costs paid by the Sub-Landlord as between solicitor and client on account of any
such default by the Sub-Tenant under this Sub-Lease, shall be payable by the
Sub-Tenant to the Sub-Landlord forthwith without demand or notice to the
Sub-Tenant made or given therefore. The Sub-Tenant shall pay to the Sub-Landlord
interest at one and one-half percent (1 1/2%) per month, that is to say,
eighteen per cent (18%) per annum on all overdue payments required to be made by
the Sub-Tenant under any one or more of the provisions of this Sub-Lease, which
are overdue.
5. USE
The Sub-Tenant will not carry on or permit upon the demised premises any
offensive, noisy or dangerous trade, business, manufacture or occupation, or any
nuisance which may be offensive or annoying to the Sub-Landlord or to any other
tenant of the building, or by which the insurance rates on the demised premises
or the building of which they are a part, shall be increased, and the Sub-Tenant
will occupy the demised premises for use only as business offices for the
business of the Sub-Tenant and such further lawful use as the Sub-Tenant may
desire and the Sub-Landlord and the Head Lessor consent to in writing.
6. COMPLIANCE WITH HEAD LEASE
The Sub-Tenant covenants that the Sub-Tenant is acquainted with the provisions
of the aforesaid Head Lease, and agrees to comply with the terms of these deeds,
insofar as the same may be applicable, with the exception of base rent and
additional costs, which obligations of the Sub-Tenant are set out in this
Sub-Lease.
7. ACCEPTANCE OF PREMISES
The Sub-Tenant, by its occupation of the demised premises, shall be deemed to
have examined and accepted the demised premises in their existing condition
before taking possession, and such taking of possession shall be conclusive
evidence against the Sub-Tenant that at the time thereof, the demised premises
were in good order and satisfactory condition. All existing fixtures and
improvements located in the demised premises shall remain therein for the
exclusive use of the Sub-Tenant during the term of this Sub-Lease.
8. MAINTENANCE
The Sub-Tenant will at all times during the continuance of this Sub-Lease keep,
and at the expiration or sooner determination of the term hereby granted,
deliver up to the Sub-Landlord the demised premises, together with all fixtures
and additions thereto, save the Sub-Tenant's trade fixtures, in a good and
tenantable state of cleanliness and repair, [normal wear and tear excepted]
[preceding bracketed language handwritten and initialed in original]; accidents
and damage to the building through fire, storm, tempest or other cause beyond
the reasonable control of the Sub-Tenant, only excepted.
3
9. MISUSE
The Sub-Tenant shall make good any and all damage caused by the misuse of the
heating, plumbing, gas piping, electrical or telephone wiring and other fixtures
in the demised premises (including board room furniture and work stations), by
the Sub-Tenant, its servants or agents, or other persons who may be invited by
the Sub-Tenant to enter the demised premises.
10. FURNITURE
The Sub-Tenant shall have exclusive use of SMED work stations, deemed available
for rent by the Sub-Landlord throughout the term of this Sub-Lease at a cost of
SEVENTY-FIVE ($75.00) DOLLARS per work station per month plus GST.
The Sub-Tenant shall also have exclusive use of the board room furniture
presently located in the demised premises at a cost of ONE HUNDRED ($100.00)
DOLLARS per month plus GST.
The Sub-Landlord and the Sub-Tenant agree that whatever office furniture is left
by the Sub-Landlord in the demised premises, over and above the items referred
to in the above two paragraphs, may be used by the Sub-Tenant on a rent-free
basis throughout the term of this Sub-Lease.
11. MAINTENANCE OF SYSTEMS
The Sub-Tenant will maintain the plumbing, electrical and heating systems
located within the demised premises in good repair, and in the event of damage
or defect in such systems, the Sub-Tenant will remedy the same and make good the
damage forthwith and in the case of failure of the Sub-Tenant to do so
immediately, the Sub-Landlord shall have the right to have the the work done and
to add the cost thereof to the rent next occurring due and to distrain for and
collect the same as and for increased rent.
12. NOTICE OF DEFECT
The Sub-Tenant will give to the Sub-Landlord prompt written notice of any
accident or defect of which the Sub-Tenant is aware, in the demised premises'
structure, plumbing, electrical, mechanical and heating systems, and shall
permit the Sub-Landlord, its agents and servants to enter the demised premises
to maintain, replace or repair the same.
13. SUB-TENANT'S ALTERATIONS
The Sub-Tenant shall make no alterations, renovations or additions to the
demised premises without first having submitted plans and specifications thereof
to the Landlord and the Sub-Landlord, and obtaining the their consents in
writing. The Sub-Tenant shall have the option of tendering the work to be
performed by outside contractors, subject to the approval of such contractors by
the Landlord and the Sub-Landlord, or the Sub-Tenant may retain the services of
the Landlord to perform the leasehold improvements. All work completed shall
conform to the plans and specifications which have been approved by the Landlord
and the Sub-Landlord and shall be completed in a good and workmanlike manner.
4
At the end or sooner determination of the said term, such alterations and
additions shall become the property of the Sub-Landlord, or the if the
Sub-Landlord shall so notify the Sub-Tenant in writing, such alterations and
additions shall be removed by the Sub-Tenant at the Sub-Tenant's cost, and the
demised premises repaired and restored to such state and condition as before the
making of such alterations and additions.
14. FIXTURES
Notwithstanding anything herein contained, the Sub-Tenant may install its usual
trade fixtures in the usual manner, provided that such installation does not
damage the demised premises, and, provided the Sub-Tenant has paid the rent
hereby reserved and performed and observed all the covenants and conditions
herein contained, the Sub-Tenant shall at the expiration or sooner determination
of this Sub-Lease, have the right to remove such trade fixtures, but shall make
good the damage caused to the demised premises which may result from such
installation and removal.
15. SIGNS
The Sub-Tenant shall not inscribe or affix any sign, lettering, or design
outside the demised premises without the written consent of the Sub-Landlord,
which consent shall not be unreasonably withheld.
16. VIEW, REPAIR AND ACCESS TO Sub-Landlord
The Sub-Landlord, its servants and agents, shall at all reasonable times have
access to the demised premises and in particular, the Sub-Tenant shall at all
reasonable times permit the Sub-Landlord, its servants and agents, to enter upon
the demised premises and view the state of repair and condition thereof and the
Sub-Landlord may serve upon the Sub-Tenant notice in writing of any defect
requiring the Sub-Tenant, within a reasonable time, to repair the same and the
Sub-Tenant shall repair according to such notice. [In the event of an emergency,
the Sub-Tenant shall be granted access to the computer server room located on
the same floor as the demised premises.] [Preceding bracketed language is
handwritten and initialed in original.]
17. ADVERTISEMENT
The Sub-Tenant will, [during the term of this Sub-Lease, permit the
Sub-Landlord, its servants and agents to place upon any part of the demised
premises a note offering the same for Sub-Lease, and will] [preceding bracketed
language struck out and initialed in original] during the two (2) calendar
months immediately preceding the termination of this Sub-Lease Agreement, permit
the Sub-Landlord, its servants or agents, to place upon any part of the said
premises a notice [of reasonable size] [preceding bracketed language handwritten
and initialed in original] offering the same for rent, and the Sub-Tenant will,
during [the said period] [preceding bracketed language handwritten and initialed
in original] [the term of this agreement] [preceding bracketed language struck
out and initialed in original], permit prospective lessees, on authority of the
Sub-Landlord or its agents, at reasonable times, to inspect the demised
premises.
5
18. ASSIGNMENT
The Sub-Tenant will not assign or sublet the demised premises, without the
consent of the Sub-Landlord first had and obtained (such consent not to be
unreasonably withheld, and to be governed by the same provisions as are found in
Clause 5.10 of the Head Lease), provided always that such assignment or transfer
shall not release or relieve the Sub-Tenant or any guarantors of the
Sub-Tenant's covenants herein contained from any and all of the Sub-Tenant's
obligations herein; and provided further that any such consent to assignment
shall not be deemed consent to any further or subsequent assignment.
19. CHANGE OF CONTROL
[The Sub-Tenant will not permit the effective management or control of the
business conducted on the premises to b changed at any time during the term or
renewal hereof, whether by assignment, transfer of shares or otherwise without
the written consent of the Sub-Landlord first had and obtained, (which consent
shall not be unreasonably withheld); provided that such consent shall not be
deemed consent to any further or subsequent change of management or control.)]
[preceding bracketed language struck out and initialed in original]
[The Sub-Tenant shall provide written notices to the Sub-Landlord if the
effective management or control of the business is changed at any time during
the term or renewal hereof, whether by assignment, transfer of shares or
otherwise.] [preceding bracketed language handwritten and initialed in original]
20. SEPARATE UTILITIES
The Sub-Tenant will during the whole of this term hereby granted, pay and
discharge as they fall due all charges for power and natural gas (to the extent
that the same are separately metered to the demised premises), telephone and
janitorial services used within the demised premises. The Sub-Tenant will
provide all cleaning and caretaking services required to be done on the demised
premises and will provide janitorial services at the Sub-Tenant's own cost.
21. LIABILITY ON VACANCY
If the Sub-Tenant vacates or abandons the demised premises during the term
hereof, the Sub-Tenant will be responsible for and liable for any damage that
may occur to the demised premises to the same extent as if the vacancy had not
occurred.
22. INDEMNITY
The Sub-Tenant will indemnify and save harmless the Sub-Landlord of and from all
loss and damage, and from all fines, costs, suits, claims, demands and actions
of every kind and nature for which the Sub-Landlord shall or may become liable,
incur or suffer by reason [of the Sub-Tenant negligence or breach of contract].
[preceding bracketed language handwritten and initialed in original] [or any
breach, violation or non-performance by the Sub-Tenant of any covenant, term or
provision hereof, or by reason of any Builders' Lien, or any work done or
material provided or service rendered for improvements, alterations or repairs
made by the Sub-Tenant to the demised premises, or by reason of any injury
occasioned to or suffered by any person, or by reason of any damage to property
due to any wrongful act, neglect or default on the part of the Sub-Tenant, its
servants, agents, customers or invitees, or by reason of the Sub-Tenant's
occupancy of the demised premises howsoever.] [preceding bracketed language
struck out and initialed in original]
The Sub-Tenant will, forthwith upon demand of the Sub-Landlord, remove or
contest (and institute and diligently prosecute any action pertinent thereto)
any Builders' or other liens aforesaid, resulting from the Sub-Tenant's
occupation of the demised premises, and noted or
6
filed against or otherwise constituting an encumbrance on the title of the
Sub-landlord to the said lands.
23. NON-LIABILITY OF SUB-LANDLORD
The Sub-Landlord shall not be liable for any injury or damage to any person or
property in, on, or about the demised premises, or any loss of or damage to any
property caused by theft, breakage, or otherwise howsoever, or by stream, water,
rain, or snow, which may leak into, issue or flow from any other part of the
said lands or any adjacent or neighbouring lands, to the demised premises, or
for any damage caused by or attributable to the condition or arrangement of any
electrical or other wiring, except as caused by the Sub-Landlord, its servants
or agents. The Sub-Tenant covenants to indemnify the Sub-Landlord of and from
all loss, claims or demands in respect of any injuries or damages referred to in
this paragraph [resulting from the negligence of the Sub-Tenant] [preceding
bracketed language handwritten and initialed in original]. [provided that the
Sub-Tenant shall not be required pursuant to the terms of this paragraph to
indemnify the Sub-Landlord to the extent that the Sub-Landlord's loss, cost,
claims or demands are in respect of injuries or damage due to the negligence of
the Sub-Landlord, its servants or agents] [preceding bracketed language struck
out and initialed in original] In case the heating apparatus and pipes connected
therewith, is, or are, injured or destroyed by frost, accident, oversight or the
negligence or unskillfulness of the Sub-landlord, its servants or agents, the
Sub-Landlord will repair or replace the same with reasonable dispatch having
reference to the season in which such injury happens other than where such
damage is caused by the Sub-Tenant or the Sub-Tenant's servants or agents; but
the Sub-Landlord will not be responsible for any inconvenience or loss or damage
in respect thereof, sustained by the Sub-Tenant or any person claiming under the
Sub-Tenant. Nor will the Sub-Landlord be responsible for any inconvenience, loss
or damage sustained by the Sub-Tenant in the event of the failure of any power
company or gas company to furnish a supply of electrical current or fuel for the
use of the building located on the said lands, or by reason of the wiring or
apparatus in the building becoming out of order, or for any inconvenience, loss
or destruction of, or failure to work, of any water, drainage or waste pipes in
the building located on the said lands. Nor will the Sub-Landlord be responsible
or liable for any consequential inconvenience, loss or damage caused by water or
snow from the roof of the building or caused by any act, matter or thing done or
suffered to be done by any person except where due to the negligence of the
Sub-Landlord, its servants or agents.
24. SUB-TENANT'S INSURANCE
The Sub-Tenant shall, during the entire term hereof, at its sole cost and
expense, take out and keep in full force and effect the following insurance:
a) Insurance upon property of every description and kind owned by the
Sub-Tenant, in the custody and control of the Sub-Tenant, or for which
the Sub-Tenant is legally responsible, is legally liable or installed
by or on behalf of the Sub-Tenant, and which is located within the
demised premises, including without limitation fittings,
installations, alterations, additions, partitions, fixtures and
anything in the nature of a leasehold improvement, for full
replacement cost thereof, with coverage against at least the perils of
fire and standard extended coverage including sprinkler leakages
(where applicable), earthquake, flood and collapse, naming Landlord,
Landlord's Mortgagees as loss payable as their interests may appear
and Sub-Landlord;
7
b) Public liability and property damage insurance including personal
injury liability, contractual liability, non-owned automobile
liability with respect to the demised premises and the Sub-Tenant's
use of any part of the building in which coverage shall include the
activities and operations conducted by Sub-Tenant and any other person
in the demised premises. Such policies shall be written on a
comprehensive basis with limits of not less than FIVE MILLION
($5,000,000.00) DOLLARS for bodily injury to any one or more persons,
or property damages, and such higher limits as the Landlord, the
Mortgagee of the Landlord or the Sub-Landlord may reasonably require
from time to time, and all such policies shall contain a severability
of interest clause;
c) Sub-Tenant's legal liability insurance for the full replacement cost
of the demised premises; coverage to include the activities and
operations and conducted by the Sub-Tenant and any other persons on
the demised premises.
All policies shall be taken out with insurers acceptable to the
Landlord and the Sub-Landlord in a form satisfactory from time to time
to the Landlord and the Sub-Landlord. The Sub-Tenant agrees that
Certificates of Insurance will be delivered to the Landlord and the
Sub-Landlord as soon as practicable after the placing of the required
insurance coverage prior to any material change, cancellation or other
termination thereof.
The Sub-Tenant covenants and agrees that upon written notice from the
Sub-Landlord, the Sub-Tenant will pay the cost of replacing any
damaged plate or other glass in the windows and doors of the demised
premises, and will repair damages to the demised premises resulting
from burglary or attempt thereat.
25. QUIET ENJOYMENT
The Sub-Landlord covenants with the Sub-Tenant that upon the Sub-Tenant paying
the rent hereby reserved at the times and in the manner aforesaid, and observing
and performing each and every of the covenants, conditions, restrictions and
stipulations by the Sub-Tenant to be observed or performed, the Sub-Tenant shall
and may peaceably and quietly possess and enjoy the demised premises during the
said term without interruption from or by the Sub-Landlord, or any person
lawfully claiming by, through or under the Sub-Landlord.
26. SUBORDINATION OF SUB-LEASE
This Sub-Lease is subject and subordinate to all ground or underlying Leases and
to all mortgages including any deed of trust and mortgages securing bonds and
all indentures supplemental thereto which may now or hereafter affect such
Leases and the parcel of land constituted thereby, and to all renewals,
modifications, consolidations, replacements and extensions thereof. The
Sub-Tenant agrees to execute promptly any certification in confirmation of such
subordination as the Landlord or the Sub-Landlord may request and hereby
constitutes the Landlord and the Sub-Landlord, the Agent or Attorney of the
Sub-Tenant, for the purpose of executing any such certificate and of making
application at any time, and from time to time, to registered postponements of
this Sub-Lease in favour of any such Mortgage to give effect to the foregoing
provisions of this clause.
8
27. DAMAGE OR DESTRUCTION
If, during the term of this Sub-Lease, the demised premises or any part thereof,
or the means of ingress and egress to and from the demised premises shall be
destroyed or damaged by fire, lightening, tempest, explosion, flooding,
earthquake or from any other disaster, act of God or the Queen's enemies, riots,
insurrection or structural defects or collapse, the following provisions shall
have effect:
a) if the demised premises are rendered partially unfit for occupancy by
the Sub-Tenant, the rent hereby reserved shall abate, in part only, in the
proportion that the part of the demised premises rendered unfit for occupancy by
the Sub-Tenant bears to the whole of the demised premises, or if the demised
premises are rendered wholly unfit for occupancy by the Sub-Tenant the said rent
shall be suspended until the demised premises have been rebuilt, repaired or
restored;
b) in the event of substantial destruction of the demised premises or the
means of ingress or egress to and from the demised premise, the Sub-Tenant or
Sub-Landlord may, within 120 days after such destruction, and upon giving notice
to the other party, declare this Sub-Lease terminated forthwith, and in such
event the rents payable hereunder, including any additional rents shall be
apportioned and be payable up to the time of such destruction and the Sub-Tenant
shall be entitled to reimbursement for any rents including any additional rents
or charges paid for any period beyond the date of termination.
The expression "substantial destruction" shall mean such damage as, in the
opinion of the architect or engineer retained by the Sub-Landlord requires
substantial alteration or reconstruction of the demised premises or the means of
ingress or egress thereto and therefrom, or such damage to the demised premises
or means of ingress or egress as, in the opinion of the said architect or
engineer, cannot be repaired within 6 months from the time of such damage. All
provisions of this or any other paragraph with respect to damage or destruction
may be made the subject and subordinate to the requirements of any registered
mortgage, or debenture holder of Sub-Landlord.
28. EXPROPRIATION OR CONDEMNATION
If, during the term hereby granted or any renewal thereof, the demised premises
or the means of ingress or egress thereto and therefrom shall be expropriated,
taken or condemned (all of which is hereinafter called "expropriation") by any
competent authority for any use or purpose, resulting in total or substantial
destruction, then this Sub-Lease shall terminate as at the date such
expropriation, which date shall be the date of vesting of title in the
expropriating authority or the commencement of demolition, whichever shall first
occur, and the rent including any additional rent payable by the Sub-Tenant
shall be apportioned, and be paid by the Sub-Tenant to the date thereof. In such
event, the Sub-Landlord and the Sub-Tenant shall each be entitled to receive
from the award or compensation for the demised premises the value of their
respective interest therein.
9
29. PERFORMANCE OF SUB-TENANT'S COVENANTS BY SUB-LANDLORD
If the Sub-Tenant fails to perform any of the covenants or obligations of the
Sub-Tenant under or in respect of this Sub-Lease, the Sub-Landlord may from time
to time, in its discretion, perform or cause to be performed any of such
covenants or obligations, or any part thereof, and for such purposes may do such
things as may be requisite, including, without limiting the foregoing, enter
upon the demised premises and do such things on or in respect of the demised
premises or any part thereof as the Sub-Landlord may consider requisite or
necessary. All expenses incurred and expenditures made by or on behalf of the
Sub-Landlord under this paragraph shall forthwith be paid by the Sub-Tenant and
shall be treated as rent, and if not paid on demand, the Sub-Landlord shall be
entitled to distrain as for rent in arrears in addition to such remedies as may
be available.
30. DEFAULT
The Sub-Tenant hereby expressly agrees that if default of more than 15 days is
made in payment of the rent hereby reserved, or if the term hereby granted or
any of the goods or chattels in the demised premises shall at any time be
seized, or taken in execution or attached by any creditor of the said
Sub-Tenant, or shall be seized or distrained for taxes or under a Bill of Sale,
chattel mortgage or conditional sales agreement, or if the said Sub-Tenant shall
make any assignment for the benefit of creditors, or, becoming bankrupt or
insolvent, shall not observe, perform and keep all and every of the covenants,
provisions, stipulations and conditions herein contained, or if at any time
during the tenancy hereby created, the said Sub-Tenant or any other person shall
remove or attempt to remove any goods or chattels from off the said demised
premises other than in the ordinary course of trade, without the consent in
writing of the Sub-Landlord first had and obtained, or in case the demised
premises shall be used for any purpose other than as herein provided without the
written consent of the Sub-Landlord, then a sum equivalent to 3 months' rent
hereunder shall immediately become due and owing as though due and payable by
lapse of time, and this Sub-Lease shall at the option of the said said
Sub-Landlord cease and be void, and the term hereby granted expire and be at an
end, anything herein contained to the contrary notwithstanding, and the said
Sub-Landlord shall have the right to distrain for such rent' and the payment of
such rent shall not give the Sub-Tenant the right to continued occupancy of the
premises and the Sub-Landlord may without notice or any form of legal process,
forthwith re-enter upon and retake possession of the said premises and remove
the Sub-Tenant's efforts therefrom. If the Sub-Tenant shall abandon the said
premises or leave them vacant for a period of 10 consecutive days without the
consent of the Sub-Landlord, such consent not to be unreasonably withheld, the
same may relet by the Sub-Landlord for such rent and upon such terms as the said
Sub-Landlord may see fit; and if a sufficient sum shall not be thus realized,
after paying expenses of such reletting and collecting, to satisfy the rent
hereby reserved, the Sub-Tenant agrees to satisfy and pay all deficiencies; and
these covenants are express conditions of this demise. Provided however that
this clause will not relieve the Sub-Landlord of the duty to mitigate its
damage.
[30.1 see rider][preceding bracketed language handwritten and initialed in
original]
[30.1 Notwithstanding the foregoing in paragraphs 29 and 30, the Sub-landlord
shall, prior to taking the actions described in these paragraphs, provide the
Sub-Tenant with written notice of such defaults and shall provide the Sub-Tenant
with thirty days after receipt of such notice to cure a non-monetary default.]
[Rider attached as separate page, which is initialed.]
31. DISTRESS
The Sub-Tenant hereby covenants and agrees with the Sub-Landlord that in
consideration of the premises and of the leasing and letting by the said
Sub-Landlord to the said Sub-Tenant of the demised premises for the term hereby
created, but notwithstanding any law or statute to the contrary, none of the
goods or chattels of the Sub-Tenant at any time during the continuance of the
term hereby created on the demised premises shall be exempt from levy by
distress for
10
rent arrears; and that any claim being made for such exemption by the Sub-Tenant
or on distress being made by the Sub-Landlord, this covenant and agreement may
be pleaded as an estoppel against the said Sub-Tenant and any action brought to
test the right to the levying upon any such goods as are named exempted in any
law of British Columbia, provided further that in the case of removal by the
said Sub-Tenant of the goods and chattels of the Sub-Tenant from the premises,
the Sub-Landlord may follow the same for the purpose of levying by distress for
rent in arrears.
32. SEVERABILITY OF PROVISIONS
If any term or provision of this Sub-Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Sub-Lease, or the applications of such term or provisions to
persons or circumstances other than those to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Sub-lease shall be valid and be enforced to the fullest extent permitted by
law.
33. OVERHOLDING SUB-TENANT
In the event of the Sub-Tenant holding over beyond the term hereby granted with
or without the consent of the Sub-Landlord and without any further written
agreement, the tenancy resulting shall be a monthly tenancy only, at a monthly
rental calculation on the basis of the annual rental as hereinbefore provided,
and subject to termination at the election of the Lessor or the Lessee on one
month's notice in writing, and subject also to the covenants, restrictions and
conditions herein set forth so far as the same are applicable to a tenancy from
month to month, it being understood that the acceptance of rent or additional
rent or any implied condition shall in no way renew this Sub-Lease as a yearly
tenancy.
34. GENERAL COVENANTS
Time shall be of the essence hereof.
Whenever the singular and masculine are used throughout this Sub-Lease they
shall be construed as if the plural and feminine had been used, where the
context shall require, and the text shall be construed as if the necessary
grammatical and terminological changes thereby rendered necessary had been made.
These presents and everything herein contained shall extend to, enure to the
benefit of, and be binding upon the Sub-Landlord, its successors and assigns,
and upon the Sub-Tenant, its heirs, personal representatives, administrators,
successors and assigns.
Any notice to be given to the Sub-Tenant pursuant to the provisions of this
Sub-Lease may be served personally on the Sub-Tenant or by leaving the same at
the demised premises or by sending the same by prepaid Registered Mail in an
envelope addressed to the Sub-Tenant as follows:
SIMBA TECHNOLOGIES INCORPORATED
c/o Calvin Mah, Controller
Suite 400, 885 Dunsmuir Street
Vancouver, B.C. V6C 1N8 [Initialed]
11
Any notice to be given to the Sub-Landlord pursuant to the provisions of this
Sub-Lease may be served personally upon the Sub-Landlord or by sending the same
by prepaid Registered Mail in an envelope addressed to the Sub-Landlord as
follows:
BREWSTER TRANSPORT COMPANY LIMITED
Suite 670, 885 Dunsmuir Street
Vancouver, B.C. V6C 1N5 [Initialed]
Such notice, if sent by mail, shall be deemed to have been served on the
addressee on the third business day following that on which it is mailed in any
Post Office in Canada. The Sub-Tenant and the Sub-Landlord may change their
addresses for service from time to time by notice served as above set out.
35. ACCEPTANCE
The Sub-Tenant, SIMBA TECHNOLOGIES INCORPORATED, does hereby accept this
Sub-Lease of the demised premises to be held by it as tenant and subject to the
conditions, restrictions and covenants above set forth.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
under their respective seals as of the day and year first above written.
BREWSTER TRANSPORT COMPANY LIMITED
Per: /s/ [Illegible]
-----------------------
Per: /s/ [Illegible]
-----------------------
(c/s)
SIMBA TECHNOLOGIES INCORPORATED
Per: /s/ [Illegible]
-------------------------
Per: /s/ [Illegible]
-------------------------
(c/s)
12
SCHEDULE B
(Sub-Landlord's Work)
The Sub-Landlord shall, at its sole expense:
1) construct and finish the demising walls or doors as necessary to adequately
separate the demised premises from the remainder of the 6th Floor premises,
885 Dunsmuir Street, Vancouver, British Columbia, in accordance with the
plan attached to "Offer to Sublease" as Schedule "A", and forming a part
hereof, in a manner consistent with any municipal or other governmental
regulations which may be applicable; and
2. clean, and if necessary, paint the "smoking room" such that it no longer
has an odour.
This is a Lease Amendment Agreement dated for reference September 16, 1997
attached to and forming part of the Lease between:
YONGE WELLINGTON PROPERTY LIMITED, a company duly registered under the laws of
the Province of British Columbia, with an Office in the City of Vancouver, in
the Province of British Columbia, and subsequently assigned to DUNSMUIR & HORNBY
LTD., as of April 24, 1997 (hereinafter called "the Landlord")
Of the First Part
-and-
SIMBA TECHNOLOGIES INCORPORATED corporation pursuant to the laws of the Province
of British Columbia with an office in the City of Vancouver, in the Province of
British Columbia; (hereinafter called "the Tenant")
Of The Second part
WHEREAS by a Lease dated the 3rd day of June, 1996 (hereinafter
referred to as "the Lease"), the Landlord agreed to lease to Simba Technologies
Incorporated, certain premises having an area of 11,139 square feet more or less
on the 4th floor of the Development municipally known as 885 Dunsmuir Street,
Vancouver, British Columbia, which premises are more particularly described in
said Lease.
AND WHEREAS the Tenant has requested that changes be made to the leased
premises and the Lease be amended.
NOW THEREFORE this Lease Amendment Agreement witnesses that in
consideration of the mutual covenants hereinafter contained, the parties hereto
covenant and agree with each other that the said Lease is hereby amended
effective September 16, 1997 as follows:
1) By deleting Section #4 - "Parking" of the Schedule "C" Additional
Covenants of the Lease Agreement, dated the 3rd day of June, 1996.
2) By deleting section 4.00 in its' entirety and inserting the following
section:
4.01.0 "Basic Rent"
The Tenant shall pay to the Landlord as annual rental for the Leased
Premises yearly and every year during the Term, without any deduction,
abatement, set-off or compensation whatsoever, the sum of
Annual Rent Monthly Rent
October 1997 to September 1999 $95,552.00 $7,796.00
October, 1999 to January, 2002 $99,121.56 $8,260.13
to be paid on the first day of each month and every calendar year of the Term.
EXCEPT as hereby expressly modified, and amended, the said Lease is in all
respects ratified and confirmed and the terms, conditions and covenants shall
remain in full force and effect.
WITNESS WHEREOF the parties hereto have executed this Lease Amendment
Agreement, in Vancouver, British Columbia this ___ day of September, 1997.
The Common Seal of
DUNSMUIR & HORNBY LTD.
is affixed hereto
/s/ [Illegible]
---------------
Title Asset Manager
---------------------
Authorized Signatory
Signed, Sealed and Delivered by
SIMBA TECHNOLOGIES INCORPORATED
/s/ [Illegible]
----------------------------
Title /s/ Controller
-----------------------
Authorized Signatory
EX-10.27
10
ex10_27.txt
EXHIBIT 10.27
--------------------------------------------------------------------------------
Crosspoint Atrium
8131 LBJ Freeway
Dallas, Texas 75252
--------------------------------------------------------------------------------
OFFICE LEASE
Between
DALLAS OFFICE PORTFOLIO, L.P.
as Landlord
and
SOFTWARE SPECTRUM CRM, INC.
as Tenant
TABLE OF CONTENTS
Page
Paragraph 1. DEFINITIONS AND BASIC PROVISIONS............................................1
Paragraph 2. GRANTING CLAUSE.............................................................2
Paragraph 3. EARLY OCCUPANCY.............................................................2
Paragraph 4. RENTAL......................................................................2
Paragraph 5. USE.........................................................................2
Paragraph 6. SERVICES TO BE PROVIDED BY LANDLORD.........................................2
Paragraph 7. REPAIR AND MAINTENANCE......................................................3
Paragraph 8. FIRE AND OTHER CASUALTY.....................................................3
Paragraph 9. COMPLIANCE WITH LAWS AND USAGE..............................................4
Paragraph 10. LIABILITY AND INDEMNITY.....................................................4
Paragraph 11. ADDITIONS AND FIXTURES......................................................4
Paragraph 12. ASSIGNMENT AND SUBLETTING...................................................5
Paragraph 13. SUBORDINATION...............................................................6
Paragraph 14. OPERATING EXPENSES..........................................................6
Paragraph 15. EMINENT DOMAIN..............................................................8
Paragraph 16. ACCESS BY LANDLORD..........................................................8
Paragraph 17. LANDLORD'S LIEN.............................................................9
Paragraph 18. DEFAULTS....................................................................9
Paragraph 19. NONWAIVER..................................................................10
Paragraph 20. HOLDING OVER...............................................................10
Paragraph 21. COMMON AREA................................................................11
Paragraph 22. RULES AND REGULATIONS......................................................11
Paragraph 23. TAXES......................................................................11
i
Paragraph 24. INSURANCE..................................................................11
Paragraph 25. PERSONAL LIABILITY.........................................................11
Paragraph 26. NOTICE.....................................................................11
Paragraph 27. LANDLORD'S MORTGAGE........................................................11
Paragraph 28. BROKERAGE..................................................................11
Paragraph 29. PREPAID RENTAL AND SECURITY DEPOSIT........................................12
Paragraph 30. MISCELLANEOUS..............................................................12
Paragraph 31. ENTIRE AGREEMENT AND BINDING EFFECT........................................14
EXHIBIT A LEASED PREMISES
EXHIBIT B LAND
EXHIBIT C RULES AND REGULATIONS
EXHIBIT D PARKING
EXHIBIT E WORK LETTER
ii
OFFICE LEASE AGREEMENT
1. DEFINITIONS AND BASIC PROVISIONS.
A. "Landlord": Dallas Office Portfolio, L.P.,
a Delaware limited partnership
B. Address of Landlord: c/o Transwestern Property Company
9331 LBJ Freeway
Suite 350
Dallas, Texas 75251
With a copy to: Beacon Capital Partners, Inc.
One Federal Street
Boston, MA 02110
Attention: William A. Bonn, Esq. and
Philip J. Brannigan, Jr.
With rent checks Dallas Office Portfolio
payable to: PO Box 891530
Dallas, Texas 75389- 1530
C. "Tenant": SOFTWARE SPECTRUM CRM, INC. d/b/a
SOFTWARE SPECTRUM
D. Address of Tenant: 8131 LBJ Freeway
Suite 310
Dallas, TX 75251
With notices sent to: 2140 Merritt Drive
Garland, TX 75041
Attention: Facilities Director
E. "Building": The structure commonly known as Crosspoint Atrium and which
is located at 8131 LBJ Freeway in the City of Dallas, Dallas, County, Texas, on
the tract of land (the "Land") described by metes and bounds on Exhibit B
attached hereto and made a part hereof for all purposes.
F. "Leased Premises": Approximately 7,877 square feet of rentable area on
the third (3rd) floor of the Building (Suites 310, and 320), as outlined and
hatched on the floor plan attached hereto as Exhibit A and made a part hereof
for all purposes. Landlord and Tenant hereby stipulate that notwithstanding
anything herein to the contrary, the Leased Premises shall be deemed to consist
of 7,877 rentable square feet, and that no shortage or overage in the rentable
square feet of the Leased Premises purported by either party shall be the basis
for changing the number of rentable square feet herein stipulated.
G. "Rentable area in the Project" shall be 227,891 square feet of rentable
area, unless modified as provided herein.
H. "Commencement Date": September 1, 2000 or the date upon which Tenant
occupies the Leased Premises with the prior written consent of Landlord,
whichever shall first occur. Upon request of either party hereto, Landlord and
Tenant agree to execute and deliver a written declaration in recordable form
expressing the Commencement Date hereof.
I. "Term": Commencing on the Commencement Date and ending three years (3)
and zero (0) months after the Commencement Date, plus any partial calendar month
following the Commencement Date, unless sooner terminated as provided herein.
J. "Base Rental" $143,688.96 per year for the first three (3) years of the
Term of this Lease, payable in an equal monthly installment of $11,974.08 each;
[$________ per year for the next _____ (___) years of the Term of this Lease,
payable in equal monthly installments of $____ each; and $_____ per year for the
remainder of the Term of this Lease, payable in equal montly installments of
$______ each;][the preceding language was struck through and initialed] each
such monthly installment shall be due and payable on the first day of each
calendar month, monthly in advance without demand and without setoff or
deduction whatsoever.
K. "Prepaid Rental": $11,974.08, to be applied to the first accruing
monthly installments of rental.
L. "Security Deposit": $11,974.08 (Landlord shall apply Tenant's
outstanding security deposit in the amount of $111,974.08 toward the new
security deposit.).
M. "Permitted Use": The Leased Premises shall be used only for office
purposes.
N. "Common Area": That part of the Building and other improvements now or
hereafter placed, constructed or erected on the land on which the Building is
located (the "Land") designated by Landlord from time to time for the common use
of all tenants, including among other facilities, sidewalks, service corridors,
curbs, truckways, loading areas, private streets and alleys, lighting
facilities, mechanical and electrical rooms, janitors'
1
closets, halls, lobbies, delivery passages, elevators, drinking fountains,
meeting rooms, public toilets, parking areas and garages, decks and other
parking facilities, landscaping and other common rooms and common facilities.
O. "Prime Rate": The rate published as such by The Wall Street Journal,
Southwest Edition, (or its successor or assign) in its listing of "Money Rates".
P. "Broker": Denise Rachal - Transwestern Commercial Services, Landlord's
Agent.
Q. "Base Operating Expenses Rate": The Actual Operating Expenses Rate for
the 2000 calendar year.
Each of the foregoing definitions and basic provisions shall be construed
in conjunction with the references thereto contained in the other provisions of
this Lease and shall be limited by such other provisions. Each reference in this
Lease to any of the foregoing definitions and basic provisions shall be
construed to incorporate each term set forth above under such definition or
provision.
2. GRANTING CLAUSE. Landlord, in consideration of the covenants and
agreements to be performed by Tenant and upon the terms and conditions
hereinafter stated, does hereby lease, demise and let unto Tenant, and Tenant
does hereby lease from Landlord, the Leased Premises specified in Paragraph 1.F.
hereof to have and to hold for the Term of this Lease, as specified in
Paragraph 1.I. hereof.
3. EARLY OCCUPANCY. Intentionally Deleted
4. RENTAL. As rental for the lease and use of the Leased Premises, Tenant
will pay Landlord or Landlord's assigns, at the address of Landlord specified in
Paragraph 1.B hereof, without demand and without deduction, abatement or setoff
(except as otherwise expressly provided for herein in Paragraph 8 hereof and
Paragraph 15 hereof), the Base Rental in the manner specified in Paragraph 1.J.
hereof, in lawful money of the United States. If the Term of this Lease does not
commence on the first day of a calendar month, Tenant shall pay to Landlord in
advance a pro rata part of such sum as rental for such first partial month.
Tenant shall not pay any installment of rental more than one (1) month in
advance. All past due installments of rental or other payment specified herein
shall bear interest at the lesser rate of (i) 15% per annum or (ii) the highest
lawful rate per annum, from the date due until paid.
If Tenant fails to timely pay three (3) consecutive installments of Base
Rental, or other payment specified herein, or any combination thereof, Landlord
may require Tenant to pay (in addition to any interest) Base Rental and other
payments specified herein (as estimated by Landlord, if necessary) quarterly in
advance, for the next 2 quarters. Any amount so estimated by Landlord and paid
by Tenant shall be adjusted promptly after actual figures become available and
paid or credited to Landlord or Tenant, as the case may be.
5. USE. Tenant shall use the Leased Premises solely for the Permitted Use
specified in Paragraph 1.M. hereof and for no other business or purpose without
the prior written consent of Landlord, which consent shall not be unreasonably
delayed. Tenant shall maintain throughout the Term an occupancy ratio within the
Leased Premises of no greater than one person for every 288 rentable square feet
leased ("Density Ratio") or twenty seven (27) people in the Leased Premises at
any given point in time. However, Tenant acknowledges that Tenant's maintenance
of a density ratio greater than one person per 288 rentable square feet in the
Leased Premises may result in Landlord's inability to provide the Building
standard temperature range in the Leased Premises and Landlord shall have no
liability for such inability. If Tenant intends to maintain a density ratio
greater than the Density Ratio set forth above, then Tenant must obtain
Landlord's prior written approval, which consent shall not be unreasonably
withheld or delayed. Landlord will not be deemed to be unreasonable if Landlord
withholds its consent if Landlord determines such greater density ratio will
adversely affect elevator usage, parking, the Building systems or Landlord's
ability to provide services to the Building.
6. SERVICES TO BE PROVIDED BY LANDLORD.
A. Subject to the rules and regulations hereinafter referred to, Landlord
shall furnish Tenant, at Landlord's expense, while Tenant is occupying the
Leased Premises and is not in default hereunder, the following services during
the Term of this Lease:
(1) Air conditioning and heating in season, at such times as Landlord
normally furnishes such services to other tenants in the Building, and at such
temperatures and in such amounts as are considered by Landlord acting
reasonably, to be standard, but such service on Saturday afternoons, Sundays and
holidays to be furnished only upon the request of Tenant, who shall bear the
cost thereof. Tenant acknowledges that such service and temperature may be
subject to change by local, county, state or federal regulation. Whenever
machines or equipment that generate abnormal heat are used in the Leased
Premises which affect the temperature otherwise maintained by the air
conditioning system, Landlord shall have the right to install supplemental air
conditioning in the Leased Premises, and the cost thereof, including the
reasonable cost of installation, operation, use and maintenance, shall be paid
by Tenant to Landlord as additional rental upon demand.
(2) Water at those points of supply provided for general use.
(3) Janitor service in and about the Building, and the Leased Premises, as
may in the judgment of Landlord be reasonably required; however, Tenant shall
pay the additional costs attributable to the cleaning of improvements within the
Leased Premises other than building standard improvements.
(4) Elevators for ingress to and egress from the Building as may in the
judgment of Landlord be reasonably required. Landlord may reasonably limit but
use good faith efforts (except in the case of an emergency) to offer elevator
service via at least 1 elevator at all times the number of elevators in
operation after usual and customary business hours and on Saturday afternoons,
Sundays and legal holidays.
2
(5) Proper facilities to furnish sufficient electrical power for
building standard lighting, personal computers and other machines of
similar low electrical consumption, but not including electricity required
for electronic data processing equipment, special lighting in excess of
building standard, or any other item of electrical equipment which singly
consumes more than 0.25 kilowatts per hour at rated capacity or requires a
voltage other than 120 volts single phase. Tenant shall pay to Landlord,
monthly as billed, such charges as may be separately metered or as
Landlord's engineer may compute for any above-Building standard electrical
service to the Leased Premises. Landlord shall have the right at any time
and from time to time during the Term of this Lease to install equipment
within the Leased Premises for the purpose of measuring or estimating
Tenant's electrical usage therein.
(6) At Tenant's expense and upon Tenant's request, purchase and
install replacement lamps of types generally commercially available
(including, but not limited to, incandescent and fluorescent) used in the
Leased Premises.
B. Subject to paragraph 8 and paragraph 15 below, no interruption or
malfunction of any of such services shall constitute an eviction or
disturbance of Tenant's use and possession of the Leased Premises or the
Building or a breach by Landlord of any of Landlord's obligations hereunder
or render Landlord liable for damages or entitle Tenant to be relieved from
any of Tenant's obligations hereunder (including the obligation to pay
rental) or grant Tenant any right of setoff or recoupment. In the event of
any such interruption, however, Landlord shall use reasonable diligence
during normal business hours to restore such service or cause same to be
restored in any circumstances in which such restoration is within the
reasonable control of Landlord and the interruption was not caused in whole
or in part by Tenant's fault.
7. REPAIR AND MAINTENANCE.
A. Landlord shall, at Landlord's own cost and expense, except as may
be provided elsewhere herein, make necessary repairs of damage to the
Building corridors, lobby, structural members of the Building and equipment
used to provide the services referred to in Paragraph 6 hereof, unless any
such damage is caused in whole or in part by acts or omission of Tenant, or
Tenant's agents, employees or invitees, in which event Tenant shall bear
such portion of the cost of such repairs as is attributable to Tenant's or
Tenant's agents' employees' or invitees' acts or omissions. Tenant shall
promptly give Landlord notice of any damage in the Leased Premises
requiring repair by Landlord, as aforesaid.
B. Tenant shall not in any manner deface or injure the Leased Premises
or the Building but shall maintain the Leased Premises, including, without
limitation, all fixtures installed by Tenant and all plate glass, walls,
carpeting and other floor covering placed or found therein, in a clean, and
attractive, first-class condition and in good repair, except as to damage
required to be repaired by Landlord, as provided in Paragraph 7.A. hereof,
in all cases reasonable wear and tear excepted. Upon the expiration of the
Term of this Lease, Tenant shall surrender and deliver up the Leased
Premises with all improvements located thereon (except as provided in
Paragraph 11.B. hereof) to Landlord broom-clean and in the same condition
in which they existed at the commencement of the Lease, excepting only
ordinary wear and tear and damage arising from any cause not required to be
repaired by Tenant, failing which Landlord may restore the Leased Premises
to such condition, and Tenant shall pay the reasonable cost thereof.
C. This Paragraph 7 shall not apply in the case of damage or
destruction by fire or other casualty which is covered by insurance
maintained by Landlord on the Building (as to which Paragraph 8 hereof
shall apply), or damage resulting from an eminent domain taking (as to
which Paragraph 15 hereof shall apply).
8. FIRE AND OTHER CASUALTY.
A. If at any time during the Term of this Lease, the Leased Premises
or any portion of the Building shall be damaged or destroyed by fire or
other casualty, then Landlord shall have the election to terminate this
Lease or to repair and reconstruct the Leased Premises and the Building to
substantially the same condition in which they existed immediately prior to
such damage or destruction, except that Landlord shall not be required to
rebuild, repair or replace any part of the partitions, fixtures and other
improvements which may have been installed by Tenant or other tenants
within the Building. In the event that the Leased Premises are damaged or
destroyed by fire or other casualty, or a portion of the Building is
damaged or destroyed by fire or other casualty so as to materially impair
the use and occupancy by Tenant of the Leased Premises, then Landlord shall
be obligated to provide written notice (the "Restoration Notice") to Tenant
within sixty (60) days of such event of casualty stating a good faith
estimate, certified by an independent architect, of the period of time (the
"Stated Restoration Period") which shall be required for the repair and
restoration of the Leased Premises and/or the Building. Tenant shall have
the right, at its election, to terminate the Lease if either (i) the Stated
Restoration Period shall be in excess of two hundred forty (240) days
following the event of casualty and Tenant terminates this Lease with
written notice thereof to Landlord within ten (10) business days following
delivery of the Restoration Notice, or (ii) Landlord shall fail to
substantially complete the repair and restoration of the Leased Premises or
the Building within the Stated Restoration Period and Tenant delivers
written notice of such termination to Landlord within ten (10) business
days following the expiration of the restoration deadline.
B. In any of the aforesaid circumstances, rental shall abate
proportionately during the period and to the extent that the Leased
Premises are unfit for use by Tenant in the ordinary conduct of Tenant's
business. If Landlord has elected to repair and restore the Leased
Premises, this Lease shall continue in full force and effect and such
repairs shall be made within a reasonable time thereafter, subject to
delays arising from shortages of labor or material, acts of God, war or
other conditions beyond Landlord's reasonable control. In the event that
this Lease is terminated as herein permitted, Landlord shall refund to
Tenant the prepaid rental (unaccrued as of the date of damage or
destruction) less any sum then owing Landlord by Tenant. If Landlord has
elected to repair and reconstruct the Leased Premises, then the Term of
this Lease shall be extended by a period of time equal to the
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period of such repair and reconstruction not to exceed 120 days. Any
insurance which may be carried by Landlord or Tenant against loss or damage
to the Building or to the Leased Premises shall be for the sole benefit of
the party carrying such insurance under its control, and it is understood
that Landlord shall in no event be obligated to carry insurance on Tenant's
contents.
9. COMPLIANCE WITH LAWS AND USAGE. Tenant, at Tenant's own expense,
(a) shall comply with all federal, state, municipal, fire underwriting and
other laws, ordinances, orders, rules and regulations applicable to
Tenant's occupancy of the Leased Premises and the business conducted
therein by Tenant, (b) shall not engage in any activity which would cause
Landlord's fire and extended coverage insurance to be cancelled or the rate
therefor to be increased (or, at Landlord's option, Tenant shall pay any
such increase to Landlord immediately upon demand as additional rental in
the event of such rate increase by reason of such activity), (c) shall not
commit, and shall cause Tenant's agents, employees and invitees not to
commit, any act which is a nuisance or annoyance to Landlord or to other
tenants, or which might, in the exclusive judgment of Landlord, damage
Landlord's goodwill or reputation, or tend to injure or depreciate the
Building, (d) shall not commit or permit waste in the Leased Premises or
the Building, (e) shall comply with rules and regulations from time to time
promulgated by Landlord applicable to the Leased Premises and/or the
Building and communicated to tenant in writing, (f) shall not paint, erect
or display any sign, advertisement, placard or lettering which is visible
in the corridors or lobby of the Building or from the exterior of the
Building without Landlord's prior written approval, and (g) shall not
occupy or use, or permit any portion of the Leased Premises to be occupied
or used, for any business or purpose other than the Permitted Use specified
in Paragraph 1.M. hereof. If a controversy arises concerning Tenant's
compliance with any federal, state, municipal or other laws, ordinances,
orders, rules or regulations applicable to Tenant's occupancy of the Leased
Premises and the business conducted therein by Tenant, Landlord may retain
consultants of recognized standing to investigate Tenant's compliance.
Landlord consents to Tenant's signage shown on Exhibit F. If it is
determined that Tenant has not complied as required, Tenant shall reimburse
Landlord on demand for all reasonable consulting and other reasonable costs
incurred by Landlord in such investigation. Landlord and Tenant acknowledge
that, in accordance with the provisions of the Americans with Disabilities
Act of 1990 and the Texas Elimination of Architectural Barriers Act, each
as amended from time to time, and all regulations and guidelines issued by
authorized agencies with respect thereto (collectively, the "ADA" and the
"EAB", respectively), responsibility for compliance with the terms and
conditions of Title III of the ADA and the EAB may be allocated as between
Landlord and Tenant. Notwithstanding anything to the contrary contained in
the Lease, Landlord and Tenant agree that the responsibility for compliance
with the ADA and the EAB shall be allocated as follows: (i) Tenant shall be
responsible for compliance with the Provisions of Title III of the ADA and
with the provisions of the EAB with respect to the Leased Premises,
including any restrooms within the Leased Premises, and (ii) Landlord shall
be responsible for compliance with the provisions of Title III of the ADA
and with the provisions of the EAB with respect to the exterior of the
Building, parking areas, sidewalks and walkways, and any and all areas
appurtenant thereto, together with all common areas of the Building not
included within the Leased Premises. The allocation of responsibility for
ADA and EAB compliance between Landlord and Tenant, and the obligations of
Landlord and Tenant established by such allocations, shall supersede any
other provisions of the Lease that may contradict or otherwise differ from
the requirements of this paragraph.
10. LIABILITY AND INDEMNITY.
A. Tenant agrees to indemnify and save Landlord harmless from all
claims (including reasonable costs and expenses of defending against such
claims) arising or alleged to arise from any act or omission of Tenant or
Tenant's agents, employees, invitees or contractors, or arising from any
injury to any person or damage to the property of any person occurring
during the Term of this Lease in or about the Leased Premises. Tenant
agrees to use and occupy the Leased Premises and other facilities of the
Building at Tenant's own risk and hereby releases Landlord, Landlord's
agents or employees, from all claims for any damage or injury to the full
extent permitted by law, except to the extent caused in the gross
negligence or intentional misconduct of Landlord, its agents, officers, or
employees.
B. Tenant waives any and all rights of recovery, claim, action, or
cause of action, against Landlord, its agents, officers, or employees, for
any loss or damage that may occur to the Leased Premises, or any
improvements thereto, or the Project, or any improvements thereto, or any
personal property of such party therein, by reason of fire, the elements,
or any other cause which could be insured against under the terms of
standard fire and extended coverage insurance policies, except to the
extent caused by the gross negligence or intentional misconduct of
Landlord, its agents, officers, or employees, and Tenant covenants that no
insurer shall hold any right of subrogation against Landlord and all such
insurance policies shall be amended or endorsed to reflect such waiver of
subrogation.
C. Tenant, to the extent permitted by law, waives all claims Tenant
may have against Landlord, and against Landlord's agents and employees for
injury to person or damage to or loss of property sustained by Tenant or by
any occupant of the Leased Premises, or by any other person, resulting from
any part of the Building or any equipment or appurtenances becoming out of
repair, or resulting from any accident in or about the Building or
resulting directly or indirectly from any act or neglect of any tenant or
occupant of any part of the Building or of any other person, except to the
extent caused by the gross negligence or intentional misconduct of
Landlord, its agents, officers, or employees. If any damage results from
any act or neglect of Tenant, Landlord may, at Landlord's option, repair
such damage, and Tenant shall thereupon pay to Landlord the total cost of
such repair. All personal property belonging to Tenant or any occupant of
the Leased Premises that is in or on any part of the Building shall be
there at the risk of Tenant or of such other person only, and Landlord,
Landlord's agents and employees shall not be liable for any damage thereto
or for the theft or misappropriation thereof, except to the extent caused
by the gross negligence or intentional misconduct of Landlord, its agents,
officers, or employees, Tenant agrees to indemnify and hold Landlord
harmless from and against any and all loss, cost, claim and liability
(including reasonable attorneys' fees) for injuries to all persons and for
damage to or loss of property occurring in or about the Building, due to
any act or negligence or default under this Lease by Tenant, Tenant's
contractors, agents or employees.
11. ADDITIONS AND FIXTURES.
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A. Tenant will make no alteration, change, improvement, repair,
replacement of physical addition in or to the Leased Premises without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. If such prior written consent of Landlord is granted,
the work in such connection shall be at Tenant's expense but by workmen of
Landlord or by workmen and contractors approved in advance in writing by
Landlord and in a manner and upon terms and conditions and at times
satisfactory to and approved in advance in writing by Landlord, which
consent shall not be unreasonably withheld or delayed. In any instance
where Landlord grants such consent, Landlord may grant such consent
contingent and conditioned upon Tenant's contractors, laborers, material
men and others furnishing labor or materials for Tenant's job working in
harmony and not interfering with any labor utilized by Landlord, Landlord's
contractors or mechanics or by any other tenant or such other tenant's
contractors or mechanics; and if at any time such entry by one (1) or more
persons furnishing labor or materials for Tenant's work shall cause
disharmony or interference for any reason whatsoever without regard to
fault, the consent granted by Landlord to Tenant may be withdrawn at any
time upon written notice to Tenant, however, it shall not be unreasonably
withdrawn.
B. Tenant, if Tenant so elects, may remove Tenant's trade fixtures,
office supplies and movable office furniture and equipment not attached to
the Building provided (i) such removal is made prior to the expiration of
the Term of this Lease, (ii) Tenant is not in default of any obligation or
covenant under this Lease at the time of such removal, and (iii) Tenant
promptly repairs all damage caused by such removal. All other property at
the Leased Premises and any alteration or addition to the Leased Premises
(including wall-to-wall carpeting, paneling or other wall covering) and any
other article attached or affixed to the floor, wall or ceiling of the
Leased Premises shall become the property of Landlord shall be in good
condition, normal wear and tear excepted, and shall remain upon and be
surrendered with the Leased Premises as part thereof at the expiration of
the Term of this Lease, Tenant hereby waiving all rights to any payment or
compensation therefor. If, however, Landlord so requests in writing. Tenant
will, prior to the termination of this Lease, remove in a good and
workmanlike manner any and all alteration, additions, fixtures, equipment
and property places or installed by Tenant in the Leased Premises and will
repair any damage occasioned by such removal; provided, however, that if
Tenant requests in writing at the time Tenant requests Landlord's consent
to the alterations, Landlord will advise Tenant whether Landlord will
require that such be removed from the Leased Premises prior to the
termination of this Lease.
12. ASSIGNMENT AND SUBLETTING.
A. Neither Tenant nor Tenant's legal representatives or successors in
interest by operation of law or otherwise shall assign this Lease or
sublease the Leased Premises or any part thereof or mortgage, pledge or
hypothecate its leasehold interest or grant any concession or license
within the Leased Premises without the prior express written permission of
Landlord which consent shall not be unreasonably withheld or delayed, and
any attempt to do any of the foregoing without the prior express written
permission of Landlord shall be void and of no effect. In the event Tenant
requests Landlord's prior express permission as to any such assignment,
sublease or other transaction, Landlord shall have the right and option, as
of the requested effective date of such assignment, sublease or other
transaction (but no obligation), to cancel and terminate this Lease as to
the portion of the Leased Premises with respect to which Landlord has been
requested to permit such assignment, sublease or other transaction, and if
Landlord elects to cancel and terminate this Lease as to the aforesaid
portion of the Leased Premises, then the rental and other charges payable
hereunder shall thereafter be proportionately reduced. In the event of any
such attempted assignment or attempted sublease, or should Tenant, in any
other nature of transaction, permit or attempt to permit anyone to occupy
the Leased Premises (or any portion thereof) without the prior express
written permission of Landlord, Landlord shall thereupon have the right and
option to cancel and terminate this Lease effective upon ten (10) days'
written notice to Tenant given by Landlord at any time thereafter either as
to the entire Leased Premises or as to only the portion thereof which
Tenant shall have attempted to assign or sublease or otherwise permitted
some other party's occupancy without Landlord's prior express written
permission, and if Landlord elects to cancel and terminate this Lease as to
the aforesaid portion of the Leased Premises, then the rental and other
charges payable hereunder shall thereafter be proportionately reduced. This
prohibition against assignment or subletting shall be construed to include
a prohibition against any assignment or subletting by operation of law.
B. Notwithstanding that the prior express written permission of
Landlord to any of the aforesaid transactions may have been obtained, the
following shall apply:
(1) In the event of an assignment, contemporaneously with the granting
of Landlord's aforesaid consent, Tenant shall cause the assignee to
expressly assume in writing and agree to perform all of the covenants,
duties and obligations of Tenant hereunder, and such assignee shall be
jointly and severally liable therefor along with Tenant; Tenant shall
further cause such assignee to grant Landlord an express first and prior
contract lien and security interest in the manner hereinafter stated as
applicable to Tenant;
(2) In any case where Landlord consents to an assignment, sublease,
grant of a concession or license or mortgage, pledge or hypothecation of
the leasehold, the undersigned Tenant will nevertheless remain directly and
primarily liable for the performance of all of the covenants, duties and
obligations of Tenant hereunder (including, without limitation, the
obligation to pay all rental and other sums herein provided to be paid),
and Landlord shall be permitted to enforce the provisions of this Lease
against the undersigned Tenant and/or any assignee, sublessee,
concessionaire, licensee or other transferee without demand upon or
proceeding in any way against any other person; and
(3) If the rental due and payable by a sublessee under any such
permitted sublease (or a combination of the rental payable under such
sublease plus any bonus or other consideration therefor or incident
thereto) exceeds the hereinabove provided rental payable under this Lease,
or if with respect to a permitted assignment, permitted license or other
transfer by Tenant permitted by Landlord, the consideration payable to
Tenant by the assignee, licensee or other transferee exceeds the rental
payable under this Lease, then Tenant shall be bound and obligated to pay
Landlord 50% of all such excess rental and other excess consideration
within thirty (30) days following receipt thereof by Tenant from such
sublessee, assignee, licensee or other transferee, as the case might be.
(4) In the event Tenant should desire to assign this Lease or sublet
the Premises or any part hereof,
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Tenant shall give Landlord written notice at least thirty (30) days in
advance of the date on which Tenant desires to make such assignment or
sublease, which notice shall specify: (a) the name and business of the
proposed assignee or sublessee, (b) the amount and location of the space
affected, (c) the proposed effective date and duration of the subletting or
assignment, (d) the proposed rental to be paid to Tenant by such sublessee
or assignee, (e) the assignee or sublessee's current financials, and (f)
the actual sublease document. Landlord shall then have a period of fifteen
(15) business days following receipt of such notice within which to notify
Tenant in writing that Landlord elects either: (i) to permit Tenant to
assign or sublet such space, in which event if the proposed rental rate
between Tenant and sublessee is greater than the Rent payable under this
Lease, then such excess rental shall be deemed Additional Rent owed by
Tenant to Landlord under this lease, and the amount of such excess,
including any subsequent increases due to escalation or otherwise, shall be
paid by Tenant to Landlord in the same manner than Tenant pays the Rent
hereunder and in addition thereto, (ii) to withhold consent to Tenant's
assignment or subleasing such space and to continue this Lease in full
force and effort as to the entire Premises, or (iii) to withhold consent to
Tenant's assignment or subleasing such space and to cancel and terminate
this Lease as to the portion of the Premises which Tenant had proposed to
assign or sublease.
C. Consent by Landlord to a particular assignment or sublease or other
transaction shall not be deemed a consent to any other or subsequent
transaction. If this Lease is assigned, or if the Leased Premises are
subleased (whether in whole or in part), or in the event of the mortgage,
pledge or hypothecation of the leasehold interest or grant of any
concession or license within the Leased Premises without the prior express
written permission of Landlord, or if the Leased Premises are occupied in
whole or in part by anyone other than Tenant without the prior express
written permission of Landlord, then Landlord may nevertheless collect
rental and other charges from the assignee, sublessee, mortgagee, pledgee,
party to whom the leasehold interest was hypothecated, concessionaire or
licensee or other occupant and apply the net amount collected to the rental
and other charges payable hereunder, but no such transaction or collection
of rental and other charges or application thereof by Landlord shall be
deemed a waiver of these provisions or a release of Tenant from the further
performance by Tenant of Tenant's covenants, duties and obligations
hereunder.
D. The foregoing provisions of this Paragraph 12 shall not apply to an
assignment of this Lease (including any assignment by operation of law)
that arises as a result of a merger, consolidation or liquidation, or any
change in the ownership of, or power to vote, the majority or controlling
interest of Tenant's outstanding voting stock or any transfer of all of the
assets of the Tenant to Tenant's ultimate parent company or to any entity
that is a wholly-owned subsidiary, either directly or indirectly of
Tenant's ultimate parent company (a "Related Party Assignment"), as long as
the assignee has at least the same or greater net worth as Tenant at the
time of the assignment, the use of the space stays the same, the occupancy
ratio in the space is no denser than of Tenant, and Tenant remains
primarily liable under the terms and conditions of this Lease. Tenant shall
provide Landlord with written notice of any Related Party Assignment.
13. SUBORDINATION. Tenant accepts this Lease subject and subordinate
to any ground lease, mortgage, deed of trust or other lien presently
existing or hereafter placed upon the Leased Premises or upon the Building
or any part thereof, and to any renewals, modifications, extensions and
refinancings thereof, which might now or hereafter constitute a lien upon
the Building or any part thereof, and to zoning ordinances and other
building and fire ordinances and governmental regulations relating to the
use of the Leased Premises, but Tenant agrees that any such ground lessor,
mortgagee and/or beneficiary of any deed of trust or other lien
("Landlord's Mortgagee") and/or Landlord shall have the right at any time
to subordinate such ground lease, mortgage, deed of trust or other lien to
this Lease on such terms and subject to such conditions as such Landlord's
Mortgagee may deem appropriate in its discretion. Upon demand Tenant agrees
to execute such further instruments subordinating this Lease, as Landlord
may reasonably request, and such nondisturbance and attornment agreements,
as any such Landlord's Mortgagee shall reasonably request, in form
reasonably agreeable to Landlord's Mortgagee and Tenant. In the event that
Tenant shall fail to respond to a request to execute any such instrument
within thirty (30) days after requested, Tenant hereby irrevocably
constitutes Landlord as Tenant's attorney-in-fact to execute such
instrument in Tenant's name, place and stead, it being stipulated by
Landlord and Tenant that such agency is coupled with an interest in
Landlord and is, accordingly, irrevocable. Upon foreclosure of the Building
or upon acceptance of a deed in lieu of such foreclosure, Tenant hereby
agrees to attorn to the new owner of such property after such foreclosure
or acceptance of a deed in lieu of foreclosure, if so requested by such new
owner of the Building.
14. OPERATING EXPENSES.
A. For purposes of this Paragraph 14, the following definitions and
calculations shall apply:
(1) The term "Project" shall mean the Building, the parking
facilities, parking garage and other structures, improvements, landscaping,
fixtures, appurtenances and other common areas now and hereafter placed,
constructed or erected on the tract of land which is described on Exhibit
B.
(2) The term "Operating Expenses" shall mean all commercially
reasonable and appropriate expenses, costs and disbursements of every kind
and nature which Landlord shall pay or become obligated to pay because of
or in connection with the ownership, operation, maintenance, repair,
replacement, protection and security of the Project, determined on an
accrual basis in accordance with generally accepted accounting principles,
including, without limitation, the following:
(i) Salaries and wages of all employees engaged in the operation,
maintenance and security of the Project, including taxes, insurance and
benefits (including pension, retirement and fringe benefits) relating
thereto;
(ii) Cost of all supplies and materials used in the operation,
maintenance and security of the Project;
(iii)Cost of all water, power and sewage service supplied to, and all
heating, lighting, air conditioning and ventilating of, the Project, with
the sole exception of electrical energy supplied to tenants
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of the Building at their respective premises which are payable by such
tenants, other than through pass-through provisions similar to this
Paragraph 14;
(iv) Cost of all maintenance and service agreements for the Project
and the equipment therein, including, without limitation, alarm service,
parking facilities, security (both on-site and off-site), janitorial
service, landscaping, fire protection, sprinklers, window cleaning and
elevator maintenance;
(v) Cost of all insurance relating to the Project, including the cost
of casualty, rental and liability insurance applicable to the Project and
Landlord's personal property used in connection therewith;
(vi) All taxes, assessments and governmental charges (foreseen or
unforeseen, general or special, ordinary or extraordinary) whether federal,
state, county or municipal and whether levied by taxing districts or
authorities presently taxing the Project or by others subsequently created
or otherwise, and any other taxes and assessments attributable to the
Project or its operation, and all taxes of whatsoever nature that are
imposed in substitution for or in lieu of any of the taxes, assessments or
other charges herein defined; provided, however, Operating Expenses shall
not include taxes paid by tenants of the Project as a separate charge on
the value of their leasehold improvements, death taxes, excess profits
taxes, franchise taxes and state and federal income taxes and shall not
include penalties and/or interest due to Landlord's failure to timely
remit;
(vii) Cost of repairs and general maintenance, including, without
limitation, reasonable depreciation charges applicable to all equipment
used in repairing and maintaining the Project, but specifically excluding
repairs and general maintenance paid by proceeds of insurance or by Tenant
or by other third parties;
(viii) Cost of capital improvement items, including installation
thereof, which are acquired primarily for the purpose of reducing Operating
Expenses; and
(ix) Reasonable management fees paid by Landlord to third parties or
management companies owned by, or management divisions of, Landlord, not to
exceed the then prevailing market rate for the management of high quality
class A office buildings comparable to the Project.
To the extent that any Operating Expenses are attributable to the
Project and other projects of Landlord, a fair and reasonable allocation of
such Operating Expenses shall be made between the Project and such other
projects.
(3) The term "Base Operating Expenses Rate" is stipulated to be the
rate specified in Paragraph 1.Q, hereof per square foot of rentable area in
the Leased Premises.
(4) The term "Actual Operating Expenses" shall mean, with respect to
each calendar year during the Term of this Lease, the actual Operating
Expenses for such year. The term "Actual Operating Expenses Rate" shall
mean, with respect to each calendar year during the Term of this Lease, the
Actual Operating Expenses attributable to each square foot of rentable area
in the Building, and shall be calculated by dividing the Actual Operating
Expenses by the total number of square feet of rentable area in the
Building, as specified in Paragraph 1.G. hereof. The term "Tenant's
Proportionate Share of Actual Operating Expenses" shall mean, with respect
to each calendar year during the Term of this Lease, an amount equal to the
product of (i) the positive difference (if any) obtained by subtracting the
Base Operating Expenses Rate from the Actual Operating Expenses Rate,
multiplied by (ii) the weighted average number of square feet of rentable
area in the Leased Premises in such year; provided, however, if the Actual
Operating Expenses Rate is determined on the basis of a partial calendar
year, then in making the foregoing calculation, the Base Operating Expenses
Rate shall be multiplied by a fraction, the numerator of which is the
number of days in such partial calendar year and the denominator of which
is 365, and the foregoing weighted average shall be calculated only on the
basis of the portion of such calendar year covered by the Term of this
Lease.
For example, if the Actual Operating Expenses Rate for a calendar year
is $3.20 and the Base Operating Expenses Rate is $3.00, and the Leased
Premises contains 19,000 square feet of rentable area during the entire
calendar year, Tenant's Proportionate Share of Actual Operating Expenses is
$3,800.00, calculated as follows: ($3.20 - $3.00) x 19,000 = $3,800.00.
B. If the Actual Operating Expenses Rate during any calendar year is
greater than the Base Operating Expenses Rate, Tenant shall be obligated to
pay to Landlord as additional rental an amount equal to Tenant's
Proportionate Share of Actual Operating Expenses. To implement the
foregoing, Landlord shall provide to Tenant within ninety (90) days (or as
soon thereafter as reasonably possible) after the end of the calendar year
in which the Commencement Date occurs, a statement of the Actual Operating
Expenses for such calendar year, the Actual Operating Expenses Rate for
such calendar year, and Tenant's Proportionate Share of Actual Operating
Expenses. If the Actual Operating Expenses Rate for such calendar year
exceeds the Base Operating Expenses Rate, Tenant shall pay to Landlord,
within thirty (30) days after Tenant's receipt of such statement, an amount
equal to Tenant's Proportionate Share of Actual Operating Expenses for such
calendar year.
C. Beginning with the Commencement Date of this Lease (or as soon
thereafter as reasonably possible), Landlord shall provide to Tenant a
statement of the projected annual Operating Expenses per square foot of
rentable area in the Project (the "Projected Operating Expenses Rate").
Tenant shall pay to Landlord on the first day of each month an amount (the
"Projected Operating Expenses installment") equal to one-twelfth (1/12) of
the Product of (i) the positive difference (if any) obtained by subtracting
the Base Operating Expenses Rate from the Projected Operating Expenses Rate
for such calendar year, multiplied by (ii) the number of square feet of
rentable area in the Leased Premises on the first day of the prior month.
Until Tenant has received the statement of the Projected Operating Expenses
Rate from Landlord, Tenant shall continue to pay Projected Operating
Expenses installments to Landlord in the same amount (if any) as required
for the last month of the prior calendar year. Upon
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Tenant's receipt of such statement of the Projected Operating Expenses Rate,
Tenant shall pay to Landlord, or Landlord shall pay to Tenant (whichever is
appropriate), the difference between the amount paid by Tenant prior to
receiving such statement and the amount payable by Tenant as set forth in such
statement. Landlord shall provide Tenant a statement within ninety (90) days (or
as soon thereafter as reasonably possible) after the end of each calendar year,
showing the Actual Operating Expenses Rate as compared to the Projected
Operating Expenses Rate for such calendar year. If Tenant's Proportionate Share
of Actual Operating Expenses for such calendar year exceeds the aggregate of the
Projected Operating Expenses Installments collected by Landlord from Tenant,
Tenant shall pay to Landlord, within thirty (30) days following Tenant's receipt
of such statement, the amount of such excess. If Tenant's Proportionate Share of
Actual Operating Expenses for such calendar year is less than the aggregate of
the Projected Operating Expenses Installments collected by Landlord from Tenant,
Landlord shall credit such overpayment to Tenant's next accruing rental
installments, but if the Lease has expired and there are no existing defaults by
Tenant, Landlord shall pay such overpayment to Tenant, within thirty (30) days
following Tenant's receipt of such statement, the amount of such excess.
Landlord shall have the right from time to time during each calendar year to
revise the Projected Operating Expenses Rate and provide Tenant with a revised
statement thereof, and thereafter Tenant shall pay Projected Operating Expenses
Installments on the basis of the revised statement. If the Commencement Date of
this Lease is not the first day of a calendar year, or the expiration or
termination date of this Lease is not the last day of a calendar year, then
Tenant's Proportionate Share of Actual Operating Expenses shall be prorated. The
foregoing adjustment provisions shall survive the expiration or termination of
the Term of this Lease.
D. Notwithstanding any other provision herein to the contrary, it is agreed
that if the Project is not fully occupied during any calendar year an adjustment
shall be made in computing the Actual Operating Expenses for such year so that
the Actual Operating Expenses are computed as though the Project had been fully
occupied during such year.
E. Landlord agrees to keep books and records reflecting the Operating
Expenses of the Project in accordance with generally accepted accounting
principles. Tenant, at its expense, shall have the right, within six (6) months
after receiving Landlord's statement of Actual Operating Expenses for a
particular year, to audit Landlord's books and records relating to the Operating
Expenses for such year if the Actual Operating Expenses Rate exceeds the Base
Operating Expenses Rate; or, at Landlord's sole option, Landlord may provide
such audit prepared by a certified public accountant selected by Landlord. If
conducted by Tenant, such audit shall be conducted only during regular business
hours at Landlord's office and only after Tenant gives Landlord ten (10)
business days written notice. Tenant shall deliver to Landlord a copy of the
results of such audit within fifteen (15) days of its receipt by Tenant. No such
audit shall be conducted if any other tenant has conducted an audit for the time
period Tenant intends to audit and Landlord furnishes to Tenant a copy of the
results of such audit. No audit shall be conducted at any time that Tenant is in
default of any of terms of the lease. No subtenant shall have any right to
conduct an audit and no assignee shall conduct an audit for any period during
which such assignee was not in possession of the Leased Premises. Such audit
must be conducted by an independent nationally recognized accounting firm that
is not being compensated by Tenant on a contingency fee basis. All information
obtained through the Tenant's audit with respect to financial matters
(including, without limitation, costs, expenses, income) and any other matters
pertaining to the Landlord and/or the Project as well as any compromise,
settlement, or adjustment reached between Landlord and Tenant relative to the
results of the audit shall be held in strict confidence by the Tenant and its
officers, agents, and employees; and Tenant shall cause its auditor and any of
its officers, agents, and employees to be similarly bound. As a condition
precedent to Tenant's exercise of its right to audit, Tenant must deliver to
Landlord a signed covenant from the auditor in a form reasonably satisfactory to
Landlord acknowledging that all of the results of such audit as well as any
compromise, settlement, or adjustment reached between Landlord and Tenant shall
be held in strict confidence and shall not be revealed in any manner to any
person except upon the prior written consent of Landlord, which consent may be
withheld in Landlord's sole discretion, or if required pursuant to any
litigation between Landlord and Tenant materially related to the facts disclosed
by such audit, or if required by law. Tenant understands and agrees that this
provision is of material importance to Landlord and that any violation of the
terms of this provision shall result in immediate and irreparable harm to
Landlord. Landlord shall have all rights allowed by law or equity if Tenant, its
officers, agents, or employees and/or the auditor violate the terms of this
provision, including, without limitation, the right to terminate this Lease or
the right to terminate Tenant's right to audit in the future pursuant to this
paragraph. Tenant shall indemnify, defend upon request, and hold Landlord
harmless from and against all costs, damages, claims, liabilities, expenses,
losses, court costs, and attorneys' fees suffered by or claimed against
Landlord, based in whole or in part upon the breach of this paragraph by Tenant
and/or its auditor, and shall cause its auditor to be similarly bound. If within
such six (6) month period Tenant does not give Landlord written notice stating
in reasonable detail any objection to the statement of Actual Operating
Expenses, Tenant shall be deemed to have approved such statement in all
respects.
15. EMINENT DOMAIN. If there shall be taken by exercise of the power of
eminent domain during the Term of this Lease any part of the Leased Premises or
the Building, Landlord may elect to terminate this Lease or to continue same in
effect. If Landlord elects to continue this Lease, the rental shall be reduced
in proportion to the area of the Leased Premises so taken, and Landlord shall
repair any damage to the Leased Premises or the Building resulting from such
taking. All sums awarded or agreed upon between Landlord and the condemning
authority for the taking of the interest of Landlord or Tenant, whether as
damages or as compensation, will be the property of Landlord without prejudice,
however, to claims of Tenant against the condemning authority on account of the
unamortized cost of leasehold improvements paid for by Tenant taken by the
condemning authority. If this Lease should be terminated under any provision of
this Paragraph 15, rental shall be payable up to the date that possession is
taken by the condemning authority, and Landlord will refund to Tenant any
prepaid unaccrued rental less any sum then owing by Tenant to Landlord.
16. ACCESS BY LANDLORD. Landlord, Landlord's agents and employees shall
have access to and the right to enter upon any and all parts of the Leased
Premises at any reasonable time (except in cases of emergency, defined to be any
situation in which Landlord perceives imminent danger of injury to person and/or
damage to or loss of property, in which case Landlord may enter upon any and all
parts of the Leased Premises at any time) to examine the condition thereof, to
clean, to make any repairs, alterations or additions required to be made by
Landlord hereunder, to show the Leased Premises to prospective purchasers or
tenants (only during the final six months of the Term) or mortgage lenders
(prospective or current) and for any other purpose deemed reasonable by
Landlord, and Tenant shall not be entitled to any abatement or reduction of
rental by reason thereof.
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17. LANDLORD'S LIEN. In addition to the statutory landlord's lien, Landlord
shall have at all times a valid security interest to secure payment of all
rentals and other sums of money becoming due hereunder from Tenant, and to
secure payment of any damages or loss which Landlord may suffer by reason of the
breach by Tenant of any covenant, agreement or condition contained herein, upon
all goods, wares, equipment, fixtures, furniture, improvements and other
personal property of Tenant presently, or which may hereafter be, situated in
the Leased Premises, and all proceeds therefrom, and such property shall not be
removed therefrom without the consent of Landlord until all arrearages in rental
as well as any and all other sums of money then due to Landlord hereunder shall
first have been paid and discharged and all the covenants, agreements and
conditions hereof have been fully compiled with and performed by Tenant. Upon
the occurrence of an Event of Default, as set forth in Paragraph 18 hereof by
Tenant, Landlord may, to the extent permitted by law and in addition to any
other remedies provided herein, enter upon the Leased Premises and take
possession of any and all goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Tenant situated in the Leased
Premises, without liability for trespass or conversion, and sell the same at
public or private sale, with or without having such property at the sale, after
giving Tenant reasonable notice of the time and place of any public sale or of
the time after which any private sale is to be made, at which sale Landlord or
Landlord's assigns may purchase unless otherwise prohibited by law. Unless
otherwise provided by law, and without intending to exclude any other manner of
giving Tenant reasonable notice, the requirement of reasonable notice shall be
met if such notice is given in the manner prescribed in this Lease at least ten
(10) days before the time of sale. Any sale made pursuant to the provisions of
this Paragraph 17 shall be deemed to have been a public sale conducted in a
commercially reasonable manner if held in the Leased Premises or where the
property is located after the time, place and method of sale and a general
description of the types of property to be sold have been advertised in a daily
newspaper published in the county in which the Building is located, for rive (5)
consecutive days before the date of the sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorneys' fees) shall
be applied as a credit against the indebtedness secured by the security interest
granted in this Paragraph 17. Any surplus shall he paid to Tenant or as
otherwise required by law; Tenant shall pay any deficiencies forthwith. Upon
request of Landlord, Tenant agrees to execute Uniform Commercial Code financing
statements relating to the aforesaid security interest.
18. DEFAULTS.
A. Each of the following acts or omissions of Tenant or occurrences shall
constitute all "Event of Default":
(1) Failure or refusal by Tenant to timely pay rental or other payments
hereunder.
(2) Failure to perform or observe any covenant or condition of this Lease
by Tenant to be performed or observed upon the expiration of a period of ten
(10) days following written notice to Tenant of such failure.
(3) The filing or execution or occurrence of any one of the following: (i)
a petition in bankruptcy or other insolvency proceeding by or against Tenant,
(ii) petition or answer seeking relief under any provision of the Bankruptcy
Act, (iii) an assignment for the benefit of creditors or composition, (iv) a
petition or other proceeding by or against Tenant for the appointment of a
trustee, receiver or liquidator of Tenant or any of Tenant's property, or (v) a
proceeding by any governmental authority for the dissolution or liquidation of
Tenant.
(4) Tenant shall default under any other lease with Landlord, now existing
or hereafter entered into.
B. This Lease and the Term and estate hereby granted and the demise hereby
made are subject to the limitation that if and whenever any Event of Default
shall occur, Landlord may, at Landlord's option, in addition to all other rights
and remedies given hereunder or by law or equity, do any one (1) or more of the
following without notice or demand, any such notice or demand being hereby
waived:
(1) Terminate this Lease, in which event Tenant shall immediately surrender
possession of the Leased Premises to Landlord.
(2) Enter upon and take possession of the Leased Premises and expel or
remove Tenant and any other occupant therefrom, with or without having
terminated the Lease.
(3) Alter locks and other security devices at the Leased Premises.
C. Exercise by Landlord of any one (1) or more remedies hereunder granted
or otherwise available shall not be deemed to be an acceptance of surrender of
the Leased Premises by Tenant, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant. No such alteration of security devices and no
removal or other exercise of dominion by Landlord over the property of Tenant or
others at the Leased Premises shall be deemed unauthorized or constitute a
conversion, Tenant hereby consenting, after any Event of Default, to the
aforesaid exercise of dominion Over Tenant's property within the Building. All
claims for damages by reason of such re-entry and/or possession and/or
alteration of locks or other security devices are hereby waived, as are all
claims for damages by reason of any distress warrant, forcible detainer
proceedings, sequestration proceedings or other legal process. Tenant agrees
that any re-entry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Landlord may elect, and Landlord shall not be liable in
trespass or otherwise.
D. In the event that Landlord elects to terminate the Lease by reason of an
Event of Default, Landlord may hold Tenant liable for all rental and other
indebtedness accrued to the date of such termination, plus such rental and other
indebtedness as would otherwise have been required to be paid by Tenant to
Landlord during the period following termination of the Term of this Lease
measured from the date of such termination by Landlord until the expiration of
the Term of this Lease (had Landlord not elected to terminate the Lease on
account of such
9
Event of Default) diminished by any not sums thereafter received by Landlord
through reletting the Leased Premises during said period (after deducting
expenses incurred by Landlord as provided in Paragraph 18.F. hereof). Actions to
collect amounts due by Tenant provided for in this paragraph of this Paragraph
18.D, may be brought from time to time by Landlord during the aforesaid period,
on one (1) or more occasions, without the necessity of Landlord's waiting until
the expiration of such period, and in no event shall Tenant be entitled to any
excess of rental (or rental plus other sums) obtained by reletting over and
above the rental provided for in this Lease.
E. In the event that Landlord elects to repossess the Leased Premises
without terminating this Lease, then Tenant shall be liable for and shall pay to
Landlord, at the address specified in Paragraph 1.B. hereof, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the Term of
this Lease until the expiration of the Term of this Lease, diminished by any net
sums thereafter received by Landlord through reletting the Leased Premises
during said period (after deducting expenses incurred by Landlord as provided in
Paragraph 18.F. hereof). In no event shall Tenant be entitled to any excess of
any rental obtained by reletting over and above the rental herein reserved.
Actions to collect amounts due by Tenant as provided in this Paragraph 18.E. may
be brought from time to time, on one (1) or more occasions, without the
necessity of Landlord's waiting until the expiration of the Term of this Lease.
F. In case of an Event of Default, Tenant shall also be liable for and
shall pay to Landlord, at the address specified in Paragraph 1B. hereof, in
addition to any sum provided to be paid above: (i) broker's fees incurred by
Landlord in connection with reletting the whole or any part of the Leased
Premises, (ii) the cost of removing and storing Tenant's or other occupants
property, (iii) the cost of repairing, altering, remodeling or otherwise putting
the Leased Premises into a condition reasonably similar to the condition of the
Premises prior to Tenant's occupancy, and (iv) all reasonable expenses incurred
by Landlord in enforcing Landlord's remedies, including reasonable attorneys'
fees. In such event past due rental and other past due payments shall bear
interest from maturity at the highest lawful rate per annum until paid.
G. Upon termination of Tenant's right to possession of the Premises due to
an Event of Default, Landlord shall use reasonable efforts to relet the
Premises: provided, however, that, Tenant agrees that Landlord has no obligation
to: (i) relet the Premises prior to leasing any other space within the Building;
(ii) relet the Premises (A) at a rental rate or otherwise on terms below market,
as then determined by Landlord in its reasonable discretion; (B) to any entity
not satisfying Landlord's then standard financial credit risk criteria; (C) for
a use (1) not consistent with the Permitted Use, as defined in Paragraph 5 (2)
which would violate then applicable law or any restrictive covenant or other
lease affecting the Building; (3) which would impose a greater burden upon the
Building's parking, HVAC or other facilities; and/or (4) which would involve any
use of Hazardous Materials; (iii) divide the Premises, install new demising
walls or otherwise reconfigure the Premises to make same more marketable; (iv)
pay any leasing or other commissions arising from such reletting, unless Tenant
unconditionally delivers Landlord, in good and sufficient funds, the full amount
thereof in advance; (v) pay, and/or grant any allowance for, tenant finish or
other costs associated with any new lease, even though same may be amortized
over the applicable lease term, unless Tenant unconditionally delivers Landlord,
in good and sufficient funds, the full amount thereof in advance; and/or (vi)
relet the Premises, if to do so, Landlord would be required to alter other
portions of the Building, make ADA-type modifications or otherwise install or
replace any sprinkler, security, safety, HVAC or other Building operating
systems.
H. If Tenant should fail to make any payment or cure any default hereunder
within the time herein permitted, Landlord, without being under any obligation
to do so and without thereby waiving such default, may make such payment and/or
remedy such other default for the account of Tenant (and enter the Leased
Premises for such purpose), and thereupon Tenant shall be obligated to, and
hereby agrees to, pay Landlord, upon demand, all costs, expenses and
disbursements (including reasonable attorneys' fees) incurred by Landlord in
taking such remedial action.
I. In the event of any default by Landlord, Tenant's exclusive remedy shall
be an action for damages (Tenant hereby waiving the benefit of any laws granting
Tenant a lien upon the property of Landlord and/or upon rental due Landlord),
but prior to any such action Tenant will give Landlord written notice specifying
such default with particularity, and Landlord shall thereupon have ten (10) days
(plus such additional reasonable period as may be required in the exercise by
Landlord of due diligence) in which to cure any such default. Unless and until
Landlord fails to so cure any default after such notice, Tenant shall not have
any remedy or cause of action by reason thereof. All obligations of Landlord
hereunder will be construed as covenants, not conditions; and all such
obligations will be binding upon Landlord only during the period of Landlord's
ownership and/or possession of the Building and not thereafter.
The term "Landlord" shall mean only the owner, for the time being, of the
Building, and in the event of the transfer by such owner of its interest in the
Building, such owner shall thereupon be released and discharged from all
covenants and obligations of the Landlord thereafter accruing, but such
covenants and obligations shall be binding during the Term of this Lease upon
each new owner for the duration of such owner's ownership.
19. NONWAIVER. Neither acceptance of rental or other payments by Landlord
nor failure by Landlord to complain of any action, nonaction or default of
Tenant shall constitute a waiver of any of Landlord's rights hereunder. Waiver
by Landlord of any right for any default of Tenant shall not constitute a waiver
of any right for either a subsequent default of the same obligation or any other
default. Receipt by Landlord of Tenant's keys to the Leased Premises shall not
constitute an acceptance of surrender of the Leased Premises.
20. HOLDING OVER. If Tenant should remain in possession of the Leased
Premises after the expiration of the Term of this Lease, without the execution
by Landlord and Tenant of a now lease or an extension of this Lease, then Tenant
shall be deemed to be occupying the Leased Premises as a tenant-at-sufferance,
subject to all the covenants and obligations of this Lease and at a daily rental
of 150% of the per day rental provided for the last month of the Term of this
Lease, computed on the basis of a thirty (30) day month. The inclusion of the
preceding sentence shall not be construed as Landlord's consent for Tenant to
hold over. If any property not belonging to Landlord remains at the Leased
Premises after the expiration of the Term of this Lease, Tenant hereby
authorizes Landlord to make such disposition of such property as Landlord may
desire without liability for compensation or damages to Tenant in the event that
10
such property is the property of Tenant; and in the event that such property is
the property of someone other than Tenant, Tenant agrees to indemnify and hold
Landlord harmless from all suits, actions, liability, loss, damages and expenses
in connection with or incident to any removal, exercise or dominion over and/or
disposition of such property by Landlord.
21. COMMON AREA. The Common Area, as defined in Paragraph 1.N. hereof,
shall be subject to Landlord's sole management and control and shall be operated
and maintained in such manner as Landlord in Landlord's discretion shall
determine. Landlord reserves the right to change from time to time the
dimensions and location of the Common Area, to construct additional stories on
the Building and to place, construct or erect new structures or other
improvements on any part of the Land without the consent of Tenant, Tenant, and
Tenant's employees and invitees shall have the nonexclusive right to use the
Common Area as constituted from time to time, such use to be in common with
Landlord, other tenants of the Building and other persons entitled to use the
same, and subject to such reasonable rules and regulations governing use as
Landlord may from time to time prescribe. Tenant shall not solicit business or
display merchandise within the Common Area, or distribute handbills therein, or
take any action which would interfere with the rights of other persons to use
the Common Area. Landlord may temporarily close any part of the Common Area for
such periods of time as may be necessary to prevent the public from obtaining
prescriptive rights or to make repairs or alterations as long as Tenant has
access at all times to the Leased Premises (except in the case of an emergency).
22. RULES AND REGULATIONS. Tenant, and Tenant's agents, employees and
invitees shall comply fully with all requirements of the rules and regulations
of the Building which are attached hereto as Exhibit C and made a part hereof.
Landlord shall at all times have the right to change such rules and regulations
or to amend or supplement them in such manner as may be deemed advisable for the
safety, care and cleanliness of the Leased Premises and the Building and for
preservation of good order therein, all of which rules and regulations, changes
and amendments shall be forwarded to Tenant and shall be carried out and
observed by Tenant. Tenant shall further be responsible for the compliance with
such rules and regulations by the employees, agents and invitees of Tenant.
23. TAXES. Tenant shall be liable for the timely payment of all taxes
levied or assessed against personal property, furniture or fixtures or equipment
placed by Tenant in the Leased Premises. If any such taxes for which Tenant is
liable are levied or assessed against Landlord or Landlord's property and if
Landlord elects to pay the same, or if the assessed value of Landlord's property
is increased by inclusion of personal property, furniture or fixtures or
equipment placed by Tenant in the Leased Premises, and Landlord elects to pay
the taxes based an such increase, Tenant shall pay to Landlord upon demand that
part of such taxes for which Tenant is liable hereunder.
24. INSURANCE. Tenant shall, at Tenant's expense, procure and maintain
throughout the Term of this Lease a policy or policies of commercial general
liability insurance (including contractual liability) and property damage
insurance, issued by insurers of recognized responsibility, authorized to do
business in the State in which the Building is located, insuring Tenant and
Landlord against any and all liability for injury to or death of a person or
persons, occasioned by or arising out of or in connection with the use or
occupancy of the Leased Premises, the limits of such policy or policies to be in
an amount of not less than $2,000,000 combined single limit with respect to any
one (1) occurrence, and shall furnish evidence satisfactory to Landlord of the
maintenance of such insurance. Tenant shall obtain a written obligation on the
part of each insurer to notify Landlord at least fifteen (15) days prior to
modification or cancellation of such insurance. In the event Tenant shall not
have delivered to Landlord a policy or certificate evidencing such insurance at
least fifteen (15) days prior to the Commencement Date and at least fifteen (15)
days prior to the expiration dates of each expiring policy, Landlord may obtain
such insurance as Landlord may reasonably require to protect Landlord's
interest. The cost for such policies shall be paid by Tenant to Landlord as
additional rental upon demand plus an administrative charge as determined by
Landlord.
25. PERSONAL LIABILITY. The liability of Landlord to Tenant for any default
by Landlord under the terms of this Lease shall be limited to the proceeds of
sale on execution of the interest of Landlord in the Building and in the Land,
and neither Landlord, nor any party comprising Landlord, shall be personally
liable for any deficiency. This clause shall not be deemed to limit or deny any
remedies which Tenant may have in the event of default by Landlord hereunder
which do not involve the personal liability of Landlord.
26. NOTICE. Any notice which may or shall be given under the terms of this
Lease shall be in writing and shall be either delivered by hand (including
commercially recognized messenger and express mail service) or sent by United
States Mail, registered or certified, return receipt requested, postage prepaid,
if for Landlord, to the Building office and at the address specified in
Paragraph 1.B, hereof, or if for Tenant, to the Leased Premises or, if prior to
the Commencement Date, at the address specified in Paragraph 1.D. hereof, or at
such other addresses as either party may have theretofore specified by written
notice delivered in accordance herewith. Such address may be changed from time
to time by either party by giving notice as provided herein, Notice shall be
deemed given when delivered (if delivered by hand) or, whether actually received
or not, when postmarked (if sent by mail). If the term "Tenant" as used in [his
Lease refers to more than one (1) person and/or entity, and notice given as
aforesaid to any one of such persons and/or entities shall he deemed to have
been duly given to Tenant.
27. LANDLORD'S MORTGAGE. If Landlord has provided Tenant written notice
that the Building and/or Leased Premises are at any time subject to a ground
lease, mortgage, deed of trust or other lien, then in any instance in which
Tenant gives notice to Landlord alleging default by Landlord hereunder, Tenant
will also simultaneously give a copy of such notice to each Landlord's Mortgagee
(provided Landlord or Landlord's Mortgagee shall have advised Tenant in writing
of the name and address of Landlord's Mortgagee) and each Landlord's Mortgagee
shall have the right (but no obligation) to cure or remedy such default during
the period that is permitted to Landlord hereunder, plus an additional period of
ten (10) days, then Tenant will accept such curative or remedial action (if any)
taken by Landlord's Mortgagee with the same effect as if such action had been
taken by Landlord.
28. BROKERAGE. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction and that no
broker, agent or other person acting on behalf of Tenant brought about this
transaction, other than Broker specified in Paragraph 1.P. hereof, and Tenant
agrees to indemnify and hold Landlord harmless from and against any claims by
any other broker, agent or other person claiming a commission or
11
other form of compensation by virtue of having dealt with Tenant with regard to
this leasing transaction, The provisions of this Paragraph 28 shall survive the
termination of this Lease.
29. PREPAID RENTAL AND SECURITY DEPOSIT. Landlord hereby acknowledges
receipt from Tenant of the sum stated in Paragraph 1.K. hereof to be applied to
the first accruing monthly installments of rental. Landlord further acknowledges
receipt from Tenant of a Security Deposit in the amount stated in Paragraph 1.L.
hereof to be held by Landlord as security for the performance by Tenant of
Tenant's covenants and obligations under this Lease, it being expressly
understood that such deposit shall not be considered an advance payment of
rental or a measure of Landlord's damages in case of default by Tenant. The
Security Deposit shall be held by Landlord without liability to Tenant for
interest, and Landlord may commingle such deposit with any other funds held by
Landlord. If Tenant should be late in the making of any payment of rental or
other sum due under this Lease, Tenant agrees that, upon request of Landlord,
Tenant will increase forthwith the amount of the Security Deposit to a sum
double the existing amount thereof. Upon the occurrence of any Event of Default,
Landlord may, from time to time, without prejudice to any other remedy, use such
fund to the extent necessary to make good any arrears of rental and any other
damage, injury, expense or liability caused to Landlord by such Event of
Default. Following any such application of the Security Deposit, Tenant shall
pay to Landlord on demand the amount so applied in order to restore the Security
Deposit to the amount thereof immediately prior to such application. If Tenant
is not then in default hereunder, any remaining balance of such deposit shall be
returned by Landlord to Tenant upon termination of this Lease; provided,
however, Landlord shall have the right to retain and expend such remaining
balance for cleaning and repairing the Leased Premises if Tenant shall fail to
deliver up the same at the expiration or earlier termination of this Lease in
the condition required by the provisions of this Lease. If Landlord transfers
Landlord's interest in the Leased Premises during the Term or this Lease
(including any renewal thereof), Landlord may assign the Security Deposit to the
transferee and thereafter shall have no further liability for the, return of the
Security Deposit.
30. MISCELLANEOUS.
A. Provided Tenant complies with Tenant's covenants, duties and obligations
hereunder, Tenant shall quietly have, hold and enjoy the Leased Premises subject
to the terms and provisions of this Lease without hindrance from Landlord or any
person or entity claiming by, through or under Landlord.
B. In any circumstance where Landlord is permitted to enter upon the Leased
Premises during the Term of this Lease, whether for the purpose of curing any
default of Tenant, repairing damage resulting from fire or other casualty or an
eminent domain taking or is otherwise permitted hereunder or by law to go upon
the Leased Premises, no such entry shall constitute an eviction or disturbance
of Tenant's use and possession of the Leased Premises or a breach by Landlord of
any of Landlord's obligations hereunder or render Landlord liable for damages
for loss of business or otherwise or entitle Tenant to be relieved from any of
Tenant's obligations hereunder or grant Tenant any right of setoff or recoupment
or other remedy; and in connection with any such entry incident to performance
of repairs, replacements, maintenance or construction, all of the aforesaid
provisions shall be applicable notwithstanding that Landlord may elect to take
building materials in, to or upon the Leased Premises that may be required or
utilized in connection with such entry by Landlord.
C. Landlord may restrain or enjoin any breach or threatened breach of any
covenant, duty or obligation of Tenant herein contained without the necessity of
proving the inadequacy of any legal remedy or irreparable harm. The remedies of
Landlord hereunder shall be deemed cumulative, and no remedy of Landlord,
whether exercised by Landlord or not, shall be deemed to be in exclusion of any
other. Except as may be otherwise herein expressly provided, in all
circumstances under this Lease where prior consent or permission of one (1)
party ("first party") is required before the other party ("second party") is
authorized to take any particular type of action, the matter of whether to grant
such consent or permission shall be within the sole and exclusive judgment and
discretion of the first party; and it shall not constitute any nature of breach
by the first party hereunder or any defense to the performance of any covenant,
duty or obligation of the second party hereunder that the first party delayed or
withhold the granting of such consent or permission, whether or not the delay or
withholding of such consent or permission was prudent or reasonable or based on
good cause.
D. In all instances where Tenant is required to pay any sum or do any act
at a particular indicated time or within an indicated period, it is understood
that time is of the essence.
E. The obligation of Tenant to pay all rental and other sums hereunder
provided to be paid by Tenant and the obligation of Tenant to perform Tenant's
other covenants and duties hereunder constitute independent, unconditional
obligations to be performed at all times provided for hereunder, save and except
only when an abatement thereof or reduction therein is hereinabove expressly
provided for and not otherwise. Tenant waives and relinquishes all rights which
Tenant might have to claim any nature of lien against or withhold, or deduct
from or offset against any rental and other sums provided hereunder to be paid
Landlord by Tenant, Tenant waives and relinquishes any right to assert, either
as a claim or as a defense, that Landlord is bound to perform or is liable for
the nonperformance of any implied covenant or implied duty of Landlord not
expressly herein set forth.
F. Under no circumstances whatsoever shall Landlord ever be liable
hereunder for consequential damages or special damages.
G. Landlord retains the exclusive right to create any additional
improvements to structural and/or mechanical systems, interior and exterior
walls and/or glass, which Landlord deems necessary without the prior consent of
Tenant.
H. All monetary obligations of Landlord and Tenant (including, without
limitation, any monetary obligation of Landlord or Tenant for damages for any
breach of the respective covenants, duties or obligations of Landlord or Tenant
hereunder) are performable exclusively in the county in which the Building is
located.
I. The laws of the State in which the Building is located shall govern the
interpretation, validity, performance and enforcement of this Lease.
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J. If any clause or provision of this Lease is or becomes illegal, invalid,
or unenforceable because of present or future laws or any rule or regulation of
any governmental body or entity, effective during the Term of this Lease, the
intention of the parties hereto is that the remaining parts of this Lease shall
not be affected thereby.
K. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other an any matters whatsoever arising out, of or in any way
connected with this Lease, the relationship of landlord and tenant, Tenant's use
or occupancy of the Leased Premises, and any emergency statutory or any other
statutory remedy.
L. Landlord expressly reserves the right, at Landlord's sole cost and
expense, to remove Tenant from the Leased Premises and to relocate Tenant in
some other space (the "New Premises") of Landlord's choosing of approximately
the same dimensions and size within the Building or any other office building
now or hereafter placed, constructed or erected an the tract of land which is
described on Exhibit B, which other space shall be decorated by Landlord at
Landlord's sole cost and expense. Landlord shall have the right, in Landlord's
sole discretion, to use such decorations and materials from the Leased Premises,
or other materials, so that the New Premises shall be comparable in its interior
design and decoration to the Leased Premises; provided, however, that if
Landlord exercises Landlord's election to remove and relocate Tenant in the New
Premises, which is at that time leasing for a higher rate of Base Rental, then
Tenant shall not be required to pay the difference between the Base Rental of
the Leased Premises and the higher Base Rental of the New Premises. Nothing
herein contained shall be construed to relieve Tenant, or imply that Tenant is
relieved, of the liability for or obligation to pay any additional rental due by
reason of any of the other provisions of this Lease, which provisions shall be
applied to the New Premises. Tenant agrees that Landlord's exercise of
Landlord's election to remove and relocate Tenant shall not terminate this Lease
or release Tenant, in whole or in part, from Tenant's obligation to pay the
rental and perform the covenants and agreements hereunder for the full Term of
this Lease. In the event of any such relocation, this Lease shall continue in
full force and effect with no change in the terms, covenants or conditions
hereof other than the substitution of the New Premises for the Leased Premises
specified in Paragraph 1.F. hereof. Upon request from Landlord, Tenant shall
execute an amendment to this Lease reflecting the aforesaid change.
M. No receipt of money by Landlord from Tenant after the expiration of the
Term of this Lease, or after the service of any notice, or after the
commencement of any suit, or after final judgment for possession of the Leased
Premises, shall reinstate, continue or extend the Term of this Lease or affect
any such notice, demand or suit or imply consent for any action for which
Landlord's consent is required.
N. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The headings of the
Paragraphs of this Lease have been inserted for convenience only and are not to
be considered in any way in the construction or interpretation of this Lease.
O. Tenant agrees that Tenant shall from time to time upon request by
Landlord and/or Landlord's Mortgagee execute and deliver to Landlord a statement
in recordable form certifying (i) that the Lease is unmodified and in full force
and effect (or, it there have been modifications, that the same is in full force
and effect as so modified), (ii) the dates to which rental and other charges
payable under this Lease have been paid, and (iii) that Landlord is not in
default hereunder (or, if Landlord is in default, specifying the nature of such
default). Tenant further agrees that Tenant shall from time to time upon request
by Landlord execute and deliver to Landlord an instrument in recordable form
acknowledging Tenant's receipt of any notice of assignment of this Lease by
Landlord.
P. In no event shall Tenant have the right to create or permit there to be
established any lien or encumbrance of any nature against the Leased Premises or
the Building for any improvement or improvements by Tenant, and Tenant shall
fully pay the cost of any improvement or improvements made or contracted for by
Tenant. Any mechanic's lien filed against the Leased Premises or the Building
for work claimed to have been done, or materials claimed to have been furnished
to Tenant, shall be duly discharged by Tenant within ten (10) days after the
filing of the lien.
Q. Whenever a period of time is herein prescribed for action to be taken by
Landlord, Landlord shall not be liable or responsible for, and there shall be
excluded from the computation for any such period of time, any delays due to
strikes, riots, acts of God, shortages of labor or materials, war, governmental
laws, regulations or restrictions, or any other causes of any kind whatsoever
which are beyond the reasonable control of Landlord.
R. This Lease shall not be recorded by either party without the consent of
the other.
S. Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent, or of partnership or of joint venture between the parties hereto, it
being understood and agreed that neither the method of the computation of
rental, nor any other provision contained herein, nor any acts of the parties
hereto, shall be deemed to create any relationship between the parties hereto
other than the relationship of landlord and tenant.
T. Whenever it is provided herein that a monetary sum shall be due to
Landlord together with interest at the highest lawful rate, if at such time
there shall be no highest rate prescribed by applicable law, interest shall be
due at the rate of two percent (2%) in excess of Prime Rate as defined in
Paragraph 1.0. hereof.
U. Tenant acknowledges that Landlord's agents and employees have made no
representations or promises with respect to the Leased Premises or the Building
except as herein expressly set forth, and Tenant further acknowledges that no
rights, easements or licenses are acquired by Tenant by implication or
otherwise, except as herein expressly set forth.
V. Tenant warrants that Tenant is, and shall remain throughout the Term of
this Lease, authorized to do business and in good standing in the State in which
the Building is located, Tenant agrees, upon request by Landlord, to furnish
Landlord satisfactory evidence of Tenant's authority for entering into this
Lease.
13
W. In case it should be necessary or proper for Landlord to bring any
action under this Lease (including specifically, without limitation, for the
review of instruments evidencing a proposed assignment, subletting or other
transfer by Tenant submitted to Landlord for consent) or the enforcement of any
of Landlord's rights hereunder and if the Landlord prevails in such action,
Tenant agrees to pay to Landlord reasonable attorneys' fees.
X. In the event Tenant requests from Landlord the written consent of
Landlord to any proposed assignment of the Lease or subletting of the Leased
Premises or alterations to the Leased Premises, Landlord may require the payment
of reasonable attorney's fees and other out-of-pocket third party expenses to
the extent incurred by Landlord in processing such request, regardless of
whether such consent is granted. Such fee shall be payable by Tenant at the time
such request is made by Tenant.
Y. Submission of this Lease for examination does not constitute an offer,
right of first refusal, reservation of, or option for, the Leased Premises or
any other premises in the Building. This Lease shall become effective only upon
execution and delivery by both Landlord and Tenant.
Z. If Tenant is composed of more than one (1) person or entity, each person
and/or entity comprising Tenant shall be jointly and severally liable for the
performance of the obligations of Tenant under this Lease, including
specifically, without limitation, the payment of rental and all other sums
payable hereunder.
AA. Landlord shall have the right at any time to change the name or street
address of the Building and to install and maintain a sign or signs on the
interior or exterior of the Building.
BB. Any charges against Tenant by Landlord for services or for work done on
the Leased Premises by order of Tenant, or otherwise accruing under this Lease,
shall be considered as rental due and shall be included in any lien for rental.
CC. Tenant has no right to protest the real estate tax rate assessed
against the Project and/or the appraised value of the Project determined by any
appraisal review board or other taxing entity with authority to determine tax
rates and/or appraised values (each a "Taxing Authority"). Tenant hereby
knowingly, voluntarily and intentionally waives and releases any right, whether
created by law or otherwise, to (a) file or otherwise protest before any Taxing
Authority any such rate or value determination even though Landlord may elect
not to file any such protest., (b) receive, or otherwise require Landlord to
deliver, a copy of any reappraisal notice received by Landlord from any Taxing
Authority; and (c) appeal any order of a Taxing Authority which determines any
such protest. The foregoing waiver and release covers and includes any and all
rights, remedies and recourse of Tenant, now or at any time hereafter, under
Section 41.413 and Section 42.015 of the Texas Tax Code (as currently enacted or
hereafter modified) together with any other or further laws, rules or
regulations covering the subject matter thereof, Tenant acknowledges and agrees
that the foregoing waiver and release was bargained for by Landlord and Landlord
would not have agreed to enter into this Lease in the absence of this waiver and
release.
DD. The parties acknowledge that the parties and their counsel have
reviewed and revised this Lease and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party shall
not be employed in the interpretation of this Lease or any exhibits or
amendments hereto.
31. ENTIRE AGREEMENT AND BINDING EFFECT. This Lease and any contemporaneous
workletter, addenda or exhibits signed by the parties constitute the entire
agreement between Landlord and Tenant; no prior written or prior contemporaneous
oral promises or representations shall be binding. This Lease shall not be
amended, changed or extended except by written instrument signed by both parties
hereto. The provisions of this Lease shall be binding upon and inure to the
benefit of the heirs, personal representatives, successors and assigns of the
parties, but this provision shall in no way alter the restriction herein in
connection with assignment, subletting and other transfer by Tenant.
14
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, on the date specified below.
LANDLORD:
DALLAS OFFICE PORTFOLIO, L.P.,
a Delaware limited partnership
By: Suburban Dallas Office Portfolio, LLC,
a Delaware limited liability company, its
sole general partner
By: Beacon Capital Partners, L.P., a Delaware
limited partnership, its sole member
By: Beacon Capital Partners, Inc.,a Maryland
corporation, its sole general partner
Date Signed: 9/1/00 By: /s/ Philip J. Brannigan
------ -----------------------
Name: Philip J. Brannigan, Jr.
------------------------
Title: Vice President
----------------------
TENANT:
SOFTWARE SPECTRUM CRM, INC. d/b/a SOFTWARE
SPECTRUM
-------------------------------------------
Date Signed:August 30, 2000 By: /s/ Robert D. Graham
--------------- --------------------
Name: Robert D. Graham
----------------
Title: Vice President
----------------
Hereto Duly Authorized
15
Addendum to Lease
By and Between
Dallas Office Portfolio, L.P. (Landlord)
And
Software Spectrum CRM, Inc., d/b/a Software Spectrum (Tenant)
1. Cancellation
Option: Provided Tenant is not or has not been in default under any
of the terms and conditions of the lease, has not sublet or
assigned all or any portion of the Premises, then Tenant
shall have a one-time right to terminate the lease as of
close of business August 31, 2002. This option to Terminate
is subject to Tenant delivering written notice
("Cancellation Notice") to Landlord Of its intent to
terminate no later than January 31, 2002, and with said
Cancellation Notice delivering to Landlord (1) a certified
check equal to all unamortized costs [i.e. which up front
costs included, upon the date of execution of this lease,
only brokerage/leasing commissions), all amortized at a cost
of funds equal to 12%, and (2) a penalty payment, in the
form of a certified check, equal to 3 months of Base Rental,
(Collectively referred to as the "Termination Penalty"). The
full amount of the Termination Penalty shall not exceed
$43,122.24 ($7,200 in unamortized brokerage/leasing
commissions and $35,922.24 for 3 months of Base Rental),
unless Tenant should request and Landlord should agree, to
absorb any additional costs associated with this Lease, in
which case, the Termination Penalty shall be adjusted to
reflect that unamortized portion of the additional
cost/costs all amortized at a cost of funds equal to 12%
("Additional Termination Penalty"). The Additional
Termination Penalty shall then be added to the Termination
Penalty and the sum of the two shall then be required in
full as payment, such payment shall be made in the form of a
certified check at the time the Cancellation Notice is
submitted by Tenant to Landlord.
2. Right of
First Offer: Subject to prior rights of first refusal or rights of first
offer, renewal options, or current occupant's desire to
renew, and as long as Tenant is not or has not been in
default tinder the lease, and has not subleased or assigned
all or any portion of the Leased Premises, then Tenant shall
have a one-time Right of First Offer to lease Suite 350,
2,070rsf ("First Offer Space"), as shown on Exhibit G
attached hereto, if it should become available during the
first 12 months of Tenant's term, under the following term
and conditions:
1) Tenant must agree to lease the space at Landlord's then
terms and condition but in no case less than the base rental
Tenant is contracted to pay;
2) Landlord shall give Tenant the Right of First Offer
notice ("Refusal Notice") and Tenant shall then have 3
business days ("Option Acceptance Period") in which to
accept or reject said offer;
3) if Tenant should reject Landlord's offer or does not
respond within Option Acceptance Period, then Tenant's Right
of First Offer shall become null and void;
4) if Tenant accepts said offer, Tenant must execute a lease
modification covering such space within seven (7) days of
receipt of related paperwork from Landlord under the terms
and conditions specified in the Refusal Notice or Landlord
will be free to market the First Offer Space to other
prospective tenants.
Exhibit A
[Diagram of Leased Premises]
Exhibit B
Legal Description of Land
Being a tract of land located in the city and county of Dallas, Texas, and being
all of Lot 9-C, Dallas City Black E/7756, of the Revision of Final Plat of
Gateway Center, an Addition to the City of Dallas, Texas, according to the plat
thereof as recorded in Volume 82061, Page 1291, Deed Records, Dallas County,
Texas, same being part of that certain tract conveyed to Trevor Wm. Rees-Jones,
Trustee, for the benefit of Phoenix Mutual Life insurance company by deed
recorded in Volume 89217, Page 3618, Deed Records, Dallas County, Texas, and
being wore particularly described as follows:
BEGINNING at a cross cut in a Texas Highway Department bronzed disc concrete
monument found at the Southeast corner of said Lot 9-C in the North right of way
line of interstate Highway 635 (LBJ Freeway), said corner also being the
Southwest corner of a tract conveyed to Sunrise Enterprises by deed recorded in
Volume 92246, Page 3753, Deed Records, Dallas County, Texas;
THENCE, with said North line of interstate Highway 635, the following
courses and distances:
South 58 degrees 24 minutes 04 seconds West, 150.35 feet to a concrete
nail found for corner;
South 63 degrees 56 minutes 04 seconds West, 150.14 feet to a capped
iron rod found for corner;
South 76 degrees 17 minutes 32 seconds West, 99.23 feet to an "x" cut
found for corner;
South 82 degrees 50 minutes 53 seconds West, 91.10 feet to a concrete
nail found for corner at the southwest corner of the abovementioned
Lot 9-C and most southerly Southeast corner of Lot 9-B of the
aforementioned Gateway Center Addition;
THENCE North 08 degrees 09 minutes 19 seconds West, departing said North line of
Interstate Highway 635 and along the dividing line between said Lots 9-C and
9-B, a distance of 79.22 feet to a p.k. nail set for corner;
THENCE North 21 degrees 52 minutes 06 seconds West, continuing along said lot
line, a distance of 217.56 feet to a p.k. nail set for corner;
THENCE North 68 degrees 07 minutes 54 seconds East, continuing along said lot
line, a distance of 280.00 feet to a p.k nail set for corner;
THENCE North 21 degrees 52 minutes 06 Seconds West, continuing along said lot
line, a distance of 241.00 feet to an "x" cut set for corner in the South line
of Emily Road (60 foot R.O.W.).
THENCE North 61 degrees 00 minutes 31 Seconds East, along the said South line of
Emily Road, a distance of 47.37 feet to a 3/4 inch iron pipe found for corner at
the Northwest corner of the aforementioned Sunrise Enterprises tract;
THENCE South 21 degrees 52 minutes 06 seconds East, departing said South line
and along the common line between the aforementioned Lot 9-C and said tract, a
distance of 343.83 feet to a concrete nail found for corner;
THENCE Northeasterly, along said common line, as follows:
North 64 degrees 45 minutes 39 seconds East, a distance of 61.81 feet
to a 3/4 inch iron pipe found for corner;
North 47 degrees 37 minutes 44 seconds East, a distance of 51.83 feet
to a 1/2 inch iron rod found for corner at a reentrant corner of said
Sunrise Enterprises tract;
THENCE South 27 degrees 06 minutes 00 seconds East, along the common
line between said Lot 9-C and said tract, a distance of 221.90 feet to
the POINT OF BEGINNING and containing 146,447 square feet or 3.3620
acres of land, more or less.
Parcels 2 and 3:
Lot 9-B, Block E/7756 of Revision of Final plat of Gateway Centre, an
addition to the City of Dallas, Dallas County, Texas, according to the
plat thereof recorded in Volume 82061, Page 1291, Map Records, Dallas
County, Texas.
Exhibit C
RULES AND REGULATIONS
1. Except as specifically provided for in this Lease, no sign, placard,
picture, advertisement, name or notice will be inscribed, displayed or
printed or affixed on or to any part of the outside or inside of the
Building or the Leased Premises without the written consent of Landlord
first having been obtained which consent if such material is not visible
from the exterior of the Premises shall not be unreasonably withhold or
delayed.
2. Any directory of the Building provided by Landlord will be exclusively for
the display of the name and location of tenants in the Building, and
Landlord reserves the right to exclude any other names therefrom and may
limit the number of listings per tenant. Tenant will pay Landlord's
standard charge for Tenant's listing thereon and for any changes by Tenant.
3. Tenant will not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the Leased Premises. No awnings or other projections will be
attached to the outside walls and root of the Building without prior
written consent of Landlord. No curtains, blinds, shades or screens will be
attached to or hung in or used in connection with any window or door of the
Leased Premises without the prior consent of Landlord.
4. "Normal Business Hours" for purposes of Landlord's obligation to provide
air conditioning (both heating and cooling) will mean 7:00 a.m. to 6:00
p.m. Monday through Friday and 8:00 a.m. to 1:00 p.m. on Saturday except
for the following holidays: Now Years Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving and
Christmas.
5. The Leased Premises will not be used for the manufacturing or storage of
merchandise except as such storage may be incidental to the use of the
Leased Premises for the purposes permitted in this Lease. The Leased
Premises will not be used for lodging or sleeping, or for any illegal
purposes.
6. The sidewalks, halls, passages, exits, entrances, elevators and stairways
will not be obstructed by any of the tenants or be used by them for any
purpose other than for ingress to and egress from their respective leased
premises. The halls, passages, exits, entrances, elevators, stairways,
terraces and roof are not for the use of the general public, and Landlord
will in all cases retain the right to control and prevent access thereto by
all persons whose presence, in the reasonable judgment of Landlord, will be
prejudicial to the safety, character, reputation and interest of the
Building and its tenants, provided that nothing herein contained will be
construed to prevent such access to persons with whom Tenant normally deals
in the ordinary course of business, unless such persons are engaged in
illegal activities. No tenant and no employee or invitee of any tenant will
go upon the roof of the Building.
7. Except as expressly permitted in writing by Landlord, no additional locks
or bolts of any kind will be placed upon any of the doors or windows by
Tenant, nor will any changes be made to existing locks or the mechanisms
thereof. Landlord will furnish two (2) keys for each lock it installs on
the Leased Premises without charge to Tenant. Landlord will make a
reasonable charge for any additional keys requested by Tenant, and Tenant
will not duplicate or obtain keys from any other source. Tenant will upon
the termination of the Term of this Lease return to Landlord all keys so
issued, The Tenant will bear the cost for the replacing or changing of any
lock or locks due to any keys issued to Tenant being lost.
8. The toilets and wash basins and other plumbing fixtures will not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags or foreign substances will be thrown therein.
9. No furniture, freight or equipment of any Kind will be brought into the
Building without the consent of Landlord, and all moving of the same into
or out of the Building will be done at such time and in such manner as
Landlord will designate. No furniture, packages, supplies, equipment or
merchandise will be received in the Building or carried up or down in the
elevators except between such hours and in such elevators that will be
designated by Landlord. There will not be used in any space or in the
public areas of the Building, either by Tenant or others, any hand trucks
except those equipped with rubber tires and side guards.
10. No tenant will make or permit to be used any unseemly or disturbing noises,
or disturb or interfere with occupants of this or neighboring buildings or
leased premises, whether by the use of any musical instrument, radio,
phonograph, unusual noise or in any other way. No Tenant will throw
anything out of doors or down the passage ways.
11. Tenant will not use or keep in the Leased Premises or the Building any
kerosene, gasoline, or any inflammable, combustible or explosive fluid,
chemical or substance or use any method of heating or air conditioning
other than those supplied or approved by Landlord.
12. Tenant will see that the windows and doors of the Leased Premises are
closed and securely locked before leaving the Building. No tenant will
permit or suffer any windows to be opened in the Leased Premises while the
air conditioning is in operation except at the direction of Landlord.
Tenant must observe strict care and caution that all water faucets and
other apparatus are entirely shut off before Tenant and Tenant's employees
leave the Building. For any default or negligence, Tenant will make good
all injuries sustained by all other tenants or occupants of the Building or
Landlord.
13. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who will in any manner do any act in
violation of any of the rules or regulations of the Building.
14. The requirements of Tenant will be attended to only upon application at the
Building's office. Employees of the Landlord will not perform any work or
do anything outside of their regular duties unless under special
instructions from Landlord, and no employees Will admit any person (Tenant
or otherwise) to any office without specific instructions from Landlord.
15. No tenant will disturb, solicit, or canvass any occupant of the Building,
nor will Tenant permit or cause others to do so, and Tenant will co-operate
to prevent same by others.
16. No vending machine or machines of any description will be installed,
maintained or operated upon the Leased Premises without the written consent
of Landlord, which consent shall not be unreasonably withheld or delayed.
Tenant will not permit in the Leased Premises any cooking or the use of
apparatus for the preparation of any food or beverages (except where the
Landlord has approved the installation of cooking facilities as part of the
Tenant's leasehold improvements), nor the use of any electrical apparatus
likely to cause an overload of the electrical circuits.
17. All persons entering and leaving the Building at any time other than during
normal business hours will register in the books kept by Landlord at or
near the night entrance or entrances, and Landlord will have the right to
prevent any persons entering or leaving the Building unless provided with a
key to the premises to which such person seeks entrance, and a pass in a
form to be approved by Landlord and provided at Tenant's expense. Any
persons found in the Building at such times without such keys or passer,
will be subject to the surveillance of the employees and agents of
Landlord. Landlord will be under no responsibility for failure to enforce
this rule.
18. Tenant will not use any janitor closets or telephone or electrical closets
for anything other than their originally intended purposes. In the event
Tenant purchases privately owned communications equipment for which
telephone closets were not installed in connection with initial occupancy
of Tenant, such equipment will not be installed in existing telephone
closets.
19. Tenant's right to have heavy furnishings, equipment, and files in the
Leased Premises will be limited to items weighing less then the
load-bearing limits of floors within the Leased Premises as established by
Landlord. Heavy items must be placed in locations approved in advance by
Landlord. Upon written demand from Landlord, Tenant will promptly remove
from the Leased Premises any items which, in the judgment of Landlord,
constitute a structural overload on floors within the Leased Premises. If
Landlord approves the presence of a heavy item for which reinforcement of
the floor or other precautionary measures are necessary, Tenant will bear
the entire cost of such reinforcement or other precautionary measures. It
the services of a structural engineer are, in the judgment of Landlord,
necessary to determine the location for and/or precautionary measures to be
taken in connection with any heavy load, Landlord will engage such
engineer, but the fees and expenses of such engineer will be paid by Tenant
upon demand.
20. Tenant will not, without the prior written consent of Landlord, use the
name or any photograph, drawing or other likeness of the Building for any
purpose other then as the address of the business to be conducted by Tenant
in the Leased Premises, nor will Tenant do or permit anything to be done in
connection with Tenant's business or advertising which, in the reasonable
judgment of Landlord, might mislead the public as to any apparent
connection or relationship between Landlord, the Building and Tenant.
21. Tenant, its invitees, and employees shall be allowed to smoke only in those
designated smoking areas outside the Building.
Exhibit D
PARKING
Parking Spaces. Landlord hereby grants to Tenant and persons designated by
Tenant a license to use up to a total of four (4) parking space in the reserved
section of that certain parking structure constructed adjacent to the Building
("Reserved Garage ) and fifteen (15) parking spaces in the unreserved section of
that certain parking structure constructed adjacent to the Building ("Unreserved
Garage") as well as eight (8) parking spaces on the surface parking lot ("Lot").
The term of such license will commence on the Commencement Date and will
continue until the earlier to occur of the expiration date under the Lease or
termination of the Lease or Tenant's; abandonment of the Leased Premises. During
the term of this Lease, there shall be a charge of $-0- (including tax) per
month for the Reserved Garage parking space and a charge of $-0- (plus tax) per
month per parking space for the remaining parking spaces designated above,
whether or not Tenant utilizes such parking spaces. No deductions from the
monthly charge will be made for days on which the Reserved Garage, Unreserved
Garage and Lot are not used by Tenant. If at any time during the Term of this
Lease, Landlord installs security gates or other equipment that restricts the
free entry and exit of vehicles to the Parking Area, then: (i) Tenant shall be
provided with devices needed for access to the Parking Areas for distribution to
its officers, employees and other guests: and (ii) Tenant shall have the option,
upon written notice to Landlord, to lease ten (10) additional parking spaces,
(which location shall be on the Lot or in the Unreserved Garage, at Landlord's
discretion), if available at that time, at a monthly rental rate of $38.00 per
space and, upon exercise of this option, Tenant shall be provided with eight (8)
additional access devices, at Tenant's cost.
Control of Parking. Tenant shall at all times comply with all applicable
ordinances, rules, regulations, codes, laws, statutes and requirements of all
federal, state, county and municipal governmental bodies or their subdivisions
respecting the use of the Reserved Garage, Unreserved Garage, and Lot. Landlord
reserves the right from time to time to adopt, modify and enforce reasonable
rules governing the use of the Reserved Garage, Unreserved Garage, and Lot,
including any key-card, sticker or other identification or entrance system, and
hours of operation. Landlord may refuse to permit any person who violates such
rules to park in the Reserved Garage, Unreserved Garage, and Lot, and any
violation of the rules will subject the car to removal from the Reserved Garage,
Unreserved Garage, and Lot.
Liability. The parking spaces hereunder will be provided on an unreserved
"first-come first-served" basis. Tenant acknowledges that Landlord has or may
arrange for the Reserved Garage, Unreserved Garage, and Lot to be operated by an
independent contractor, not affiliated with Landlord. In such event, Tenant
acknowledges that Landlord will have no liability for claims arising through
acts or omissions of such independent contractor. Landlord will have no
liability whatsoever for any damage to property or any other items located in
the Reserved Garage, Unreserved Garage, and Lot, nor for any personal injuries
or death arising out of any use of the Reserved Garage, Unreserved Garage, and
Lot, unless due to Landlord's gross negligence or willful misconduct, and in all
events, Tenant agrees to look first to its insurance carrier and to require that
Tenant's employees look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the Reserved Garage,
Unreserved Garage, and Lot. Tenant hereby waives on behalf of Tenant's insurance
carriers all rights of subrogation against Landlord or Landlord's agents.
Landlord reserves the right to assign specific spaces, and to reserve spaces for
visitors, small cars, handicapped persons and for other tenants, guests of
tenants or other parties, and Tenant and persons designated by Tenant hereunder
will not park in any such assigned or reserved spaces, Landlord also reserves
the right to close all or any portion of the Reserved Garage, Unreserved Garage,
and Lot in order to make repairs or perform maintenance services, or to alter,
modify, re-stripe or renovate the Reserved Garage, Unreserved Garage, and Lot,
or if required by casualty, strike, condemnation, act of God, governmental law
or requirement or other reason beyond Landlord's reasonable control, if, for any
other reason, Tenant or persons properly designated by Tenant, are denied access
to the Reserved Garage, Unreserved Garage, and Lot, and Tenant or such persons
will have complied with this Exhibit D, Landlord's liability will be limited to
parking charges (excluding tickets for parking violations) incurred by Tenant or
such persons in utilizing alternative parking, which amount Landlord will pay
upon presentation of documentation supporting Tenant's claims in connection
therewith.
Default, Remedies. If Tenant defaults under this Exhibit D, Landlord will have
the right to remove from the Reserved Garage, Unreserved Garage, and Lot any
vehicles hereunder which are involved or are owned or driven by parties involved
in causing such default, without liability therefor whatsoever. In addition, if
Tenant defaults under this Exhibit D, Landlord will have the right to cancel
Tenant's parking spaces on ten (10) days' written notice. If Tenant defaults
with respect to the same term or condition under this Exhibit D, more than three
(3) times during any twelve (12) month period, the next default of such term or
condition, will, at Landlord's election, constitute an incurable default of the
parking arrangements. Such cancellation right will be cumulative and in addition
to any other rights or remedies available to Landlord at law or equity, or
provided under this Lease.
Exhibit E
WORK LETTER
This Exhibit sets forth the respective obligations of, and the procedures
to be followed by, Landlord and Tenant in the design and construction of those
improvements that will prepare the Leased Premises described in Exhibit B of the
Lease for Tenant's use and occupancy.
1. The Work.
Tenant will accept the Premises on an "as-is" basis.
2. Existing Fixtures. To the extent any fixtures, equipment, including,
without limitation, plumbing fixtures, and/or above Building-standard
leasehold improvements (collectively, the "Existing improvements")
currently existing in the Leased Premises remain a part of the Leased
Premises, Tenant hereby accepts the Existing improvements on an "as is"
"where is" basis without representation or warranty, express or implied.
Landlord shall have no obligation to repair, maintain or replace any of the
Existing improvements, same being the sole responsibility of Tenant.
3. Incorporation into Lease: Default.
THE PARTIES AGREE THAT THE PROVISIONS OF THIS EXHIBIT ARE HEREBY
INCORPORATED BY THIS REFERENCE INTO THE LEASE FULLY, AS THOUGH SET FORTH
THEREIN, in the event of any express inconsistencies between the Lease and this
Exhibit, the latter will govern and control. Any default by Tenant hereunder
will constitute a default by Tenant under the Lease and Tenant will be subject
to the remedies and other provisions applicable thereto under the Lease.
Exhibit F
[Tenant's Signage]
Exhibit G
[Diagram of Premises]
EX-10.28
11
ex10_28.txt
EXHIBIT 10.28
ATTENTION: AUTH #39
HECTOR SANTOS
FOR: CONCOURSE V
LEASE AGREEMENT
CONCOURSE
ATLANTA, GEORGIA
LANDLORD: 485 PROPERTIES, LLC
TENANT: PIVOTAL CORPORATION
BUILDING: CORPORATE CENTER V
SUM 2200
SQ. FT.: 26,709
TERM: FIVE (5) YEARS
TABLE OF CONTENTS
Page
1. PREMISES AND TERM...................................................................1
2. RENT................................................................................2
3. OPERATING COSTS.....................................................................2
4. DELIVERY OF THE PREMISES............................................................5
5. ACCEPTANCE OF THE PREMISES..........................................................5
6. USE.................................................................................5
7. TENANT'S CARE OF THE PREMISES.......................................................6
8. SERVICES............................................................................7
9. DESTRUCTION OR DAMAGE TO PREMISES...................................................8
10. DEFAULT BY TENANT; LANDLORD'S REMEDIES..............................................9
11. ASSIGNMENT AND SUBLETTING; ABANDONMENT.............................................11
12. CONDEMNATION.......................................................................12
13. INSPECTIONS........................................................................12
14. SUBORDINATION......................................................................13
15. INDEMNIFICATION AND HOLD HARMLESS..................................................13
16. TENANT'S INSURANCE.................................................................14
17. REMEDIES CUMULATIVE................................................................14
18. ENTIRE AGREEMENT - NO WAIVER.......................................................14
19. HOLDING OVER.......................................................................14
20. HEADINGS...........................................................................14
21. NOTICES............................................................................15
22. HEIRS, SUCCESSORS, AND ASSIGNS - PARTIES...........................................15
i
23. ATTORNEY'S FEES.....................................................................15
24. TIME OF ESSENCE.....................................................................15
25. NO ESTATE IN LAND...................................................................15
26. SECURITY DEPOSIT....................................................................15
27. COMPLETION OF THE PREMISES..........................................................16
28. PARKING ARRANGEMENTS................................................................16
29. RULES AND REGULATIONS...............................................................16
30. RIGHT TO RELOCATE...................................................................16
31. LATE PAYMENTS.......................................................................16
32. ESTOPPEL CERTIFICATE................................................................16
33. SEVERABILITY AND INTERPRETATION.....................................................17
34. MULTIPLE TENANTS....................................................................17
35. FORCE MAJEURE.......................................................................17
36. QUIET ENJOYMENT.....................................................................17
37. BROKERAGE COMMISSION; INDEMNITY.....................................................17
38. EXCULPATION OF LANDLORD.............................................................17
39. ORIGINAL INSTRUMENT.................................................................18
40. GEORGIA LAW.........................................................................18
41. NO RECORDATION OF LEASE.............................................................18
42. HAZARDOUS WASTES....................................................................18
43. LEASE BINDING UPON DELIVERY.........................................................18
44. SPECIAL STIPULATIONS................................................................18
ii
Signature Page.............................................................................19
Exhibit "A" - Space Plan of Premises
Exhibit "B" - Location of Premises Within Building
Exhibit "C" - Description of the Property
Exhibit "D" - Work Letter
Exhibit "E" - Acceptance of Premises Form
Exhibit "F" - Rules and Regulations
Exhibit "G" - Special Stipulations
iii
DEFINITIONS
Defined Term Paragraph
ADA...........................................................................Exhibit "D"
Additional Electrical Equipment...............................................8(b)(iv)
Adjusted Monthly Rental.......................................................2(c)
Allowance.....................................................................Exhibit "D"
Building......................................................................1(a)
Change Order Effect Notice....................................................Exhibit "D"
Contractor....................................................................Exhibit "D"
Commencement Date.............................................................1(b)
Concourse.....................................................................30
Consumer Price Index..........................................................2(b)(i)
Expiration Date...............................................................1(b)
Increase Multiplier...........................................................2(b)(ii)
Initial Monthly Rental........................................................2(a)
Initial Operating Costs.......................................................3(a)
Landlord......................................................................Caption
Lease.........................................................................Caption
Lease Year....................................................................1(c)
Monthly Rental................................................................2(a)
Mortgagee.....................................................................14(a)
Operating Costs...............................................................3(b)
Premises......................................................................1(a)
Property......................................................................1(d) and Exhibit "C"
Rent..........................................................................2(f)
Rules.........................................................................6 and Exhibit "F"
Shared Service................................................................8(e)
TC Atlanta, Inc...............................................................37
Tenant........................................................................Caption
Tenant Delay..................................................................Exhibit "D"
Tenant Improvement Construction Documents.....................................Exhibit "D"
Tenant Improvement Costs......................................................Exhibit "D"
Tenant's Share................................................................3(c)
Term..........................................................................1(b)
iv
LEASE AGREEMENT
CONCOURSE
THIS LEASE AGREEMENT (the "Lease"), made this 9th day of December, 2000, by
and between 485 PROPERTIES, LLC ("Landlord"), a Delaware limited liability
company, which has as its address for all purposes hereunder as follows:
485 Properties, LLC
c/o TC Atlanta, Inc.
Five Concourse Parkway
Suite 1600
Atlanta, Georgia 30328-6111
and PIVOTAL CORPORATION ("Tenant") a corporation of the State of Washington,
which has as its address:
Pivotal Corporation
Plaza at Yarrow Bay
10210 NE Points Drive
Building 3, Suite 400
Kirkland, Washington 98033
WITNESSETH:
1. PREMISES AND TERM
(a) Landlord hereby rents and leases to Tenant, and Tenant hereby rents and
leases from Landlord, the following described space (the "Premises"):
Floor: 22nd
Suite: 2200
Rentable Square Feet: 26,709
Usable Square Feet: 24,038*
*The "Usable Square Feet" of the Premises shall be the "usable area" thereof as
defined and calculated pursuant to the Standard Method for Measuring Floor Area
in Office Buildings (ANSI/BOMA Z65.1-1996)
located at the herein called "Building":
Building: Corporate Center V
Address: Five Concourse Parkway
Fulton County, Georgia
Total Building Rentable Area: 687,107
(b) The Premises are more particularly shown and outlined on the space
plans attached hereto as Exhibit "A", and made a part hereof, and are located in
that portion of the Building shown on Exhibit "B", attached hereto and by this
reference incorporated herein. The term of this Lease (the "Term") shall
commence, subject to the provisions of Paragraph 4 herein, on the 1st day of
May, 2001 (the "Commencement Date"), and end at midnight on the 30th day of
April, 2006 (the "Expiration Date"), unless sooner terminated as herein
provided. This Lease shall be effective and enforceable upon its execution and
delivery, whether such execution and delivery occurs on, prior to, or after the
Commencement Date.
(c) "Lease Year" as used herein shall mean (i) each and every twelve (12)
month period during the Term of this Lease, or (ii) in the event of Lease
expiration or termination, the period between the last twelve (12) month period
and said expiration or termination. The first such twelve (12) month period
shall commence on the Commencement Date.
(d) The Building and the land upon which said Building is located (which
includes certain parking facilities serving the Building), more particularly
described on Exhibit "C", attached hereto and by this reference incorporated
herein, is herein referred to as the "Property".
(e) The Premises shall include the appurtenant right to use, in common with
others, public lobbies, entrances, stairs, corridors, elevators, and other
public portions of the Building. All the windows and outside walls of the
Premises, and any space in the Premises used for shafts, pipes, conduits, ducts,
telephone ducts and equipment, electric or other utilities, sinks or other
Building facilities, and the use thereof and access thereto through the Premises
for the purposes of operation, maintenance, inspection, display and repairs are
hereby reserved to Landlord. No easement for light, air or view is granted or
implied hereunder, and the reduction or elimination of Tenant's light, air or
view will not affect this Lease.
2. RENT
(a) Tenant shall pay to Landlord at P.O. Box 102353, Atlanta, Georgia
30368-0353 or at such other place Landlord designates, without demand, deduction
or setoff, an annual rent due and payable in equal monthly installments (the
"Monthly Rental") in advance on the first (1st) day of each calendar month
during the Term as follows:
Base Rental (per rentable
Period square foot per annum) Annual Base Rental Monthly Base Rental
------ ---------------------- ------------------ -------------------
May 1, 2001-April 30, 2002 $26.00 $694,434.00 $57,869.50
May 1, 2002-April 30, 2003 $26.65 $711,794.88 $59,316.24
May 1, 2003-April 30, 2004 $27.32 $729,689.88 $60,807.49
May 1, 2004-April 30, 2005 $28.00 $747,852.00 $62,321.00
May 1, 2005-April 30, 2006 $28.70 $766,548.36 $63,879.03
Tenant shall pay the first month of Monthly Rental upon the execution and
delivery of this Lease (with said amount to be applied against the Monthly
Rental first due under the Lease).
(b) (Intentionally deleted.]
(c) [Intentionally deleted.]
(d) [Intentionally deleted.]
(e) If the Term commences at any time other than the first day of a month
or terminates at any time other than the last day of a month, the amount of Rent
due from Tenant shall be proportionately adjusted based on that portion of the
month that this Lease is in effect.
(f) The term "Rent," as used herein, shall mean Monthly Rental, "Tenant's
Share" of "Operating Costs" (as those terms are defined herein) and any other
amounts due of Tenant hereunder.
(g) At all times that Landlord shall direct Tenant to pay Rent to a
"lockbox" or other depository whereby checks issued in payment of Rent are
initially cashed or deposited by a person or entity other than Landlord (albeit
on Landlord's authority), then, for any and all purposes under this Lease; (i)
Landlord shall not be deemed to have accepted such payment until ten (10) days
after the date on which Landlord shall have actually received such funds, and
(ii) Landlord shall be deemed to have accepted such payment if (and only if)
within said ten (10) day period, Landlord shall not have refunded (or attempted
to refund) such payment to Tenant. Nothing contained in the immediately
preceding sentence shall be construed to place Tenant in default of Tenant's
obligation to pay Rent if and for so long as Tenant shall timely pay the Rent
required pursuant to this Lease in the manner designated by Landlord.
3. OPERATING COSTS
(a) Tenant hereby covenants and agrees and shall be obligated to pay to
Landlord, in addition to and not in lieu of the other amounts specified herein,
the "Operating Costs," as hereinafter defined, of repairing, maintaining, owning
and operating the Building and Property, in excess of the "Initial Operating
Costs" (as that term is herein defined). These payments shall be in addition to
and not in lieu of any other payments due from Tenant hereunder. The "Initial
Operating Costs" shall be, for the purposes of this Lease, the actual Operating
Costs for calendar year 2001, adjusted pursuant to the terms of this Lease.
(b) The term "Operating Costs", as adjusted pursuant to the terms of this
Lease, shall mean any and all operating expenses of the Property, Building and
related areas (such as, by way of illustration but not limitation, the parking
areas), computed on an accrual basis and including all
2
expenses, costs, and disbursements of every kind and nature, which Landlord (i)
shall pay; and/or (ii) become obligated to pay, including, but not limited to,
the following:
(i) Costs, wages and salaries of all persons engaged in the
management, operation, repair, security or maintenance of the
Property and Building, including, but not limited to, fringe
benefits, taxes, insurance and any other benefits relating
thereto;
(ii) All supplies and materials used in the operation and maintenance
of the Property and Building;
(iii)Cost of water, sewage, electricity and other utilities furnished
in connection with the operation of the Building;
(iv) Cost of all service agreements and maintenance for the Property
and Building and the equipment therein, including, but not
limited to, trash removal, security services, alarm services,
window cleaning, janitorial service, HVAC maintenance, elevator
maintenance, and grounds maintenance;
(v) Cost of all insurance relating to the Property and Building
including, but not limited to, the cost of casualty and liability
insurance applicable to the Property and Building and Landlord's
personal property used in connection therewith;
(vi) All taxes (ad valorem and otherwise), assessments, and
governmental charges whether federal, state, county, or
municipal, and whether by taxing districts or authorities
presently taxing the Property and Building or by others,
subsequently created or otherwise, and any other taxes (other
than federal and state income taxes), and assessments
attributable to the Property and Building or its operation and
any reasonable consultants fees incurred with respect to issues
or concerns involving the taxes or the Building, the Property, or
both;
(vii)Cost of repairs and general maintenance of the interior and
exterior of the Property and Building (including, but not limited
to, light bulbs and glass breakage; the redecorating, repainting,
recarpeting and other such work of any common areas; heating,
ventilation and air conditioning equipment; plumbing and
electrical equipment; and elevators), parking areas, and
landscaping;
(viii)A management fee and other expenses incurred for the general
operation and management of the Property and Building provided
that such costs do not exceed management costs generally charged
for similar facilities in the area;
(ix) An amortization cost due to any capital expenditures incurred (i)
which have the effect of reducing or limiting Operating Costs of
the Property and Building, if such reduction or limitation inures
to Tenant's benefit (but only to the extent and in the amount
that such Operating Costs of the Property and Building are
reduced); (ii) which may be required by governmental authority or
by Landlord's insurance carrier; or (iii) which are designed to
protect or enhance the health, safety or welfare of the tenants
in the Building or their invitees;
(x) All assessments made, charged, levied, assessed or accrued
against Landlord by The Concourse Office Park Association, Inc.;
(xi) Legal and accounting fees and expenses; and
(xii)Anything which could be classified as an Operating Cost under
generally accepted accounting principles, consistently applied,
but not specified or expressly set forth hereunder.
Excluded from "Operating Costs" are:
(i) Capital items (except those expenditures referred to above);
(ii) Amounts paid for legal, brokerage or other professional services
in connection with the leasing of space or in connection with
disputes with tenants or other occupants of the Building;
3
(iii)Specific costs billed to and paid by specific tenants or other
third parties;
(iv) Depreciation;
(v) Principal, interest, and other costs directly related to
financing the Building;
(vi) The cost of any repairs or general maintenance paid by the
proceeds of insurance policies carried by Landlord on the
Property and Building;
(vii)Accounting fees incurred in connection with the preparation of
tax returns;
(viii) The cost of correcting any defect in the construction of the
structural elements of the Building;
(ix) Costs of repairs and other work occasioned by fire, windstorm or
other casualty of an insurable nature to the extent of insurance
or condemnation proceeds;
(x) Advertising costs associated with the marketing of rentable
space;
(xi) The cost of any repairs or general maintenance paid by the
proceeds of insurance policies carried by Landlord on the
Property and Building;
(xii)Expenses incurred for any necessary repair or replacement of any
item to the extent that it is covered under warranty;
(xiii) Any fines or penalties incurred due to violations by Landlord
of any governmental rule or authority, other than any such fine
or penalty (not otherwise paid by Tenant) incurred due to any
violation caused by any act or omission of Tenant, its employees
or agents;
(xiv)Expenses incurred in curing a default by Landlord under this
Lease or any other lease of space in the Building or under a
contract for services at the Building to the extent that such
expenses are greater than the expenses Landlord would have
incurred had Landlord performed such obligation timely; and
(xv) Bad debt loss or reserves for bad debt loss.
(c)The term "Tenant's Share" shall mean the proportion that the square feet
in the Premises bears to ninety-five percent (95%) of the Total Building
Rentable Area, or the average percentage of the Total Building Rentable Area
actually leased in the Building for any calendar year, if such average is
greater than ninety-five percent (95%) of the Total Building Rentable Area. The
average shall be determined by adding together the total leased space on the
last day of each month during the calendar year in question and dividing by
twelve (12). Tenant's Share is used in this Lease to determine the portion of
Operating Costs payable by Tenant, on a per square foot per annum basis.
Notwithstanding anything to the contrary contained herein, if the Building is
not fully occupied during any calendar year, appropriate adjustments shall be
made to determine Operating Costs as though the Building had been fully occupied
in such calendar year for the entire calendar year.
(d) On January 15 of each calendar year after the calendar year in which
this Lease is executed (or as soon thereafter as practical), Landlord shall
provide Tenant with the projected Operating Costs for such current calendar
year, and Tenant shall thereafter pay Tenant's Share of projected Operating
Costs for operating the Property and Building in excess of the Initial Operating
Costs. Such projected Operating Costs in excess of the Initial Operating Costs
shall be payable in advance on a monthly basis by paying one-twelfth (1/12th) of
such amount during each month of such respective calendar year. If Landlord has
not furnished Tenant such comparison by January 15, Tenant shall continue to pay
on the basis of the prior year's estimate until the month after such comparison
is given. Landlord shall, within one hundred twenty (120) days (or as soon
thereafter as practical) after each calendar year during the Term provide Tenant
an unaudited statement of such year's actual Operating Costs. If actual
Operating Costs are greater than projected Operating Costs, Tenant shall pay
Landlord, within thirty (30) days of such statement's receipt, Tenant's Share of
the difference thereof. If such year's projected Operating Costs are greater
than the actual Operating Costs, Landlord shall credit Tenant, within thirty
(30) days of such statement issuance, Tenant's Share of the difference between
projected Operating Costs and actual Operating Costs.
4
(e) If this Lease commences at any time other than the first day of a
calendar year or terminates at any time other than the last day of a calendar
year the amount of Operating Costs due from Tenant shall be proportionately
adjusted based on that portion of the year that this Lease was in effect.
(f) Tenant's payments of Operating Costs shall not be deemed payments of
base rental under any governmental wage and price controls or analogous
governmental actions affecting the amount of Rent which Landlord may charge
Tenant for the Premises.
4. DELIVERY OF THE PREMISES
Landlord shall deliver possession of the Premises to Tenant, with the
improvements to be constructed pursuant to Exhibit "D", attached hereto and by
this reference incorporated herein, substantially complete on the Commencement
Date. If Landlord for any reason whatsoever cannot deliver possession of the
Premises, with the improvements to be constructed pursuant to Exhibit "D"
substantially complete to Tenant at the Commencement Date, this Lease shall not
be void or voidable, nor shall Landlord be liable to Tenant for any loss or
damage resulting therefrom. If the delay is not due to any of the reasons set
forth in Article 3 of Exhibit "D", Monthly Rental shall be waived for the period
between the Commencement Date and the date which Landlord delivers possession of
the Premises to Tenant. If the delay is due to any of said reasons in Article 3
of Exhibit "D", Monthly Rental shall commence as of the Commencement Date.
5. ACCEPTANCE OF THE PREMISES
The taking of possession of the Premises by Tenant shall be conclusive
evidence that Tenant accepts the same "as is" and that said Premises and the
Building were in good and satisfactory condition for the use intended at the
time such possession was taken, subject to "punch-list -" items which must be
remedied after Tenant's acceptance of the Premises and latent defects. Tenant
shall retain the right to object to latent defects not subject to detection upon
reasonable inspection of the Premises prior to occupancy thereof, provided that
objection to latent defects not disclosed in writing to Landlord within ninety
(90) days subsequent to Tenant's occupancy of the Premises shall be deemed
waived. Tenant shall execute and deliver an "Acceptance of Premises" agreement
upon the taking of possession of the Premises, in the form attached as Exhibit
"E", by this reference incorporated herein.
6. USE
Tenant shall use the Premises only for professional, executive office
purposes, generally in accordance with the manner of use by other tenants in the
Building. The occupancy rate of the Premises shall in no event be more than one
(1) person per 150 rentable square feet within said Premises. Tenant's use of
the Premises shall not violate any ordinance, law or regulation of any
governmental body or the "Rules and Regulations" of Landlord (the "Rules") as
set forth in Exhibit "F" attached hereto and made a part hereof, or cause an
unreasonable amount of use of any of the services provided in the Building.
Tenant shall conduct its business in the manner and according to the generally
accepted business principles of the business or profession in which Tenant is
engaged.
5
7. TENANT'S CARE OF THE PREMISES
(a) Tenant will maintain the Premises and the fixtures and appurtenances
therein in a first-class condition, and will not commit or permit waste therein.
Any repair work, maintenance and any alterations permitted by Landlord in the
Premises (i) shall be done at Tenant's sole cost and expense; (ii) shall be done
by Landlord's employees or agents or, with Landlord's consent, by persons
requested by Tenant; and (iii) shall first be consented to by Landlord in
writing, which consent shall not be unreasonably withheld (except that such
consent may be granted or withheld in Landlord's sole discretion if such work
(A) involves structure, walls, floors, Building systems or electrical
installations or (B) interferes in any way or for any reason with work being
performed or to be performed by Landlord or at its direction elsewhere in the
Building or otherwise requires or causes Landlord to incur any cost in
connection therewith or as a result thereof). Tenant shall, at Tenant's expense,
but under the direction of Landlord and performed by Landlord's employees or
agents, or with Landlord's consent, by persons requested by Tenant and consented
to by Landlord, promptly repair any injury or damage to the Premises or Building
caused by the misuse or neglect thereof by Tenant, by Tenant's contractors,
sub-contractors, customers, employees, licensees, agents, or invitees.
(b) Tenant will not make alterations, additions or improvements (including,
but not limited to, structural alterations, additions or improvements) in or
about the Premises and will not do anything to or on the Premises which will
increase the rate of insurance on the Building or the Property without
Landlord's prior written consent, which consent shall not be unreasonably
withheld (except that such consent may be granted or withheld in Landlord's sole
discretion if such work (A) involves structure, walls, floors, Building systems
or electrical installations or (B) interferes in any way or for any reason with
work being performed or to be performed by Landlord or at its direction
elsewhere in the Building or otherwise requires or causes Landlord to incur any
cost in connection therewith or as a result thereof). All alterations, additions
or improvements of a permanent nature made or installed by Tenant to the
Premises shall become the property of Landlord at the expiration or early
termination of this Lease. If at the time of Landlord's approval of the plans
for any such alterations, additions or improvements to the Premises, Tenant
requests in writing that Landlord designate which, if any, of such alterations,
additions or improvements Landlord will require Tenant to remove at Tenant's
expense prior to the expiration or earlier termination of this Lease, Tenant
shall not be obligated to remove any of such alterations, additions or
improvements from the Premises, except to the extent such removal is required in
writing at the time of Landlord's approval of such plans in response to such
request from Tenant. Landlord reserves the right to require Tenant to repair and
restore the Premises to their condition prior to such alteration, addition or
improvement, reasonable wear and tear, unrepaired casualty and condemnation
excepted.
(c) No later than the last day of the Term, Tenant will remove Tenant's
personal property and repair injury done by or in connection with installation
or removal of said property and surrender the Premises (together with all keys,
access cards or entrance passes to the Premises and/or the Building) in as good
a condition at the beginning of the Term, reasonable wear and tear, unrepaired
casualty and condemnation excepted. All property of Tenant remaining in the
Premises after expiration or early termination of the Term shall be deemed
conclusively abandoned and may be removed by Landlord, and Tenant shall
reimburse Landlord for the cost of removing the same, subject however, to
Landlord's right to require Tenant to remove any improvements or additions made
to the Premises by Tenant pursuant to the preceding Paragraph.
(d) In doing any work on the installation of Tenant's furnishings,
fixtures, or equipment in the Premises, Tenant will use only contractors or
workers consented to by Landlord in writing prior to the time such work is
commenced, which consent shall not be unreasonably withheld. Landlord may
condition its consent upon its receipt from such contractors or workers of
acceptable (i) lien waivers and (ii) evidence of liability and personal property
insurance coverage in amounts and with insurance carriers satisfactory to
Landlord. Tenant shall promptly remove any lien or claim of lien for material or
labor claimed against the Premises or Building, or both, by such contractors or
workers if such claim should arise, and hereby indemnifies and holds Landlord
harmless from and against any and all loss, cost, damage, expense or liabilities
including, but not limited to, attorney's fees, incurred by Landlord, as a
result of or in any way related to such claims or liens.
(e) All personal property brought into the Premises by Tenant, its
employees, licensees and invitees shall be at the sole risk of Tenant, and
Landlord shall not be liable for theft thereof or of money deposited therein or
for any damages thereto, such theft or damage being the sole responsibility of
Tenant.
6
8. SERVICES
(a) Provided Tenant is in compliance with the terms and conditions of this
Lease, Landlord shall cause to be furnished the following services (the cost of
which services shall be reimbursed to Landlord in accordance with Paragraph 3
herein):
(i) Elevator service for passenger and delivery needs;
(ii) Air conditioning during summer operations and heat during winter
operations at temperature levels similar to other first class
office buildings in the Atlanta area, but consistent with and
subject to all Federal and local energy conservation regulations;
(iii)Public restrooms, including the furnishing of soap, paper
towels, and toilet tissue;
(iv) Either hot and cold or tempered running water for all restrooms
and lavatories;
(v) Janitorial service, including sanitizing, dusting, cleaning,
mopping, vacuming, and trash removal, each Monday through Friday,
and floor waxing and polishing, window washing, smudge removal
and venetian blind cleaning as appropriate;
(vi) The replacement of building standard fluorescent lamps and
ballasts as needed;
(vii)Repairs and maintenance, for maintaining in good order at all
times the exterior walls, exterior windows, exterior doors and
roof of the Building, public corridors, stairs, elevators,
storage rooms, restrooms, the heating, ventilating and air
conditioning systems, electrical and plumbing systems of the
Building, and the walks, paving and landscaping surrounding the
Building;
(viii) General grounds care;
(ix) General management, including supervision, inspections and
management functions; and
(x) Electricity for the Premises, Building and Property.
(b) The services provided in Paragraph 8(a) are predicated on and are in
anticipation of the use of the Premises as follows:
(i) Services shall be provided for the Building during normal
business hours as described in the Rules;
(ii) HVAC design is based on sustained outside temperatures being no
higher than 95 degrees Fahrenheit and no lower than 14 degrees
Fahrenheit with sustained occupancy of the Premises by no more
than one person per 150 square feet of floor area and heat
generated by electrical lighting and fixtures not to exceed 3.0
watts per square foot;
(iii)Electric power usage and consumption for the Premises shall be
based on lighting of the Premises during normal business hours on
a level suitable for normal office use and power for all desk-top
machines and devices using no more than 110 volt, 20 amp circuits
(allowable load of 15 amps). Heavier use items shall not be used
or installed, unless expressly permitted elsewhere herein or by
consent of Landlord;
(iv) Should Tenant's total rated electrical design load per square
foot in the Premises exceed the Building standard rated
electrical design load, on a per square foot basis, as reasonably
determined by Landlord from time to time, for either low or high
voltage electrical consumption, or if Tenant's electrical design
requires low voltage or high voltage circuits in excess of
Tenant's share of the Building standard circuits, as such share
is determined by Landlord in Landlord's reasonable judgment,
Landlord may (at Tenant's expense), if reasonably possible,
install within the Building one (1) additional high voltage panel
and/or one (1) additional low voltage panel with associated
transformer (the "Additional Electrical Equipment") as necessary
to accommodate the aforesaid requirements.
7
If the Additional Electrical Equipment is installed because
Tenant's low or high voltage rated electrical design load exceeds
the applicable Building standard rated electrical design load (on
a per square foot basis), then a meter may also be added by
Landlord (at Tenant's expense) to measure the electricity
provided through the Additional Electrical Equipment; and
(v) Should Tenant exceed a sustained occupancy of the Premises of
more than one (1) person per 200 square feet of floor area,
Landlord shall have the right, after notice to Tenant, to install
supplementary air-conditioning facilities in the Premises or
otherwise modify the ventilating and air-conditioning system
serving the Premises, and the cost of installation, construction,
maintenance and repair of such facilities and modifications shall
be borne by Tenant; provided, however, that if within thirty (30)
days after Tenant's receipt of Landlord's notice, Landlord and
Tenant agree in writing (at their respective discretion, without
obligation) to an expansion or relocation of the Premises that
would result in a population density of one (1) person per 200
rentable square feet of floor area of the Premises, as expanded
or relocated, then, for purposes of this subparagraph (v) only,
Landlord shall not install supplementary air-conditioning
facilities or otherwise modify the ventilation and
air-conditioning system serving the Premises.
(c) If Tenant uses any services in an amount or for a period in excess of
that provided for herein, Landlord also reserves the right to charge Tenant
reimbursement for the cost of such added services. Landlord reserves the right
to install separate metering devices to determine such excessive periods and/or
amounts, at Tenant's sole cost and expense. If there is disagreement as to such
additional charge, the opinion of the appropriate local utility company or an
independent professional engineering firm shall prevail.
(d) Landlord shall not be liable for any damages directly or indirectly,
and Tenant shall have no right of set-off or reduction in Rent, resulting from
the installation, use, malfunction, or interruption of use of any equipment in
connection with the furnishing of services referred to herein, including, but
not limited to, any interruption in services by any cause beyond the immediate
control of the Landlord; provided however, Landlord shall exercise due care in
furnishing adequate and uninterrupted services. Without 1imitation on the
foregoing, under no circumstances shall Landlord incur liability for damages
caused directly or indirectly by any malfunction of Tenant's computer systems
resulting from or arising out of the failure or malfunction of any electrical,
air conditioning or other system serving the Building, and Tenant hereby
expressly waives the right to make any such claim against Landlord.
(e) There may be available in the Building a shared communications systems
service (the "Shared Service") upon terms, conditions and fees to be agreed upon
by Tenant and the party providing such Shared Service. Neither Landlord nor any
manager of the Building shall be liable to Tenant for damages if the furnishing
of any such Shared Service is disrupted, terminated or diminished in any manner,
nor shall any disruption, diminution, or cessation relieve Tenant from the
performance of any of Tenant's covenants, conditions and agreements under this
Lease, nor shall any disruption, diminution or cessation constitute constructive
eviction or entitle Tenant to an abatement of Rent. Tenant holds Landlord and
any such manager harmless from any claims Tenant may have arising out of or
connected with such cessation or interruption. If Tenant elects not to use the
Shared Service, and Tenant has telephone or other such equipment installed at
Tenant's own direction, such system shall not (i) cause the Building to violate
any municipal safety codes or ordinances, including, but not limited to, fire
safety codes; (ii) cause damage to the Building; (iii) require an amount of
electrical or other services unreasonably in excess of the requirements for
customary business-telephone systems; or (iv) impact upon the normal use,
function and operation of the Shared Service. If Tenant elects not to use or be
a part of the Shared Service, Tenant shall not use any wiring or other equipment
which is a part of the Shared Service without the prior, written consent of the
provider of such Shared Service. If Tenant uses any such wiring or equipment
without such consent, Tenant shall be liable for, and shall pay to the provider
of such services on demand, (i) the cost of such use; (ii) the cost of repairing
or replacing any wiring or equipment damaged or altered by such use; and (iii)
any other damages caused by such use.
9. DESTRUCTION OR DAMAGE TO PREMISES
(a) If the Premises or the Building are totally destroyed (or so
substantially damaged as to be untenantable in the determination of the
Architect of the Building) by storm, fire, earthquake or other casualty,
Landlord shall have the option to:
8
(i) Terminate this Lease as of the date of the occurrence of the
storm, earthquake, fire or other casualty by giving notice to
Tenant within sixty (60) days from the date of such damage or
destruction; or
(ii) Commence the process of restoration of the Premises to a
tenantable condition within sixty (60) days from the date of
receipt by Landlord of all of the insurance proceeds paid with
respect to such casualty, and proceed with due diligence to
complete said restoration of the Premises. If Landlord chooses to
restore the Premises, Rent shall abate with respect to the
untenantable portion of the Premises from the date of such
casualty until the date of substantial restoration thereof.
If Landlord fails to complete such restoration within one hundred eighty (180)
days of the date of the casualty, this Lease may be terminated as of the date of
the casualty upon notice from either party to the other, given not more than ten
(10) days following the expiration of said one hundred eighty (180) day period.
If such notice is not given, this Lease shall remain in force and effect and
Rent shall commence upon delivery of the Premises to Tenant in a tenantable
condition (evidenced by notice to Tenant that the Premises are substantially
completed).
(b) If the Premises are damaged but not rendered wholly untenantable by any
event set forth in Paragraph 9(a) above, Rent shall abate in the proportion the
Premises have been made untenantable. Landlord shall restore the Premises
expeditiously, and upon the date of restoration, full Rent shall commence.
(c) Rent shall not abate if the damage or destruction of the Premises,
whether total or partial, is the result of the negligence of Tenant, its
contractors, subcontractors, agents, employees, guests or invitees.
10. DEFAULT BY TENANT; LANDLORD'S REMEDIES
(a) The occurrence of any of the following shall constitute an Event of
Default hereunder by Tenant:
(i) The Rent or any other sum of money due of Tenant hereunder is not
paid within five (5) days of the date when due;
(ii) [Intentionally deleted];
(iii)Any petition is filed by or against Tenant under any section or
chapter of the National or Federal Bankruptcy Act or any other
applicable Federal or State bankruptcy, insolvency or other
similar law, and, in the case of a petition filed against Tenant,
such petition is not dismissed within thirty (30) days after the
date of such filing; if Tenant shall become insolvent or transfer
property to defraud creditors; if Tenant shall make an assignment
for the benefit of creditors; or if receiver is appointed for any
of Tenant's assets;
(iv) Tenant fails to bond off or otherwise remove any lien filed
against the Premises or the Building by reason of Tenant's
actions, within ten (10) days after Tenant has notice of the
filing of such lien; and
(v) Tenant fails to observe, perform and keep the covenants,
agreements, provisions, stipulations, conditions and Rules herein
contained to be observed, performed and kept by Tenant (other
than the failure to pay when due any Rent or any other sum of
money becoming due Landlord hereunder, which under all
circumstances is governed by and subject to Paragraph 10(a)(i)
herein), and persists in such failure after ten (10) days written
notice by Landlord requiring that Tenant remedy, correct, desist
or comply (or if any such failure to comply on the part of Tenant
would reasonably require more than ten (10) days to rectify,
unless Tenant commences rectification within the ten (10) day
notice period and thereafter promptly, effectively and
continuously proceeds with the rectification of the failure to
comply on the part of Tenant and, in all such events, cures such
failure to comply on the part of Tenant no later than thirty (30)
days after such notice).
(b) Upon the occurrence of an Event of Default, Landlord shall have the
option to do and perform any one or more of the following:
9
(i) Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord. If Tenant shall fail to do
so, Landlord may, without further notice and without prejudice to
any other remedy Landlord may have, enter upon the Premises
without the requirement of resorting to the dispossessory
procedures set forth in O.C.G.A. ss.ss. 44-7-50 et seq. and expel
or remove Tenant and Tenant's effects without being liable for
any claim for trespass or damages therefor. Upon any such
termination , Tenant shall remain liable to Landlord for damages,
due and payable monthly on the day Rent would have been payable
hereunder, in an amount equal to the rent and any other amounts
which would have been owing by Tenant for the balance of the
Term, had this Lease not been terminated, less the net proceeds,
if any, of any reletting of the Premises by Landlord, after
deducting all of Landlord's costs and expenses (including,
without limitation, advertising expenses and professional fees)
incurred in connection with or in any way related to the
termination of this Lease, eviction of Tenant and such reletting;
and/or
(ii) Declare the entire amount of Rent calculated on the current rate
being paid by Tenant, and other sums which in Landlord's
reasonable determination would become due and payable during the
remainder of the Term (including, but not limited to, increases
in Rent pursuant to Paragraph 2(b) and 3(d) herein), discounted
to present value by using a reasonable discount rate selected by
Landlord, to be due and payable immediately. Upon such
acceleration of such amounts, Tenant agrees to pay the same at
once, together with all Rent and other amounts theretofore due,
at Landlord's address as provided herein; provided however, that
such payment shall not constitute a penalty or forfeiture but
shall constitute liquidated damages for Tenant's failure to
comply with the terms and provisions of this Lease (Landlord and
Tenant agreeing that Landlord's actual damages in such event are
impossible to ascertain and that the amount set forth above is a
reasonable estimate thereof). Upon making such payment, Tenant
shall receive from Landlord all rents received by Landlord from
other tenants renting the Premises during the Term, provided that
the monies to which Tenant shall so become entitled shall in no
event exceed the entire amount actually paid by Tenant to
Landlord pursuant to the preceding sentence, less all of
Landlord's costs and expenses (including, without limitation,
advertising expenses and professional fees) incurred in
connection with or in any way related to the reletting of the
Premises. The acceptance of such payment by Landlord shall not
constitute a waiver of rights or remedies to Landlord for any
failure of Tenant thereafter occurring to comply with any term,
provision, condition or covenant of this Lease; and/or
(iii)Enter the Premises as the agent of Tenant without the requirement
of resorting to the dispossessory procedures set forth in
O.C.G.A,ss.ss.44-7-50 et.seq. and without being liable for any
claim for trespass or damages therefor, and, in connection
therewith, rekey the Premises, remove Tenant's effects therefrom
and store the same at Tenant's expense, without being liable for
any damage thereto, and relet the Premises as the agent of
Tenant, without advertisement, by private negotiations, for any
term Landlord deems proper, and receive the rent therefor. Tenant
shall pay Landlord on demand any deficiency that may arise by
reason of such reletting, but Tenant shall not be entitled to
any surplus so arising. Tenant shall reimburse Landlord for all
costs and expenses (including, without limitation, advertising
expenses and professional fees) incurred in connection with or in
any way related to the eviction of Tenant and reletting the
Premises, and for the amount of any other Rent which would have
been due of Tenant to Landlord hereunder if not for certain
concessions granted by Landlord to Tenant. Landlord, in addition
to but not in lieu of or in limitation of any other right or
remedy provided to Landlord under the terms of this Lease or
otherwise (but only to the extent such sum is not reimbursed to
Landlord in conjunction with any other payment made by Tenant to
Landlord), shall have the right to be immediately repaid by
Tenant the amount of all sums expended by Landlord and not repaid
by Tenant in connection with preparing or improving the Premises
to Tenant's specifications and any and all costs and expenses
incurred in renovating or altering the Premises to make it
suitable for reletting; and/or
10
(iv) As agent of Tenant, do whatever Tenant is obligated to do under
this Lease, including, but not limited to, entering the Premises,
without being liable to prosecution of any claims for damages, in
order to accomplish this purpose. Tenant agrees to reimburse
Landlord immediately upon demand for any expenses which Landlord
may incur in thus effecting compliance with this Lease on behalf
of Tenant. Landlord shall not be liable for any damages resulting
to Tenant from such action, whether caused by the negligence of
Landlord or otherwise.
(c) Pursuit by Landlord of any of the foregoing remedies shall not
preclude the pursuit of general or special damages incurred, or of any of
the other remedies provided herein, at law or in equity.
(d) No act or thing done by Landlord or Landlord's employees or agents
during the Term shall be deemed an acceptance of a surrender of the
Premises. Neither the mention in this Lease of any particular remedy, nor
the exercise by Landlord of any particular remedy hereunder, at law or in
equity, shall preclude Landlord from any other remedy Landlord might have
under this Lease, at law or in equity. Any waiver of or redress for any
violation of any covenant or condition contained in this Lease or any of
the Rules now or hereafter adopted by Landlord, shall not prevent a
subsequent act, which would have originally constituted a violation, from
having all the force and effect of an original violation. The receipt by
Landlord of Rent with knowledge of the breach of any covenant in this Lease
shall not be deemed a waiver of such breach.
11. ASSIGNMENT AND SUBLETTING; ABANDONMENT
(a) Tenant shall not sublet any part of the Premises, nor assign this
Lease or any interest herein, nor, once any such sublet or assignment is
consented to by Landlord, amend or modify the terms of such sublet or
assignment, without the prior consent of Landlord, which consent shall not
be unreasonably withheld or delayed, subject to the terms of this Paragraph
11 (it being agreed that if the holder of any mortgage, deed to secure debt
or other similar security instrument withholds or delays its consent to a
proposed assignment or sublease pursuant to a right to do so under such
mortgage, deed to secure debt or other security instrument, then Landlord
shall be deemed reasonable in withholding or delaying Landlord's consent
thereto). In no event shall Tenant be permitted to sublease space or assign
its interest in the Lease to any existing occupant of the Building (whether
as a tenant under a lease or otherwise), or to any subsidiary or affiliate
thereof or related party thereto. In any event, no assignee or sublessee
(or Tenant, on behalf or for the benefit of an assignee or sublessee) shall
have the right to exercise any extension or renewal of Term, or any right
to expand or otherwise increase the size of the Premises. Landlord may deny
consent to an assignment or sublease if, by way of illustration but not
limitation, the rate of compensation, including, but not limited to, all
rent, requested by Tenant for the portion of the Premises to be subleased
or for the assignment of the Lease would impact upon or impair Landlord's
ability to rent space in the Building at the then market rate as offered by
Landlord or if the financial statements of the proposed assignee or
sublessee are unsatisfactory. Additionally, neither Tenant nor any other
person having an interest in the possession, use, occupancy or utilization
of the Premises shall enter into any lease, sublease, license, concession,
assignment or other agreement for use, occupancy or utilization of space in
the Premises which provides for rental or other payment for such use,
occupancy or utilization based, in whole or in part, on the net income or
profits derived by any person or entity from the Premises leased, used,
occupied or utilized. Any such purported lease, sublease, license,
concession, assignment or other agreement shall be absolutely void and
ineffective as a conveyance of any right or interest in the possession,
use, occupancy or utilization of any part of the Premises. If such a
sublease is entered into, neither the rental payable thereunder nor the
amount thereof passed on to any person or entity shall have deducted
therefrom any expenses or costs related in any way to the subleasing of
such space.
(b) Consent by Landlord to one assignment or sublease shall not
destroy or waive this provision, and all later assignments and subleases
shall likewise be made only upon prior consent of Landlord. If a sublease
or assignment is consented to by Landlord, any sublessees or assignees
shall become liable directly to Landlord for all obligations of Tenant
hereunder without relieving or in any way modifying Tenant's liability
hereunder. If Tenant notifies Landlord of Tenant's intent to sublease or
assign this Lease, Landlord shall within thirty (30) days from such notice
(a) consent to such proposed subletting; (b) deny such consent, giving
reasons for denying such consent at the time of the denial; (c) elect to
cancel this Lease, or to reduce the Premises by the area requested to be
subleased or assigned if the area is less than the entire Premises; or (d)
elect to sublease the space, or take the assignment, as applicable, on the
same terms and conditions as offered by the third-party. If Landlord elects
to cancel or to reduce the area of the Premises, Tenant shall have ten (10)
days from such notice to notify Landlord of Tenant's acceptance of such
cancellation or reduction or Tenant's desire to remain in possession of
Premises for the Term. If Tenant fails to so notify Landlord of Tenant's
election to accept
11
termination or reduction or to continue as Tenant hereunder, such failure
shall be deemed an election to terminate or have the area of Premises
reduced, as the case may be, and such termination or reduction shall be
effective as of the end of the ten (10) day period provided for in
Landlord's notice as hereinabove provided. If Landlord gives its consent to
any such assignment or sublease, any rent or other cost to the assignee or
subtenant for all or any portion of the Premises over and above the Rent
payable by Tenant for such space shall be due and payable, and shall be
paid, to Landlord. If this Lease is cancelled, the area of Premises is
reduced or a sublease or assignment is made as herein provided, Tenant
shall pay Landlord a charge equal to the actual costs incurred by Landlord
in Landlord's reasonable judgment (including, but not limited to, the use
and time of Landlord's personnel), for all of the necessary legal and
accounting services required to accomplish such cancellation, reduction of
area of the Premises, assignment or subletting, as the case may be.
(c) The sale or transfer of Tenant's voting stock (if a corporation)
or partnership interest (if a partnership) resulting in the transfer of
control of a majority of such stock or interest, or the occupancy of the
Premises by any successor firm of Tenant or by any firm into which or with
which Tenant may become merged or consolidated shall be deemed an
assignment of this Lease requiring the prior consent of Landlord.
(d) If the Premises, or any portion thereof, are abandoned or deserted
for a period of more than thirty (30) consecutive days, then Landlord may,
at its option, either (i) terminate this Lease and cause possession of
Premises to be returned to Landlord upon demand or (ii) terminate this
Lease from time to time as to a portion or portions of the Premises and
cause such portion or portions of the Premises to be returned to Landlord
upon demand, without terminating the Lease as to the balance of the
Premises. Landlord acknowledges that if Tenant is not actively using a
portion of the Premises (such as, for example, the existence of empty
offices or unused storage space), such portion shall not be deemed
abandoned, deserted or vacated under this Paragraph 11(d) as long as: (i)
any such area is locked, secured, kept in a sightly condition and otherwise
in a condition that does not violate this Lease, (ii) Tenant is paying rent
with respect thereto and (iii) Tenant is otherwise actively occupying at
least fifty percent (50%) of the Premises. Following any termination under
this Paragraph 1l(d) of this Lease as to a portion or portions of the
Premises, Tenant shall have no further rights with respect to such portion
or portions of the Premises, and shall immediately surrender such portion
or portions of the Premises broom-clean, with all people and property of
Tenant removed therefrom, and Tenant shall have no further obligation to
pay rent with respect to such portion or portions of the Premises, but
Tenant shall continue to be liable for all of its obligations under this
Lease with respect to such portion or portions of the Premises arising
prior to such termination and with respect to all obligations under this
Lease relating to those portions of the Premises for which this Lease has
not been terminated.
12. CONDEMNATION
If the Premises, or a part of such Premises such that the Premises in
the judgment of the Architect for the Building are untenantable, are taken
by eminent domain or other similar proceeding or are conveyed in lieu of
such taking, this Lease shall expire on the date when title or right of
possession vests, and Rent paid for any period beyond said date shall be
repaid to Tenant. If there is a partial taking where this Lease is not
terminated, the Rent shall be adjusted in proportion to the square feet of
Premises taken, determined by the Architect for the Building. In either
event, Landlord shall be entitled, and Tenant shall not have any right, to
claim any award made in any condemnation proceeding, action or ruling
relating to the Building or the Property, provided, however, Tenant shall
be entitled to make a claim in any condemnation proceeding, action or
ruling relating to the Building for Tenant's moving expenses and the
unamortized value of leasehold improvements in the Premises actually paid
for by Tenant, to the extent such claim does not in any manner impact upon
or reduce Landlord's claim or award in such condemnation proceeding, action
or ruling. Landlord shall have, in Landlord's sole discretion, the option
of terminating this Lease if any such condemnation, action, ruling or
conveyance in lieu thereof makes continuation of Landlord's use of the
Building economically unfeasible.
13. INSPECTIONS
Landlord, its agents or employees may enter the Premises at reasonable
hours to (a) exhibit the Premises to prospective purchasers or tenants of
the Premises or the Building; (b) inspect the Premises to see that Tenant
is complying with its obligations hereunder; and (c) make repairs (i)
required of Landlord under the terms hereof; (ii) to any adjoining space in
the Building; or (iii) to any systems serving the Building which run
through the Premises.
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14. SUBORDINATION
(a) This Lease shall be subject and subordinate to any underlying land
leases or deeds to secure debt which may now or hereafter affect this
Lease, the Building or the Property and also to all renewals,
modifications, extensions, consolidations, and replacements of such
underlying land leases and deeds to secure debt. In confirmation of the
subordination set forth in this Paragraph 14, Tenant shall, at Landlord's
request execute and deliver such further instruments desired by the holder
of the deed to secure debt (a "Mortgagee") or by any lessor under any such
underlying land leases. Notwithstanding the foregoing, Landlord or such
Mortgagee shall have the right to subordinate or cause to be subordinated,
in whole or in part, any such underlying land leases or deeds to secure
debt to this Lease (but not in respect to priority of entitlement of
insurance or condemnation proceeds). If any such underlying land leases or
deeds to secure debt terminate for any reason or any such deeds to secure
debt are foreclosed or a conveyance in lieu of foreclosure is made for any
reason, Tenant shall, notwithstanding any subordination, deliver to
Mortgagee within ten (10) days of written request an attornment agreement,
providing that such Tenant shall continue to abide by and comply with the
term and conditions of this Lease.
(b) If any proceedings are brought for the foreclosure of, or in the
event of exercise of the power of sale or conveyance in lieu of foreclosure
under any deed to secure debt, Tenant shall at the option of the purchaser
at such foreclosure or other sale, attorn to such purchaser and recognize
such person as Landlord under this Lease. The institution of any suit,
action or other proceeding by a Mortgagee or a sale of the Property
pursuant to the powers granted to a Mortgagee under its deed to secure
debt, shall not, by operation of law or otherwise, result in the
cancellation or the termination of this Lease or of the obligations of
Tenant hereunder.
(c) If such purchaser requests and accepts such attornment, from and
after such attornment, Tenant shall have the same remedies against such
purchaser for the breach of an agreement contained in this Lease that
Tenant might have had against Landlord if the deed to secure debt had not
been terminated or foreclosed, except such purchaser shall not be (i)
liable for any act or omission of the prior Landlord; (ii) subject to any
offsets or defenses which Tenant might have against the prior Landlord; or
(iii) bound by any Rent or security deposit which Tenant might have paid in
advance to the prior Landlord.
(d) Landlord agrees to use good faith efforts (except such obligation
to use "good faith efforts" shall not require Landlord to expend any funds)
to cause any lessor under a future ground lease or the holder of any future
mortgage or security deed encumbering the Building to provide Tenant with
an agreement, in recordable form stating that such lessor or holder, as the
case my be, shall not disturb Tenant's occupancy of the Premises in the
event of a foreclosure of such mortgage or security deed or a termination
of such ground lease, provided there is not a breach or default under this
Lease which is not cured within any applicable cure period, and stating
such other matters as such lessor or holder may customarily require.
Landlord shall not be liable to Tenant for its failure to obtain such an
agreement for any reason, and such failure shall not constitute a default
by Landlord under this Lease.
15. INDEMNIFICATION AND HOLD HARMLESS
(a) Tenant hereby indemnifies and holds Landlord harmless from and
against any injury, expense, damage, liability or claim, imposed on
Landlord by any person whomsoever, whether due to damage to the Premises,
claims for injuries to the person or property of any other tenant of the
Building or of any other person in or about the Building for any purpose
whatsoever, or administrative or criminal action by a governmental
authority, whether such injury, expense, damage, liability or claim results
either directly or indirectly from the act, omission, negligence,
misconduct or breach of any provisions of this Lease by Tenant, the agents,
servants or employees of Tenant, or any other person entering upon the
Premises under express or implied invitation or consent of Tenant. Tenant
further agrees to reimburse Landlord for any costs or expenses, including,
but not limited to, court costs and reasonable attorney's fees, which
Landlord may incur in investigating, handling or litigating any such claim
or any action by a governmental authority.
(b) Tenant shall give notice to Landlord of any defective condition in
or about the Premises known to Tenant, and further agrees to attempt to
contact Landlord by telephone immediately in such instance.
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16. TENANT'S INSURANCE
Tenant shall carry (at its sole expense during the Term) (i) fire and
extended coverage insurance insuring Tenant's interest in its improvements
to the Premises and any and all furniture, equipment, supplies, contents
and other property owned, leased, held or possessed by Tenant and contained
therein, such insurance coverage to be in an amount equal to the full
insurable value of such improvements and property, as such may increase
from time to time, (ii) worker's compensation insurance as required by
applicable law, and (iii) comprehensive liability coverage for injury to or
death of a person or persons and for damage to property occasioned by or
arising out of any construction work being done on the Premises, or arising
out of the condition, use, or occupancy of the Premises, or other portions
of the Building or Property, the limits of such policy or policies to be in
amounts not less than One Million Five Hundred Thousand Dollars
($1,500,000) with respect to injuries to or death of any one person, Five
Million Dollars ($5,000,000) with respect to any one casualty or occurrence
and Three Hundred Thousand Dollars ($300,000) with respect to property
damage. Landlord and Tenant shall each have included in all policies of
insurance respectively obtained by them with respect to the Building or
Premises a waiver by the insurer of all right of subrogation against the
other in connection with any loss or damage insured against. To the full
extent permitted by law, Landlord and Tenant each waives all right of
recovery against the other, and agrees to release the other from liability
for loss or damage to the extent such loss or damage is covered by valid
and collectible insurance in effect at the time of such loss or damage;
provided, however, that the foregoing release by each party is conditioned
upon the other party's carrying insurance with the above described waiver
of subrogation, and if such coverage is not obtained or maintained by
either party, then the other party's foregoing release shall be deemed to
be rescinded until such waiver is either obtained or reinstated. All said
insurance policies shall be carried with companies licensed to do business
in the State of Georgia reasonably satisfactory to Landlord and shall be
noncancellable except after twenty (20) days' written notice to Landlord.
Each policy shall name Landlord, Landlord's Property Manager and any other
person designated by Landlord as additional insureds and provide that it is
primary to, and not contributing with, any policy carried by Landlord,
Landlord's Property Manager, or other designated person covering the same
loss. At Landlord's request, duly executed certificates of such insurance
shall be delivered to Landlord prior to the Commencement Date and at least
thirty (30) days prior to the expiration of each respective policy term.
17. REMEDIES CUMULATIVE
The rights given to Landlord and Tenant herein are in addition to any
rights that may be given to Landlord or Tenant by any statute or under law.
18. ENTIRE AGREEMENT - NO WAIVER
This Lease contains the entire agreement of the parties hereto and no
representations, inducements, promises or agreements, oral or otherwise,
between the parties not embodied herein shall be of any force and effect.
The failure of either party to insist in any instance on strict performance
of any covenant or condition hereof or to exercise any option herein
contained, shall not be construed as a waiver of such covenant, condition
or option in any other instance. This Lease cannot be changed or terminated
orally, and can be modified only in writing, executed by each party hereto.
19. HOLDING OVER
If Tenant remains in possession of the Premises after expiration of
the Term, or after any termination of the Lease by Landlord, with
Landlord's acquiescence and without any written agreement between the
parties, Tenant shall be a tenant at sufferance and such tenancy shall be
subject to all the provisions hereof, except that the Monthly Rental for
said holdover period shall be double the amount of Rent due in the last
month of the Term. There shall be no renewal of this Lease by operation of
law. Nothing in this Paragraph shall be construed as a consent by Landlord
to the possession of the Premises by Tenant after the expiration of the
Term or any termination of the Lease by Landlord, or as an exclusive remedy
in the event of a holdover.
20. HEADINGS
The headings in this Lease are included for convenience only and shall
not be taken into consideration in any construction or interpretation of
any part of this Lease.
14
21. NOTICES
(a) Any notice, request or consent by either party to the other hereunder
shall be valid only if in writing and shall be deemed to be duly given only if
hand-delivered, or sent by certified mail or by a recognized national overnight
delivery service which has a receipt of notice as a part of its delivery
function. Such notices shall be addressed (1) if to Tenant, at the Premises and
(ii) if to Landlord, at Landlord's address set forth above, or at such other
address for either party as that party may designate by notice to the other.
Notice shall be deemed given, if delivered personally, upon delivery thereof,
and if mailed, upon the mailing thereof.
(b) Tenant hereby appoints as its agent to receive service of all
dispossessory or distraint proceedings, an employee in the Premises at the time
of any such service.
22. HEIRS, SUCCESSORS, AND ASSIGNS - PARTIES
(a) This Lease shall bind and inure to the benefit of Landlord and Tenant,
and their respective successors, heirs, legal representatives and assigns. The
term "Landlord" as used in this Lease means only the owner (or the ground
lessee) for the time being of the Property and Building of which the Premises
are a part, so that in the event of any sale or sales of said Property (or of
any lease thereof), Landlord named herein shall be and hereby is entirely
released of all covenants and obligations of Landlord hereunder accruing
thereafter, and it shall be deemed without further agreement that the purchaser,
or the lessee, as the case may be, has assumed and agreed to carry out any and
all covenants and obligations of Landlord hereunder during the period such party
has possession of the Property and Building. If the Property and Building are
severed as to ownership by sale and/or lease, the owner of the entire Building
or lessee of the entire Building that has the right to lease space in the
Building to tenants shall be deemed "Landlord". Tenant shall be bound to any
such succeeding party for performance by Tenant of all the terms, covenants, and
conditions of this Lease and agrees to execute any attornment agreement not in
conflict with the terms and provisions of this Lease at the request of any such
party.
(b) The parties "Landlord' and "Tenant" and pronouns relating thereto, as
used herein, shall include male, female, singular and plural, corporation,
partnership or individual, as may fit the particular parties.
23. ATTORNEY'S FEES
If Landlord has to engage or consult with an attorney as a result of or in
connection with a failure by Tenant to pay any Rent as and when due under the
Lease, then Tenant shall owe to Landlord, in addition to and not in lieu of any
other amounts due hereunder, and shall pay within ten (10) days after demand for
payment therefor is made, all such reasonable attorneys' fees actually incurred
by Landlord. Also, if any law suit or court action between Landlord and Tenant
arises out of or under this Lease, the prevailing party in such law suit or
court action shall be entitled to and shall collect from the non-prevailing
party the reasonable attorney's fees and court costs actually incurred by the
prevailing party with respect to said lawsuit or court action. Whenever in this
Lease, the phrase "reasonable attorneys' fees" or some similar phrase is used in
determining the amount of attorneys' fees, O.C.G.A. ss. 13-1-1l(a)(2) shall not
apply, and the parties hereby waive said Section.
24. TIME OF ESSENCE
TIME IS OF THE ESSENCE OF THIS LEASE.
25. NO ESTATE IN LAND
Tenant has only a usufruct under this Lease, not subject to levy or sale.
No estate shall pass out of Landlord by this Lease.
26. SECURITY DEPOSIT
Tenant has deposited with Landlord $63,879.03 as a security deposit for the
performance by Tenant of all the terms, covenants and conditions of this Lease
upon Tenant's part to be performed. Landlord shall have no obligation to
segregate such security deposit from any other funds of Landlord, and interest
earned on such security deposit, if any, shall belong to Landlord. The security
deposit shall be returned to Tenant within thirty (30) days after the expiration
of the Term, if Tenant has fully performed its obligations hereunder. Landlord
shall have the right to apply any part of said security deposit to cure any
default of Tenant and if Landlord does so, Tenant shall upon demand deposit with
15
Landlord the amount so applied so that Landlord shall have the full security
deposit on hand at all times during the Term of this Lease. If there is a sale
or lease of the Building subject to this Lease, Landlord shall transfer the
security deposit to the vendee or lessee, and Landlord shall be released from
all liability for the return of such security deposit. Tenant shall look solely
to the successor Landlord for the return of said security deposit. This
provision shall apply to every transfer or assignment made of the security
deposit to a successor Landlord. The security deposit shall not be assigned or
encumbered by Tenant without the prior consent of Landlord and any such
unapproved assignment or encumbrance shall be void.
27. COMPLETION OF THE PREMSES
Landlord shall supervise completion of the work described in Exhibit "D"
subject to payments which may be required of Tenant thereunder. Any work
required by Tenant as provided for in said Exhibit "D" shall be performed within
the provisions and according to all standards of said Exhibit "D".
28. PARKING ARRANGEMENTS
Landlord shall maintain free unreserved parking spaces for the Term of this
Lease, as it may be extended, for use by Tenant and Tenant's invitees and
employees, at a ratio of 2.75 spaces for each 1,000 useable square feet of the
Premises, provided such parking spaces are in compliance with the zoning for the
Property, as may be modified from time to time, and Tenant (and Tenant's guests
and employees) shall only be entitled to use that amount of parking spaces
(determined on a parking space per square foot leased basis). Such parking shall
be available subject to the limitations and conditions from time to time imposed
by Landlord. Said parking shall be maintained on the Property or on areas
located in the vicinity of the Property.
29. RULES AND REGULATIONS
The Rules on Exhibit "F" are a part of this Lease. Landlord may from time
to time amend, modify, delete or add additional Rules for the use, operation,
safety, cleanliness and care of the Premises and the Building. Such new or
modified Rules shall be effective upon notice to Tenant. Tenant will cause its
employees and agents, or any others permitted by Tenant to occupy or enter the
Premises to at all times abide by the Rules. If there is a breach of any Rules,
Landlord shall have all remedies in this Lease provided for in an Event of
Default by Tenant and shall, in addition, have any remedies available at law or
in equity, including but not limited to, the right to enjoin any breach of such
Rules. Landlord shall not be responsible to Tenant for the nonobservance by any
other tenant or person of any such Rules.
30. RIGHT TO RELOCATE
31. LATE PAYMENTS
Any payment due of Tenant hereunder not received by Landlord within five
(5) days of the date when due shall be assessed a five percent (5%) charge for
Landlord's administrative and other costs in processing and pursuing the payment
of such late payment, and shall be assessed an additional five percent (5%)
charge for the aforesaid costs of Landlord for each month thereafter until paid
in full. Acceptance by Landlord of a payment, and the cashing of a check in an
amount less than that which is currently due shall in no way affect Landlord's
rights under this Lease and in no way be an accord and satisfaction. This
provision does not prevent Landlord from declaring the non-payment of Rent when
due an event of default hereunder.
32. ESTOPPEL CERTIFICATE
Tenant shall, within ten (10) days of the request by Landlord, execute,
acknowledge and deliver to Landlord, any Mortgagee, prospective Mortgagee or any
prospective purchaser or transferee of the Property, the Building, or both (as
designated by Landlord), an Estoppel Certificate in recordable form, or in such
other form as Landlord may from time to time require, evidencing whether or not
(a) this Lease is in full force and effect; (b) this Lease has been amended in
any way; (c) Tenant has accepted and is occupying the Premises; (d) there are
any existing defaults on the part of Landlord hereunder or defenses or offsets
against the enforcement of this Lease to the knowledge of Tenant (specifying the
nature of such defaults, defenses or offsets, if any); (e) the date to which
Rent and other amounts due hereunder, if any, have, been paid; and (f) any such
other information as may be reasonably requested by Landlord. Each certificate
delivered pursuant to this Paragraph may be relied on by
16
Landlord, any prospective purchaser or transferee of Landlord's interest
hereunder, or any Mortgagee or prospective Mortgagee.
33. SEVERABILITY AND INTERPRETATION
(a) If any clause or provision of this Lease shall be deemed illegal,
invalid or unenforceable under present or future laws effective during the Term,
the remainder of this Lease shall not be affected by such illegality, invalidity
or unenforceability, and in lieu of each clause or provision of this Lease that
is illegal, invalid or unenforceable, there shall be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
(b) If any provisions of this Lease require judicial interpretation, the
court interpreting or construing the same shall not apply a presumption that the
terms of any such provision shall be more strictly construed against one party
or the other by reason of the rule of construction that a document is to be
construed most strictly against the party who itself or through its agent
prepared the same, as all parties hereto have participated in the preparation of
this Lease.
34. MULTIPLE TENANTS
If more than one individual or entity comprises and constitutes Tenant,
then all individuals and entities comprising Tenant are and shall be jointly and
severally liable for the due and proper performance of Tenant's duties and
obligations arising under or in connection with this Lease.
35. FORCE MAJEURE
Landlord shall be excused for the period of any delay and shall not be
deemed in default with respect to the performance of any of the terms,
covenants, and conditions of this Lease when prevented from so doing by causes
beyond Landlord's control, which shall include, but not be limited to, all labor
disputes, governmental regulations or controls, fire or other casualty,
inability to obtain any material or services, or acts of God,
36. QUIET ENJOYMENT
So long as Tenant is in full compliance with the terms and conditions of
this Lease, Landlord shall warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the Term against any and all claims made by,
through or under Landlord, subject to the terms of this Lease.
37. BROKERAGE COMMISSION; INDEMNITY
TC ATLANTA, INC. ("TC") HAS ACTED AS CONTRACT MANAGER FOR LANDLORD IN THIS
TRANSACTION AND THE MILLER-RICHMOND COMPANY ("MRC") HAS ACTED AS AGENT FOR
TENANT IN THIS TRANSACTION. BOTH TC AND MRC ARE TO BE PAID A COMMISSION BY
LANDLORD. Tenant warrants that there are no other claims for broker's
commissions of finder's fees in connection with its execution of this Lease.
Tenant hereby indemnifies Landlord and holds Landlord harmless from and against
all loss, cost, damage or expense, including, but not limited to, attorney's
fees and court costs, incurred by Landlord as a result of or in conjunction with
a claim of any real estate agent or broker, if made by, through or under Tenant.
Landlord hereby indemnifies Tenant and holds Tenant harmless from and against
all loss, cost, damage or expense, including, but not limited to, attorney's
fees and court costs, incurred by Tenant as a result of or in conjunction with a
claim of any real estate agent or broker, if made by, through or under Landlord.
Tenant shall cause any agent or broker representing Tenant to execute a lien
waiver to and for the benefit of Landlord, waiving any and all lien rights with
respect to the Building or Property such agent or broker has or might have under
Georgia law.
38. EXCULPATION OF LANDLORD
Landlord's liability to Tenant with respect to this Lease shall be limited
solely to Landlord's interest in the Building. Neither Landlord, any of the
partners of Landlord, any officer, director, or shareholder of Landlord nor any
of the partners of Landlord shall have any personal liability whatsoever with
respect to this Lease.
17
39. ORIGINAL INSTRUMENT
Any number of counterparts of this Lease may be executed, and each such
counterpart shall be deemed to be an original instrument
40. GEORGIA LAW
This Lease has been made under and shall be construed and interpreted under
and in accordance with the laws of the State of Georgia.
41. NO RECORDATION OF LEASE
Without the prior consent of Landlord, neither this Lease nor any
memorandum hereof shall be recorded or placed on public record.
42. HAZARDOUS WASTES
Tenant shall not (either with or without negligence) cause or permit the
escape, disposal or release of any biologically or chemically active or other
hazardous substances or materials. Tenant shall not allow the storage or use of
such substances or materials in any manner not sanctioned by law or by the
highest standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Building, the Premises
or the Property, any such materials or substances except to use in the ordinary
course of Tenant's business, and then only after notice is given to Landlord of
the identity of such substances or materials. Without limitation, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Section 6901 et seq., any applicable state or local laws and
the regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant shall
indemnify Landlord in the manner elsewhere provided in this Lease from any
release of hazardous materials on the Premises occurring while Tenant is in
possession, or elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of the
Lease Term.
43. LEASE BINDING UPON DELIVERY
This Lease shall not be binding until and unless all parties have duly
executed said Lease and a fully executed counterpart of said Lease has been
delivered to Tenant.
44. SPECIAL STIPULATIONS
The special stipulations attached hereto as Exhibit "G", if any, and made a
part hereof shall control if in conflict with any of the foregoing provisions of
this Lease.
(SIGNATURES COMMENCE ON FOLLOWING PAGE]
18
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed under seal, on the day and year first above written.
TENANT:
PIVOTAL CORPORATION
By: /s/ [Illegible] (SEAL)
-----------------------------
Authorized Signature
-----------------------------
Type Name of Signatory
Dated executed by
Tenant: 12-9-00
By: /s/ [Illegible] (SEAL)
----------------------------
Authorized Signature
ANDRE BEAULIEU
----------------------------
Type Name of Signatory
CORPORATE SEAL
*Note: If Tenant is a corporation, two authorized corporate officers
must execute this Lease in their appropriate capacities for Tenant,
affixing the corporate seal.
By the execution and delivery of this Lease Tenant has made and shall be
deemed to have made a continuous and irrevocable offer to lease the Premises, on
the terms contained in this Lease, subject only to acceptance by Landlord (as
evidenced by Landlord's signature hereon), which Landlord may accept in its sole
and absolute discretion.
Tenant's Federal Employer Identification Number: _________________
LANDLORD
485 PROPERTIES, LLC
By: /s/ Harry St. Clair
Name: HARRY ST. CLAIR
---------------
Title: ASSISTANT SECRETARY
Date executed by
Landlord: 12/19/00
19
Exhibit A
Exhibit B
Exhibit C
Exhibit D
Exhibit D-1
Exhibit E
Exhibit F
Exhibit G
EX-10.29
12
ex10_29.txt
EXHIBIT 1O.29
DATED 24 November 2000
--------------------------------------------------------------------------------
(1) SCHOLL CONSUMER PRODUCTS LIMITED
-and-
(2) PIVOTAL CORPORATION LIMITED
----------------------------------------
LEASE
of
Ground floor premises Altus 475
Capability Green, Lufton
----------------------------------------
Commences 24 November 2000
Term 5 years
Expires 23 November 2005
CONTENTS
1. PARTICULARS.............................................................1
2. DEFINITIONS AND INTERPRETATION..........................................2
3. DEMISE RENT AND RENT REVIEW.............................................7
4. TENANT'S COVENANTS......................................................8
5. LANDLORD'S COVENANTS...................................................27
6. INSURANCE..............................................................28
7. PROVISOS...............................................................30
SCHEDULE 1................................................................36
Part 1.................................................................36
Premises...............................................................36
Part 2.................................................................36
Easements and rights granted...........................................36
Part 3.................................................................37
Exceptions and reservations............................................37
Part 4.................................................................38
Matters to which the Premises are subject..............................38
SCHEDULE 2................................................................40
Part 1.................................................................40
Building Service Charge................................................40
Part 2.................................................................43
Services...............................................................43
SCHEDULE 3................................................................46
Guarantee provisions...................................................46
SCHEDULE 4 ...............................................................49
Requirements of authorised guarantee agreement.........................49
THIS LEASE is made on
BETWEEN the Landlord the Tenant and the Guarantor named in the Particulars
hereunder
WITNESSES as follows:
1. PARTICULARS
Landlord: SCHOLL CONSUMER PRODUCTS LIMITED (company number 118284
England) whose registered office is at Toft Hall, Holmes
Chapel Road, Toft, Knutsford WA16 9PD
Tenant: PIVOTAL CORPORATION LIMITED (company number 03399429
England) whose registered office is at Hamilton House, 111
Marlowes, Hemel Hempstad, Hertfordshire HP1 1BB
Premises: the premises shortly known as ground floor premises Altus
475 Capability Green, Luton shown for identification edged
red on plan E measuring 10,290 square feet in accordance
with the RICS Code of Measuring Practice (4th) Edition
Building: the Landlord's building known as 475 Capability Green
Term: A term of years from and including 24 November 2000 until 23
November 2005
Rent Commencement
Date: means the date falling six months after the Possession Date
Rent: One hundred and eighty eight thousand and eighty-two pounds
((pound)188,082) per annum (exclusive of VAT)
Possession
Date: 24 November 2000
Permitted Use: use of the Premises as offices within Class B1 of the
Schedule to the Town and Country Planning (Use Classes)
Order 1987
2. DEFINITIONS AND INTERPRETATION
2.1 Definitions
In this lease wherever the context so admits the following expressions
shall have the following meanings respectively:
"1995 Act" means the Landlord and Tenant (Covenants) Act 1995
"Apparatus" means all lifts lift shafts escalators water treatment
plant boilers heating and ventilation systems generators and all other
plant machinery and equipment belonging to or in the control of the
Landlord in or about or serving the Building including (without
prejudice to the generality of the foregoing) the Conduits
"Approval Date" means in relation to an application to the Landlord
for consent hereunder the date on which such consent is formally
granted in writing
"Building" means the building so stated in the Particulars shown edged
with a red line on Plan A including the outbuildings and car parks and
the landscaped areas and service areas within the curtilage thereof as
the same is for identification shown edged with a blue line on Plan A
together with all landlord's buildings structures additions
improvements fixtures and fittings from time to time therein
thereunder or thereon and forming part of such building and the
appurtenances thereof
"Building Service Charge" shall have the meaning ascribed thereto in
schedule 2
"Common Parts" means the entrance halls ground floor reception area
corridors landings lifts lift shafts escalators staircases and all
other areas or parts of the Building which from time to time during
the Term are provided by the Landlord for common use and enjoyment by
the tenants and occupiers of the Building and all persons expressly or
by implication authorised by them
"Conduits" means all wires pipes sewers drains cables ducts shafts
gullies flues gutters watercourses soakaways and other like conducting
media of whatsoever nature (including all meters and other apparatus
used in connection with them) which now are or may hereafter during
the Perpetuity Period be laid within and serving the Premises or the
Estate
"Decorate" means to paint repaper or otherwise treat as the case may
be all surfaces usually or requiring to be so treated having first
prepared such surfaces by stripping off and priming as may be
necessary and to wash down all washable surfaces and to restore point
and make good all brickwork where necessary and to grain or varnish
any parts usually so protected all decoration being carried out with
good quality materials and in a good and workmanlike manner and where
painting is involved not less than two coats being applied
"Environmental Protection Act" means the Environmental Protection Act
1990 and any Act or Acts amending replacing or modifying such Act for
the time being in force or of a similar nature and all orders and
regulations thereunder for the time being in force
"Estate" means such land and buildings as the Superior Landlord shall
from time to time designate as Capability Green, Luton Hoo,
Bedfordshire the extent of which at the date hereof is shown for
identification purposes only edged green on Plan B
"Estate Common Parts" has the meaning given to it in the Head Lease
"Estate Regulations" means such reasonable rules and regulations as
the Superior Landlord and/or the Management Company may from time to
time prescribe in writing in relation to the Estate or any part
thereof
"Estate Service Charge" means the sum or sums as shall from time to
time become or be payable by the Landlord in respect of the Estate
Common Parts under the provisions of the Head Lease
"Excluded Buildings" means the demised premises and the other
buildings erected or to be erected on the Phase which are let or
intended to be let to an occupational tenant
"Group Company" means a company which is a member of the same group of
companies as the Tenant (as defined in section 42 of the Landlord and
Tenant Act 1954 (as amended))
"Guarantor" means the party (if any) stated as such in the Particulars
and includes any other person who may from time to time guarantee all
or any of the Tenant's obligations under this Lease
"Head Lease" means the lease dated 19 November 1990 and made between
the Lygtun Limited (1) and Landlord (2)
"Insured Risks" has the meaning given to it in the Head Lease
"Landlord" means the person for the time being entitled to the
reversion immediately expectant on the determination of the Term
(being at the date hereof the party stated as such in the Particulars)
"Landlord's Surveyor" means any person appointed by or acting for the
Landlord including an employee of the Landlord to perform the function
of a surveyor for any purposes of this Lease
"Lease" means this Lease (including any schedule hereto) and any
document which is supplemental hereto or which is collateral herewith
or which is entered into pursuant to or in accordance with the terms
hereof
"Management Company" means Lygtun Management Limited or such other
company as may from time to time provide services in respect of the
Phase and/or the Estate
"Particulars" means the particulars in clause 1
"Permitted Use" means the use stated as such in the Particulars
"Perpetuity Period" means the period of 80 years commencing on the
date of the Head Lease being the perpetuity period for the purposes of
section I of the Perpetuities and Accumulations Act 1964 applicable to
this Lease
"Phase" means that part of the Estate known as Phase 400 Capability
Green upon which the demised premises are situate which is for the
purposes of identification only shown edged yellow on Plan D
"Phase Common Parts" has the meaning given to it in the Head Lease
"Phase Service Charge" means the sum or sums as shall from time to
time become or be payable by the Landlord in respect of the Phase
Common Parts under the provisions contained in Head Lease
"Plan A" means the drawing attached hereto marked "Plan A"
"Plan B" means the plan attached hereto marked "Plan B"
"Plan C" means the plan attached hereto marked "Plan C"
"Plan D" means the plan attached hereto marked "Plan D"
"Plan E" means the plan attached hereto marked "Plan E"
"Planning Acts" means the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation Areas) Act 1990 the
Planning (Hazardous Substances) Act 1990 the Planning (Consequential
Provisions) Act 1990 and the Planning and Compensation Act 1991 and
any Act or Acts amending replacing or modifying any of such Acts for
the time being in force or of a similar nature and all orders and
regulations thereunder for the time being in force
"Premises" means the premises so stated in the Particulars and as more
particularly described in part 1 of schedule 1 and each and every part
thereof together with all additions alterations and improvements
thereto which may be carried out during the Term and shall also
include all landlord's fixtures and fittings from time to time in and
about the same
"Rent Commencement Date" means the date stated as such in the
Particulars
"Rent Days" means 25 March 24 June 29 September and 25 December in
each year and "Rent Day" shall mean any of such days as the context
requires
"Retained Parts" means those parts of the Building which are from time
to time retained by the Landlord and used for the management
maintenance or security of the Building
"Stipulated Rate" means in relation to interest the rate per annum of
four per cent above the base rate from time to time of Barclays Bank
Plc (or where such base rate is not quoted over such other rate as
would in the reasonable opinion of the Landlord be the nearest
equivalent thereto if such base rate were quoted)
"Structure" means the foundations external walls (including the
windows and window frames therein) load bearing walls supporting
columns stanchions beams supports timbers and girders floors roofs and
other structural parts of the Building
"Superior Landlord" means Pillar Property Plc
"Tenant" means the party stated as such in the Particulars and shall
include such party's successors in title to this Lease
"VAT" means value added tax or any tax of a similar nature that may be
substituted for it or levied in addition to it
2.2 Interpretation
In this Lease unless there be something in the subject or context
inconsistent therewith:
2.2.1 Where the expressions the "Tenant" or the "Guarantor" (if any)
include two or more persons they shall include the plural number
and obligations expressed or implied to be made by or with any
of such persons shall be deemed to be made by or with such
persons jointly and severally
2.2.2 Any covenant by the Tenant not to do or omit to do an act or
thing shall be deemed to include an obligation not to permit or
suffer such act or thing to be done or omitted to be done as the
case may be
2.2.3 Any reference to parting with possession shall be deemed to
include sharing possession and any occupation whatsoever by a
licensee
2.2.4 Any reference in this Lease to the Landlord's consent shall
include where necessary under the terms of the Head Lease the
consent of both the Landlord and the Superior Landlord
2.2.5 Any references to a right exercisable by the Landlord shall
include where necessary the exercise of such right by the
Superior Landlords and all persons authorised by the Landlord or
Superior Landlord
2.2.6 Any reference to a statute shall include any statutory extension
or modification or re-enactment of such statute and any order
instrument plan regulation permission or direction made or
issued thereunder
2.2.7 Words importing the singular meaning shall include the plural
meaning and vice versa and words importing the masculine
feminine and neuter genders shall include the other or others of
such genders
2.2.8 The clause and paragraph headings and the index are for
convenience only and shall not affect the construction of this
Lease
2.2.9 For the avoidance of any doubt expressions used in the
Particulars shall have the same meanings when used elsewhere in
this Lease
2.2.10 Any reference to a clause paragraph or schedule shall be a
reference to the clause or paragraph of or schedule to this
Lease so numbered
3. DEMISE RENT AND RENT REVIEW
3.1 Demise and rent
In consideration of the rents hereinafter reserved and of the
covenants and conditions hereinafter contained the Landlord hereby
3.1.1 demises unto the Tenant all that the Premises
3.1.2 together with so far as the Landlord can grant the same the
rights contained or referred to in part 2 of schedule 1
3.1.3 except and reserving as provided in part 3 of schedule 1
3.1.4 to hold the same subject to and (insofar as the Landlord has the
power to grant the same) with the benefit of the matters
referred to in part 4 of that schedule
3.1.5 unto the Tenant for the Term yielding and paying to the Landlord
yearly during the Term and so in proportion for any less period
than a year without any deduction
3.1.5.1 the clear yearly rent (exclusive of VAT) such rent (if
the Landlord so requires) to be paid by banker's standing
order direct debit or other accepted means for the
transmission of money which the Landlord may from time to
time reasonably nominate by equal quarterly payments in
advance on the four Rent Days in every year the first
payment (for the period beginning on the Rent
Commencement Date and ending on the day preceding the
next succeeding Rent Day and calculated by multiplying
the said yearly rent by the fraction of which the
numerator is the number of days between those dates (both
included) and the denominator is 365) to be made on the
Rent Commencement Date
3.1.5.2 by way of additional rent all such monies as shall become
payable in accordance with clause 4.3
3.1.5.3 by way of additional rent all such monies as shall become
payable in accordance with clause 4.4
3.1.5.4 by way of additional rent within seven days of written
demand all other amounts (including VAT) payable to the
Landlord under this Lease
3.1.5.5 within seven days of written demand any other sums or a
proportion thereof (to be determined by the Landlord
acting reasonably) payable by the Landlord to the
Superior Landlord in respect of the Premises under the
terms of the Head Lease
4. TENANT'S COVENANTS
The Tenant hereby covenants with the Landlord as follows:
4.1 Rent
To pay the several rents reserved by this Lease at the times and in
manner aforesaid without any deductions and not to exercise or seek to
exercise any right or claim to withhold rent or any right or claim to
legal or equitable set-off the first payment of such rents to be paid
on the Rent Commencement Date in respect of the period from the Rent
Commencement Date to the next succeeding Rent Day
4.2 Outgoings
4.2.1 To bear pay and discharge and indemnify the Landlord against all
existing and future rates taxes duties levies charges
assessments impositions and outgoings whatsoever whether
parliamentary parochial local or of any other description and
whether or not of a capital or non-recurring nature which are
now or may at any time hereafter during the Term be charged
levied assessed or imposed upon or payable in respect of the
Premises or any part thereof or upon any owner or occupier or
other person interested in respect thereof except any taxation
(including input VAT suffered by the Landlord in respect of the
Building save where this is recoverable from the Tenant under
the service charge provisions of this Lease) assessed upon the
Landlord in respect of its revenue derived from its reversionary
interest in the Premises or any dealing by it therewith
4.2.2 To be solely responsible for and promptly to pay all costs and
charges for water gas electricity telephone and any other
services used or consumed in the Premises including all meter
rents and standing charges but so that the Landlord shall not be
responsible for any interruption or failure in the supply of any
such services where such failure or interruption is beyond its
control
4.3 Interest on arrears
If and whenever the Tenant shall fail to pay the rents or any other
monies due under this Lease on the due date (whether formally demanded
or not) or the Landlord shall with good reason refuse to accept the
same then (without prejudice to any other right or remedy of the
Landlord including the right of re-entry hereinafter contained) the
Tenant shall pay to the Landlord (whether formally demanded or not)
interest at the Stipulated Rate on such rents or other monies as the
case may be from the date when the same became due until payment
thereof (as well after as before judgment)
4.4 Service charges
4.4.1 To pay to the Landlord the Building Service Charge in accordance
with schedule 2
4.4.2 To pay to the Landlord 50% of the Estate Service Charge
4.4.3 To pay to the Landlord 50% of the Phase Service Charge
4.5 Repairs
4.5.1 To at all times during the Term well and substantially repair
cleanse maintain renew (in so far as it falls within the
Tenant's obligations hereunder) (if necessary) and keep the
Premises in good and substantial repair and condition with all
manner of reparations cleansing and amendments whatsoever
4.5.2 To keep in good and safe repair all Conduits exclusively serving
the Premises and to indemnify the Landlord against all liability
howsoever arising from any failure to repair or the misuse or
overloading of any Conduits serving the Premises by the Tenant
4.5.3 To maintain in good and serviceable repair and condition the
Landlord's and Superior Landlord fixtures and fittings in or
upon the Premises and to replace such of them as may become worn
out lost unfit for use or destroyed by substituting others of a
like or more modem nature and of good quality
4.5.4 To repair and make good all defects decays and wants of repair
in respect of the Premises of which notice in writing shall be
given by the Landlord to the Tenant and for which the Tenant may
be liable hereunder within one calendar month after the giving
of such notice provided that in the case of default by the
Tenant it shall be lawful for (but not obligatory upon) the
Landlord (but without prejudice to the right of re-entry
hereinafter contained or other rights of the Landlord with
regard thereto) to enter upon the Premises and make good such
defects decays and wants of repair and the proper cost thereof
and all proper expenses (including surveyors' and other
professional fees) together with interest thereon at the
Stipulated Rate from the date of expenditure by the Landlord
until payment by the Tenant as well after as before judgment
shall be a debt due from the Tenant to the Landlord and be
forthwith recoverable by action
4.5.5 To keep the Premises clean and in a neat and tidy condition and
keep all rubbish and waste in enclosed receptacles on the
Premises or where the Landlord reasonably directs and to empty
the same at least once a week and
to ensure that vehicles parked in the car parking areas are left
so as not to cause obstruction to other users
4.5.6 To clean as often as may be requisite the inside of the window
panes and frames of the Premises
4.6 Decoration
In the last year of the Term howsoever determined and in such last
three months in a tint or colour to be approved by the Landlord's
Surveyor (such approval not to be unreasonably withheld or delayed) to
Decorate the Premises
4.7 Alterations
4.7.1 Not to cut injure maim remove or alter the Structure or any part
thereof nor to merge the Premises with any adjoining premises
4.7.2 Not to make any alteration or addition (whether structural or
non-structural) to the exterior of the Premises
4.7.3 Not to make any internal non-structural alteration or addition
whatsoever of in or to the Premises except
4.7.3.1 with the prior written consent of the Landlord (which
shall not be unreasonably withheld or delayed)
4.7.3.2 subject to such reasonable terms and conditions
(including provision for reinstatement at the Tenant's
cost on the expiration or sooner determination of the
Term) as the Landlord may require
4.7.3.3 in accordance with drawings and specifications previously
submitted in triplicate to and approved in writing by or
on behalf of the Landlord (such approval not to be
unreasonably withheld or delayed) and
4.7.3.4 after having obtained and supplied to the Landlord and
Superior Landlord copies of all requisite consents
licences and permissions for the carrying out of such
works from any local public or other authority or body
4.7.3.5 the Tenant shall comply with the procedures relating to
any such application contained in the Estate Regulations
4.7.4 Not to make or carry out any alteration addition or extension to
any of the water gas electricity and other public utility
service systems serving the Premises except with the prior
written consent of the Landlord (which shall not be
unreasonably withheld, or delayed) and in accordance with the
relevant codes of practice of the statutory undertaker concerned
and to supply to the Landlord and Superior Landlord upon request
an adequate drawing or drawings showing the actual position of
all pipes wires cables and other services within the Premises
installed amended or extended by the Tenant
4.7.5 In the event of the Tenant failing to observe the covenants
referred to in this clause 4.7 and failing to take all
reasonable steps to remedy any such breach within 15 days of
receipt of a written notice from the Landlord requiring the
Tenant to remedy the breach it shall be lawful for the Landlord
and its agents or surveyors with or without workmen and others
and all persons authorised by the Landlord with any necessary
materials and appliances to enter upon the Premises at all
reasonable times and remove any alterations or additions and
execute such works as may be necessary to restore the Premises
to their former state and the cost thereof and all expenses
(including surveyors' and other professional fees) together with
interest thereon at the Stipulated Rate from the date of
expenditure by the Landlord until payment by the Tenant as well
after as before judgment shall be a debt due from the Tenant to
the Landlord and be forthwith recoverable by action
4.8 Entry
To permit the Landlord and its agents and all persons authorised by
them with or without workmen and appliances at all reasonable times
and upon giving not less than 48 hours written notice (except in an
emergency) to enter the Premises
4.8.1 to examine the state of repair and condition thereof
4.8.2 to check and take inventories of the Landlord's fixtures and
fittings and the plant machinery and equipment therein
4.8.3 to repair and maintain or execute any work upon the Building or
any part thereof or any landlord's fixtures and fittings or the
Apparatus therein (including the installation of additional or
the extension of existing plant machinery equipment services
utilities and systems) or to cleanse empty repair or renew any
Conduits which are not the responsibility of the Tenant under
this Lease or for the provision of any of the Services referred
to in schedule 2 all physical damage occasioned thereby to the
Premises being made good as soon as possible
4.8.4 for any other purpose (including measurement and inspection in
relation to any rent review hereunder) connected with the sole
charge or other dealing with the interest of the Landlord in the
Premises
4.8.5 to exercise the rights herein excepted and reserved
4.9 Use
4.9.1 Subject always to the following provisions of this clause 4.9
not to use the Premises otherwise than for the Permitted Use and
in accordance with the requirements and conditions of any
planning permission authorising such use from time to time
4.9.2 Not to do on the Premises anything which may be illegal or
immoral or a nuisance or annoyance or cause danger or injuryor
damage to the Landlord or any tenant or any neighbouring owner
or occupier and to pay all proper costs charges and expenses
incurred by the Landlord in abating a nuisance and in executing
such works as may be required to abate a nuisance in obedience
to any notice served upon the Landlord by the local authority or
competent statutory undertaker in respect of or incidental
to the Premises or the use thereof
4.9.3 Not to use the Premises for any noxious noisy or offensive trade
or business and not to hold any sale by auction or public show
nor keep any live animals or birds on the Premises and not to
allow on the Premises anything which is or may become dangerous
offensive combustible inflammable radioactive or explosive
4.9.4 Not to trade or display goods outside the Premises nor to cause
any obstruction outside the Premises
4.9.5 Not to use on the Premises any machine (other than machinery
normally associated with the Permitted Use and which where
appropriate shall be mounted so as to minimise noise and
vibration) without the written consent of the Landlord and not
to use on the Premises any machinery or sound reproduction or
amplifying equipment which shall be noisy or cause vibration or
be a nuisance disturbance or annoyance to the Landlord or the
owners and/or occupiers of any adjoining or neighbouring
premises
4.9.6 Not to do anything which imposes any excessive load or strain on
the Premises or any part thereof
4.9.7 Not to suffer or permit any person to reside or sleep on the
Premises
4.9.8 Not to discharge anything into the Conduits serving the Premises
which is corrosive or harmful or which causes or may cause any
obstruction or deposit therein
4.9.9 Not to commit any waste upon or to the Premises
4.9.10 Not to use the Premises as an office for a government agency or
other public authority which would involve the attendance threat
of members of the public for the purpose of seeking employment
or enrolling for or collecting any statutory social security
health insurance or other benefit payment or applying for or
collecting any licence passport certificate or similar document
or paying threat any tax imposition or other financial liability
4.9.11 If the Premises are continually unoccupied for more than one
month to provide security and caretaking arrangements to afford
the Premises reasonable protection against vandalism theft or
unlawful occupation
4.9.12 To use reasonable endeavours to keep the Premises at a
temperature sufficiently high to prevent freezing of water in
any Conduits
4.9.13 Not to obstruct others lawfully using the Common Parts and/or
the Estate and to use the same in a reasonable manner and in
accordance with any
reasonable regulations made by the Landlord or Superior
Landlord or Management Company from time to time in regard
thereto
4.9.14 Not to park or cause to be parked or permit to be parked any
vehicle on the roads paths or fire escapes on the Estate and
will not obstruct or cause to be obstructed or (so far as lies
within the reasonable control of the Tenant PROVIDED THAT the
Tenant shall in any event use all reasonable endeavours to
ensure that any person doing business with the Tenant and their
servants and workman shall comply with this covenant) permit to
be obstructed any fire escape path whether by the standing
parking or storage of vehicles goods or merchandise thereon or
in any other way whatsoever and will not obstruct or permit or
suffer the obstruction of any forecourt or other open area on
any part of the Estate (including in particular without
prejudice to the generality of the foregoing the service roads
of the Estate whether by standing parking or storage of
vehicles goods or merchandise thereon or in any way whatsoever
4.10 Alienation
4.10.1 Not to assign underlet or charge part only of the Premises
4.10.2 Save for an underletting in accordance with the succeeding
provisions of this clause not to underlet the whole or any part
of the Premises or to part with possession of or share
occupation of the whole or any part of the Premises and not to
permit any person deriving title under the Tenant by way of
permitted underlease so to do in respect of the Premises
4.10.3 Not under any circumstances to create or permit the creation of
any interest derived out of this Lease whether mediate or
immediate and however remote or inferior
4.10.3.1 at a fine or premium or other capital sum (and so that
no such fine premium or other capital sum shall be
taken)
4.10.3.2 except at a rent which is not less than the open
market rental value of the Premises
4.10.3.3 except on terms which prohibit the commutation of rent
4.10.4 Not to assign part with possession or charge the whole of the
Premises nor permit any person deriving title under the Tenant
so to do without the prior written consent of the Landlord
which shall not be unreasonably withheld or delayed but so that
for the purposes of section 19(1A) of the Landlord and Tenant
Act 1927 (as amended by the 1995 Act) it is agreed that it
shall be reasonable for the Landlord to withhold consent to
an assignment of the whole of the Premises unless:
4.10.4.1 the assignee is not a Group Company
4.10.4.2 the assignee shall by deed enter into a direct
covenant with the Landlord and Superior Landlord to
observe and perform the covenants and provisions of
and to pay the rents reserved by this Lease for
(subject to the provisions of the 1995 Act) the
remainder of the Term and a guarantor or guarantors
acceptable to the Landlord (if more than one jointly
and severally) shall if the Landlord reasonably
requires enter into a covenant and guarantee with and
to the Landlord in the terms set out in schedule 3 as
if references therein to the "Tenant" were references
to the assignee and
4.10.4.3 the Tenant shall if reasonably required by the
Landlord by deed enter into an authorised guarantee
agreement in respect of the assignee which shall
satisfy the requirements set out in schedule 4 and
4.10.4.4 each person who is guarantor of the Tenant under this
Lease immediately prior to the assignment shall enter
into a guarantee in the same terms (mutatis mutandis)
as schedule 3 in respect of the liability of the
Tenant under any authorised guarantee agreement and
4.10.4.5 at the Approval Date no Rent or other monies due to
the Landlord under this Lease are unpaid and
4.10.5 Subject as aforesaid not to underlet the whole of the Premises
without the prior written consent of the Landlord (which shall
not be unreasonably withheld or delayed)
4.10.6 To procure in the case of any permitted underletting of the
Premises (whether mediate or immediate) that on or before the
grant of the relevant underlease:
4.10.6.1 the underlessee shall covenant with the Landlord by
deed to observe and perform the Tenant's covenants and
conditions in this Lease (except the covenant to pay
rent) (so far as the same relate to the part of the
Premises comprised in the underlease) and those of the
underlessee in the relevant underlease
4.10.6.2 if the Landlord shall so reasonably require a
guarantor or guarantors acceptable to the Landlord
shall covenant (if more than one jointly and
severally) with the Landlord to guarantee the
observance and performance by the underlessee of its
covenants to be contained in such underlease
such guarantee to be given (mutatis mutandis) in the
form of the provisions contained in schedule 3
4.10.7 To procure that any permitted immediate or mediate underlease
is in a form approved by the Landlord (such approval not to be
unreasonably withheld or delayed) and in particular contains:
4.10.7.1 covenants by the underlessee with the underlessor
prohibiting the underlessee from doing or allowing
any act or thing on or in relation to the premises
demised by such underlease inconsistent with or in
breach of the Tenant's obligations in this Lease
4.10.7.2 a condition for re-entry by the underlessor on breach
of any covenant by the underlessee
4.10.7.3 the same restrictions on assignment underletting
parting with possession and sharing of occupation
and the same provisions for direct covenants and
registration as in this Lease
4.10.7.4 a prohibition on any assignment of the whole of the
premises demised by the underlease without the
consent of the Landlord
4.10.7.5 an agreement duly authorised by an order of a court
of competent jurisdiction excluding in relation to
that underlease the provisions of sections 24 to 28
of the Landlord and Tenant Act 1954 (as amended)
or any modification or re-enactment thereof
4.10.8 To enforce performance by every such underlessee of the
covenants and conditions in the underlease and not to release
or waive any such covenants or conditions without the
Landlord's consent
4.10.9 Upon every application for consent required by this clause to
disclose to the Landlord such information as to the terms
proposed as the Landlord may reasonably require
4.10.10 Not to enter into any variation of the terms of any underlease
without the Landlord's consent nor to accept a surrender of
the same in respect of part only (as opposed to the whole) of
the premises underlet
Provided that the Tenant may share occupation of the Premises with any
Group Company on condition that the sharing shall not create a new
relationship of landlord and tenant and that on any occupier ceasing
to be a Group Company the occupation shall immediately cease or be
otherwise documented in accordance with this clause.
4.11 Registration of documents
4.11.1 Within one month after any assignment or underlease or any
transmission or other devolution relating to the Premises or
any part thereof to give notice thereof to the Landlord's
and Superior Landlord solicitor and to furnish him with a
certified copy of any document relating thereto and to
pay to the Landlord's solicitor a reasonable fee (not being
less than (pound)30) plus VAT thereon together with any
Superior Landlords fee
4.11.2 To supply to the Landlord within 14 working days of written
request the names and addresses of any tenant deriving title
from the Tenant (whether mediately or immediately) together
with details of the rent payable by any such tenant and the
other terms of such tenancy
4.11.3 To supply to the Landlord any details required by the Landlord
pursuant to section 40 of the Landlord and Tenant Act 1954
4.12 Compliance with statutes
To comply in all respects with and in a proper and workmanlike manner
to execute all works required under the provisions of all statutes for
the time being in force and the directions of any competent authority
relating to the Premises or any part thereof or the use thereof or
anything contained therein or the employment therein of any person or
persons and not to do or knowingly omit or suffer to be done or
omitted on or about the Premises any act or thing by reason of which
the Landlord may under any enactment incur or have imposed upon it or
become liable to pay any levy penalty damages compensation costs
charges or expenses and to indemnify and keep indemnified the Landlord
against all claims demands costs expenses and liability in respect of
any breach of the foregoing
4.13 Planning/environmental matters
4.13.1 Not to apply for planning permission in respect of the
Premises without the Landlord's prior written consent
(not to be unreasonably withheld or delayed) and if the
Landlord attaches reasonable conditions to any such consent
not to apply for any planning permission except in accordance
with those reasonable conditions
4.13.2 At all times during the Term to comply with the provisions and
requirements of the Planning Acts and of any planning
permissions (and the conditions thereof) relating to or
affecting the Premises or the use thereof or any operations
works acts or things carried out executed done or omitted
thereon and to keep the Landlord indemnified in respect
thereof
4.13.3 Subject to clause 4.13.1 as often as occasion requires during
the Term at the Tenant's expense to obtain and if appropriate
renew all planning permissions and serve all notices required
under the Planning Acts for the carrying out by the Tenant of
any operations or the institution or continuance by the Tenant
of any use of the Premises or any part thereof
4.13.4 To pay and satisfy any charge imposed during the Term under
the Planning Acts in respect of the carrying out or
maintenance by the Tenant of any such operation or the
institution or continuance by the Tenant of any such use as
aforesaid
4.13.5 Notwithstanding any consent which may be granted by the
Landlord under this Lease not to carry out or make any
alteration or addition to the Premises or any change of use of
the Premises (being an alteration or addition or change of use
prohibited by or for which the Landlord's consent is required
under this Lease and for which a planning permission is
needed) before a planning permission for such alteration
addition or change of use has been produced to the Landlord
(acting reasonably) as satisfactory provided that the Landlord
may refuse to express such satisfaction if the period of such
permission or anything contained in or omitted from it will
in the reasonable opinion of the Landlord's Surveyor be likely
to prejudice the Landlord's interest in the Premises either
during the Term or on or after the expiration or earlier
determination of the Term
4.13.6 Unless the Landlord otherwise directs in writing to carry out
and complete before the expiration or earlier determination of
the Term any work required to be carried out to the Premises
as a condition of any planning permission granted during
the Term whether or not the date by which the planning
permission requires such works to be carried out is during
the Term and any development begun on the Premises in respect
of which the Landlord shall or may be or become liable for any
charge or levy under the Planning Acts
4.13.7 When called upon so to do to produce to the Landlord and the
Landlord's Surveyor all plans documents and other evidence
reasonably required by the Landlord to satisfy itself acting
reasonably that the Tenant's obligations in this clause have
been complied with
4.13.8 Not without the prior written consent of the Landlord such
consent not to be unreasonably withheld or delayed to enter
into a planning obligation for the purposes of section 106 of
the Town and Country Planning Act 1990
4.13.9 Where any planning permission is granted subject to conditions
involving the carrying out of works upon or change of use of
the Premises the
Landlord may as a condition of its consent to the carrying
out of such works or change of use require the Tenant to
provide security for the due compliance with those
conditions and no works shall be commenced and no change of
use shall be implemented until such security has been
provided to the Landlord's satisfaction
4.13.10 As soon as practicable to notify the Landlord of any order
direction proposal or notice under the Planning Acts served on
or received by the Tenant or coming to the Tenant's notice
which relates to or affects the Premises and to produce to the
Landlord if required any such order direction proposal or
notice in the Tenant's possession and not to take any action
in respect of such order direction proposal or notice without
the Landlord's approval such approval not to be unreasonably
withheld or delayed
4.13.11 In relation to any act the commission or omission of which
requires any consent licence or other authority under the
Environmental Protection Act not to do or omit to do (as the
case may be) such act without obtaining such authority and not
to apply for such authority without the Landlord's prior
written consent not to be unreasonably withheld or delayed
4.14 Easements
Not to obstruct any window light or way belonging to the Premises or
to any adjoining or neighbouring premises nor acknowledge that any
easement or other right for the benefit of the Premises is enjoyed by
consent of any other person nor permit any new easement right or
encroachment to be made into against or on the Premises and to give
immediate notice to the Landlord if any easement right or encroachment
against or affecting the Premises shall be made or attempted as soon
as the Tenant becomes aware of the same and at the Landlord's request
and to adopt such means as may be reasonably required to prevent the
same
4.15 Electricity Substation
Not to do or suffer to be done any act which would in anyway interfere
with the running of or damage any electricity or gas substation
situated on the Estate
4.16 Notifications
Forthwith on receipt of any permission notice order or proposal
relating to the Premises or the use or condition thereof given or
issued by any governmental local or other public or competent
authority to give full particulars thereof to the Landlord and if so
required by the Landlord to produce the same to the Landlord and to
take all necessary steps to comply therewith and also when reasonably
requested by the Landlord to make or join with the Landlord in making
such objections and representations against or in respect of the same
as the Landlord shall deem expedient
4.17 Defects
Forthwith upon becoming aware of the same to give notice in writing to
the Landlord of any defect in the state or condition of the Premises
which would or might give rise to an obligation upon the Landlord to
do or refrain from doing any act or thing in order to comply with any
duty of care imposed upon the Landlord and to indemnify the Landlord
against or in respect of any losses claims actions costs demands or
liability arising out of any failure of the Tenant to comply with its
obligations under this Lease
4.18 Fire fighting
To keep the Premises supplied and equipped with all fire fighting and
extinguishing appliances from time to time required by law or required
by the insurers of the Premises or reasonably required by the Landlord
such appliances being kept open to inspection and properly maintained
and not to obstruct or permit or suffer to be obstructed the access to
or means of working such appliances or the means of escape from the
Premises in case of fire
4.19 Advertisements/aerials
Not without the prior written consent of the Landlord not to be
unreasonably withheld or delayed to affix or exhibit any advertisement
placard notice or sign either outside the Premises or inside the
Premises so as to be seen from the outside nor without such consent to
install any flagpole mast or outside satellite receiving dish or
television or radio aerial on the Premises and to remove at the end or
earlier
determination of the Term any item so exhibited or installed making
good all damage caused thereby to the reasonable satisfaction of the
Landlord
4.20 Notice boards
In the last six months of the Term to permit the Landlord or its
agents to affix upon any suitable part of the Premises a notice board
or bill relating to any reletting of the same or to any sale or other
dealing with this Lease and the Tenant will not remove or obscure the
same and will on reasonable prior notice and at times agreed by the
Landlord and Tenant (both acting reasonably) permit those authorised
by the Landlord in connection with any such reletting sale or other
dealing to enter and view the Premises without interruption
4.21 Expenses
To pay to the Landlord on demand and on an indemnity basis all costs
charges expenses damages and losses (including but without prejudice
to the generality of the foregoing legal costs bailiffs fees and
surveyor's fees) properly incurred by the Landlord in relation to or
incidental to:
4.21.1 the preparation and service of a notice under section 146 of
the Law of Property Act 1925 and/or any proceedings relating
to the Premises whether under sections 146 and/or 147 of the
Law of Property Act 1925 or otherwise or a notice served under
the said section 146 is complied with by the Tenant or the
Tenant has been relieved under the provisions of the Law of
Property Act 1925 and notwithstanding forfeiture is avoided
otherwise than by relief granted by the court and to keep the
Landlord fully indemnified against all proper costs charges
expenses claims and demands whatsoever in respect of the
said proceedings and the preparation and service of the said
notices
4.21.2 (without prejudice to the generality of the foregoing) the
preparation and service of any notice or schedule relating to
the repair of the Premises whether served on the Tenant during
or within three months after the expiration or earlier
determination of the Term
4.21.3 procuring the remedying of any breach of covenant on the part
of the Tenant or any sub-tenant or their respective
predecessors in title contained in this Lease and
4.21.4 every application made by the Tenant for a consent or licence
required by the provisions of this Lease whether such consent
or licence is granted or lawfully refused or proffered subject
to any lawful qualification or condition or whether the
application is withdrawn
4.22 New guarantor
To notify the Landlord within 14 days of the Tenant becoming aware
that:
4.22.1 any Guarantor being an individual (or if individuals any one
of them) shall become bankrupt or shall make any assignment
for the benefit of or enter into any arrangement with his
creditors either by composition or otherwise or have any
distress or other execution levied on his goods or have a
receiver appointed under the Mental Health Act 1983
4.22.2 any Guarantor being an individual (or if individuals any one
of them) shall die
4.22.3 any Guarantor being a body corporate (or if bodies corporate
any one of them) has a winding up order made in respect of it
other than a members' voluntary winding up of a solvent
company for the purposes of amalgamation or reconstruction
approved by the Landlord (such approval not to be unreasonably
withheld or delayed) or has a receiver administrator or an
administrative receiver appointed of it or any of its assets
or has any distress or other execution levied on its goods or
is dissolved or struck off the Register of Companies or
(being a body corporate incorporated outside the United
Kingdom) is dissolved or ceases to exist under the laws of its
country or state of incorporation
and in any such case if the Landlord so requires then at the Tenant's
expense within 28 days of such requirement to procure that some other
person or persons or body or bodies corporate reasonably acceptable to
the Landlord shall execute a guarantee in
the terms of schedule 3 with such amendments as the Landlord shall
reasonably require in the circumstances
4.23 Indemnity
To keep the Landlord indemnified from and against all loss damage
actions proceedings claims demands costs and expenses of whatsoever
nature and whether in respect of any injury to or the death of any
person or damage to any property movable or immovable or otherwise
howsoever arising directly or indirectly from the repair or the state
of repair or condition of the Premises or from any breach of covenant
on the part of the Tenant herein contained or from the use of the
Premises or out of any works carried out at any time during the Term
to the Premises or out of anything now or during the Term attached to
or projecting from the Premises or as a result of any act neglect or
default by the Tenant or by any sub-tenant or by their respective
servants agents licensees or invitees
4.24 Yield up
At the expiration or sooner determination of the Term:
4.24.1 quietly to yield up the Premises to the Landlord with vacant
possession in such state and condition as shall in all
respects be consistent with a full and due performance by
the Tenant of the covenants on its part herein contained
4.24.2 if so required by the Landlord to remove all fixtures and
fittings installed in the Premises during the Term save that
the Tenant shall not be obliged to reinstate the alterations
authorised by a licence for alterations made between the
Superior Landlord (1) the Landlord (2) and the Tenant (3) of
even date herewith
4.24.3 to make good to the reasonable satisfaction of the Landlord
all damage caused as a result of the removal by the Tenant of
any fixtures and fittings
4.24.4 to remove all signs and nameplates indicating the connection
or former connection of the Tenant with the Premises
4.25 VAT
4.25.1 To pay to the Landlord by way of additional rent such VAT as
may be or become payable in respect of the rents reserved by
and other monies payable under and the consideration for all
taxable supplies received by the Tenant under or in connection
with this Lease
4.25.2 In every case where the Tenant has agreed to reimburse or
indemnify the Landlord in respect of any payment made by the
Landlord under the terms of or in connection with this Lease
to reimburse in addition any VAT paid by the Landlord on such
payment where this cannot be recovered by the Landlord as
input tax
4.26 Regulations
4.26.1 To comply with all reasonable regulations and directions as
the Landlord may from time to time make or give to the
occupiers of the Building for the orderly convenient and
proper management of the Building or any part or parts thereof
4.26.2 To comply with the Estate Regulations determined under the
terms of the Head Lease and ensure that its servants agents
employees workmen and licensees and all person doing business
with the Tenant their servants agents employees and workmen
so comply
4.26.3 To observe and perform all speed parking or other regulations
and traffic directions which the Management Company may from
time to time make (in the interests of the owners and
occupiers of the Estate or any part thereof or for road
safety) in respect of the common roads footpaths and ways in
the Estate
4.27 Observe covenants
4.27.1 To observe and perform the agreements covenants and
stipulations (if any) referred to in part 4 of schedule 1 so
far as any of the same are still subsisting and capable of
taking effect and relate to the Premises and to keep the
Landlord indemnified against all actions proceedings costs
claims demands and liability in any way relating thereto
4.27.2 To observe and perform the covenants on the part of the lessee
thereunder contained in the Head Lease insofar as they relate
to the Premises save where the same are expressly herein made
the responsibility of the Landlord
5. LANDLORD'S COVENANTS
The Landlord hereby covenants with the Tenant as follows:
5.1 Quiet enjoyment
The Tenant paying the rents and other monies hereby reserved and
performing and observing the covenants conditions and agreements on
the part of the Tenant herein contained the Tenant may peaceably hold
and enjoy the Premises during the Term without any interruption by the
Landlord or any person lawfully claiming through under or in trust for
the Landlord
5.2 Services
5.2.1 Subject to the payment by the Tenant of the Building Service
Charge and provided that the Landlord is not prevented by
any Insured Risk accident strike combination or lockout of
workmen or any other cause beyond its control the Landlord
will use its reasonable endeavours to provide or secure the
provision of the Building Services referred to in schedule
2 in an efficient manner and in accordance with the principles
of good estate management provided that the Landlord shall not
be responsible for any temporary delay stoppage or omission
in connection therewith due to any cause or circumstances
beyond the Landlord's control
5.2.2 Subject to the payment by the Tenant of the proportion of the
Estate Service Charge and the Phase Service Charge referred to
in clause 4.4 to use its reasonable endeavours to enforce
the tenants' rights under the Head Lease in respect of the
Estate Services and the Phase Services
5.3 Head Lease
5.3.1 To use all reasonable endeavours to enforce the Landlord's
covenants under the terms of the Head Lease when called upon
in writing by the Tenant at the cost of the Tenant
5.3.2 To pay the rents reserved by the Head Lease and to observe and
perform the covenants agreements and conditions on the part of
the tenant contained therein
5.3.3 Not to agree to any material variation of any of the terms of
the Head Lease without first obtaining the Tenant's written
consent such consent not to be unreasonably withheld or
delayed
5.3.4 To use all reasonable endeavours to ensure that the Tenant is
represented on any Estate signage
5.4 At the cost of the Tenant to use best endeavours to obtain the consent
of the Superior Landlord whenever the Tenant makes application for any
consent required under this Lease and where the consent of both the
Landlord and the Superior Landlord is required by virtue of this Lease
or the Head Lease
6. INSURANCE
6.1 Landlord's obligations
Provided the Tenant complies with its obligations at clause 6.2 hereof
the Landlord hereby covenants with the Tenant to pay the insurance
premiums under the Head Lease and as soon as reasonably practical
after it becomes aware to notify the Tenant of any change in the
Insured Risks covered by the policy from time to time and:
6.1.1 if reasonably so required by the Tenant to produce to the
Tenant from time to time such evidence of the terms of the
policy of insurance and the fact that the policy is subsisting
and in effect as the Landlord shall be entitled to request
from the Superior Landlord and to procure that the interest of
the Tenant is noted or endorsed on the policy
6.1.2 in case the Premises or any part thereof or the Common Parts
or the Apparatus or any part or parts thereof shall at any
time during the Term be destroyed ordamaged by a Insured Risk
so as to render the Premises or the Common Parts or the
Apparatus unfit for occupation and use by the Tenant and the
policy or policies of insurance effected by the Superior
Landlord under the Head Lease or the Landlord under the
Lease shall not have been vitiated or payment of the policy
monies refused in whole or in part in
consequence of any act or omission of the Tenant or its
servants agents licensees or invitees then the Rent the
proportion of the Estate Service Charge and the proportion
of the Phase Service Charge payable by the Tenant under this
lease or a fair proportion thereof according to the nature
and extent of the damage sustained shall be forthwith
suspended until the Premises Common Parts or Apparatus shall
be rendered fit for occupation and use or until the
expiration of three years from the date of damage or
destruction whichever be the sooner and any dispute as to
the amount to be suspended shall be referred to arbitration
in accordance with the provisions of the Arbitration Acts
1996 or any statutory modifications or re-enactment thereof
for the time being in force
6.1.3 if upon the expiry of a period of three years commencing on
the date of the damage or destruction to the Premises, Common
Parts or Apparatus have not been rebuilt or reinstated and the
Premises rendered fit for the Tenant's occupation and use the
Tenant may on serving notice at any time within six months of
the expiry of such period bring this Lease to an end and upon
service of this notice this Lease will immediately come to
an end without prejudice to any rights or remedies that may
have accrued to each party against the other
6.2 Tenant's obligations
6.2.1 Not to do or permit or suffer to be done on the Premises
anything which may cause any insurance of the Premises or
any other part of the Building or the Estate effected by the
Superior Landlord or by the Management Company to be or
become void or voidable or whereby the premium payable under
any such insurance is liable to be increased and to repay
to the Landlord such increased insurance premium as may
be demanded under the Head Lease in accordance with clause
4.10.3 thereof on demand
6.2.2 In the event of the Premises or any other part of the Building
the Estate or of any part thereof being damaged or destroyed
by fire or any other of the Insured Risks at any time during
the Term and the insurance money under any policy of
insurance effected thereon by the Superior Landlord or by the
Management Company being wholly or partially irrecoverable by
reason
solely or in part of any act or default of the Tenant its
servants agents licensees or invitees will forthwith on
demand (in addition to the said rents) pay to the Landlord
or the Management Company as appropriate the whole or (as
the case may be) a fair proportion of the cost including
professional or other fees of rebuilding and reinstating the
same with interest thereon at the Prescribed Rate on all
payments made by the Landlord or by the Management Company
in or in connection with such rebuilding or reinstatement
from seven (7) days after the time of the expenditure or
demand (whichever shall be the later) until repayment by the
Tenant and any dispute as to the proportion to be so
contributed by the Tenant to be referred to arbitration in
accordance with the provisions of the Arbitration Acts 1996
or any statutory modifications or re-enactment thereof for
the time being in force
7. PROVISOS
Provided always and it is hereby agreed and declared as follows:
7.1 Forfeiture
If and whenever:
7.1.1 the rents hereby reserved or any part thereof shall be in
arrear or unpaid for the space of 14 days after the same shall
have become due (whether formally demanded or not) or
7.1.2 there shall be any other breach non-performance or
non-observance of any of the covenants and conditions
herein contained on the part of the Tenant to be observed or
performed or
7.1.3 the Tenant enters into an arrangement or composition for the
benefit of its creditors or
7.1.4 the Tenant has any distress or other execution levied on its
goods or
7.1.5 the Tenant (being an individual) is made bankrupt or has an
administration order made in respect of it
7.1.6 the Tenant (being a body corporate) has a winding up order
made in respect of it other than a members' voluntary winding
up of a solvent company for the purposes of amalgamation or
reconstruction approved by the Landlord (such approval not to
be unreasonably withheld) or has a receiver administrator or
an administrative receiver appointed of it or any of its
assets or is dissolved or struck off the Register of
Companies or (being a body corporate incorporated outside
the United Kingdom) is dissolved or ceases to exist under
the laws of its country or state of incorporation then and in
any such case it shall be lawful for the Landlord or any
person authorised by the Landlord at any time thereafter
to re-enter upon the Premises or any part thereof in the
name of the whole and thereupon the Term shall absolutely
determine without prejudice to any right or remedy of the
Landlord in respect of any breach of the Tenant's or the
Guarantor's covenants contained in this Lease
7.2 Exclusion of use warranty
Nothing in this Lease or in any consent granted by the Landlord under
this Lease shall imply or warrant that the Premises may be used for
any purpose whatsoever under the Planning Acts now or from time to
time in force (including the Permitted Use) or that the Premises are
or will remain otherwise fit for any such use
7.3 VAT
Except where otherwise expressly stated in this Lease all rent money
or other consideration in respect of supplies for VAT purposes
received or deemed to be received by the Tenant under or in connection
with this Lease is exclusive of VAT
7.4 Service of notices
Any notice required to be served under this Lease shall be in writing
and shall be properly served if it complies with the provisions of
section 196 of the Law of Property Act 1925 as amended by the Recorded
Delivery Service Act 1962 or section 23 of the Landlord and Tenant Act
1927 and in addition any notice shall be sufficiently served if sent
by facsimile transmission to the party to be served and service shall
be deemed to be made on the date of transmission if transmitted before
4:00 pm on the date of transmission but otherwise on the next day
provided that evidence of receipt of such transmission is obtained
7.5 Rights exercisable by Management Company
7.5.1 Reference in this Lease to any right exercisable by the
Landlord or the Superior Landlord or its agents shall be
construed as including (where appropriate) the exercise of
such right by the Management Company or its agents pursuant to
the Head Lease
7.5.2 Reference in this Lease to any consent or approval required
from the Landlord or Superior Landlord shall be construed as
also including the consent or approval of the Management
Company where the Management Company's consent would be
required under the terms of any documentation entered into
between the Landlord and the Superior Landlord and the
Management Company whether or not already entered into at the
date hereof
7.6 Development of neighbouring premises
The Landlord shall be entitled to carry out or permit the development
of any adjoining or neighbouring premises (whether included in the
Building or not) notwithstanding that the access of light or air to
the Premises may thereby be diminished or otherwise interfered with
provided that the cost of such development shall not be a Building
Service Cost (as defined in schedule 2)
7.7 Compensation
Any statutory right of the Tenant or any sub-tenant to claim
compensation from the Landlord on vacating the Premises shall be
excluded as far as the law allows
7.8 Implied easements
The operation of section 62 of the Law of Property Act 1925 shall be
excluded from this Lease and the only rights granted to the Tenant are
those expressly set out in this Lease and the Tenant shall not by
virtue of this Lease be deemed to have acquired or be entitled to and
the Tenant shall not during the Term acquire or become entitled by any
means whatsoever to any easement from or over or affecting any other
land or
premises now or at any time hereafter belonging to the Landlord and
not comprised in this Lease
7.9 Disputes with adjoining occupiers
Any dispute arising as between the Tenant and the lessees tenants or
occupiers of adjoining or neighbouring premises belonging to the
Landlord relating to any easement right or privilege in connection
with the Premises or relating to the party or other walls of the
Premises or as to the amount of any contribution towards the expenses
of works to services or matters used in common shall be referred to
the Landlord whose decision shall be binding upon all parties to the
dispute save in case of manifest error as to law or fact
7.10 Tenant's effects
The Tenant hereby irrevocably appoints the Landlord to be its agent to
store or dispose of any effects left by the Tenant on the Premises for
more than seven days after the termination of this Lease (whether by
effluxion of time or otherwise) on any terms that the Landlord thinks
fit and without the Landlord being liable to the Tenant save to
account for the net proceeds of sale less `the cost of storage (if
any) and any other expenses reasonably incurred by the Landlord and
hereby agrees to indemnify the Landlord against any liability incurred
by the Landlord to any third party whose property shall have been sold
by the Landlord in the mistaken belief held in good faith (which shall
be presumed unless the contrary be proved) that such property belonged
to the Tenant
7.11 No waiver
7.11.1 No demand for or receipt or acceptance of any part of the
rents hereby reserved or any payment on account thereof shall
operate as a waiver by the Landlord of any right which the
Landlord may have to forfeit this Lease by reason of any
breach of covenant by the Tenant and the Tenant shall not in
any proceedings for forfeiture be entitled to rely on any such
demand receipt or acceptance as aforesaid as a defence
7.11.2 The return to the Tenant of any rents or other monies paid by
banker's standing order or direct debit as soon as reasonably
practicable after receipt
shall be treated as a refusal by the Landlord to accept the
same and the Tenant shall not in any proceedings for
forfeiture be entitled to rely on any such receipt as
a defence
7.12 Party walls
Save as otherwise directed in writing by the Landlord the
non-structural walls separating the Premises from any adjoining
premises within the Building shall be party walls and structures and
maintainable accordingly
7.13 Jurisdiction
7.13.1 This Lease is and shall be governed by and construed in all
respects in accordance with the laws of England
7.13.2 The Tenant hereby submits to the non-exclusive jurisdiction of
the High Court of Justice of England in relation to any claim
dispute or difference which may arise hereunder and in
relation to the enforcement of any judgment rendered pursuant
to any such claim dispute or difference and for the purpose of
part 6 rule 15 of the Civil Procedure Rules (or any
modification or re-enactment thereof) the Tenant hereby
irrevocably agrees that any process or proceedings hereunder
(whether of a judicial or quasi judicial nature) may be served
on it by leaving a copy thereof either at the address of
any person registered with the Registrar of Companies
pursuant to part XXIII of the Companies Act 1985 (or any
modification or re-enactment thereof) as being resident in
Great Britain and authorised to accept on behalf of the Tenant
service of process and proceedings and any notices required to
be served on the Tenant or at the Premises
7.14 Status of lease
For the purposes of the 1995 Act this Lease is a new tenancy
7.15 Stamp duty
It is hereby certified that there is no agreement for lease to which
this Lease gives effect
7.16 Court order
Having been authorised to do so by an order at Luton County Court
(No-LU066 19 made on the 3 ~A day of N 0\XVvWQ( `2-000 under the
provisions of the Landlord and Tenant Act 1954 section 38(4) the
parties agree that the provisions of the Landlord and Tenant Act 1954
sections 25 to 28 (inclusive) shall be excluded in relation to the
tenancy created by this Lease
7.17 Exclusion of rights under the Contracts (Rights of Third Parties) Act
1999
A person who is not party to this Lease shall have no right under the
Contracts (Rights of Third Parties) Act 1999 to enforce any term of
this Lease. This clause does not affect any right or remedy of any
person which exists or is available otherwise than pursuant to that
Act.
SCHEDULE 1
Part 1
Premises
All those offices shortly described in the Particulars which are for the purpose
of identification shown edged red on Plan E and which include for the purpose of
obligation as well as of grant:
1. the plaster or other rendering and decorative covering of the walls thereof
and (in the case of non-structural walls only) the inner half thereof
severed medially
2. the floor screed (but not the slab beneath the same)
3. the ceiling thereof (but not the beams above the same)
4. all doors and windows other than external to the Building fitted in the
walls bounding such offices and their respective frames and fixings
5. all light fittings and electrical circuits sockets and switches within and
exclusively serving the Premises
6. all carpets and floor coverings within and all other landlord's fixtures
and fittings in on or forming part of such offices and exclusively serving
the same
but there are excluded the Structure and all tenant's fixtures and fittings
Part 2
Easements and rights granted
The following rights are granted to the Tenant (so far as the Landlord can
lawfully grant the same) in connection with the use of the Premises in
accordance with and subject to the provisions of this Lease such rights being
exercisable in common with the Landlord and those authorised by the Landlord
including other tenants of the Building
1. the use of the Common Parts for all proper purposes
2. the full free and uninterrupted passage and running of water soil gas
telephone electricity telecommunication and all other services and supplies
of whatsoever nature for the Premises through such of the Conduits serving
the same which are or may hereafter during the
Perpetuity Period be in under or over any other parts of the Building and
any other adjoining or neighbouring property of the Landlord
3. support shelter and protection from other parts of the Building
4. such rights as the Landlord is able to grant over the Estate in accordance
with the rights granted to the Landlord under the Head Lease and contained
in the first schedule thereof
5. the right to enter onto the other parts of the Building upon reasonable
prior notice and at reasonable times (save in case of emergency) for the
purposes of inspecting maintaining repairing renewing the Premises and
Conduits and Common Parts (save insofar as the Conduits Common Parts repair
faults within the repairing obligations to Landlord hereunder)
6. The right to use 58 car parking spaces (being the spaces shown coloured
blue on Plan A) for the parking of private motor vehicles only PROVIDED
THAT the Superior Landlord may at its sole discretion at any time and from
time to time change the position of the car parking spaces allocated in
accordance with the provisions of the Head Lease and the Landlord may at
any time and from time to time change the position of the parking spaces on
not less than 28 days written notice (except in an emergency) PROVIDED that
such parking spaces shall as far as possible be no less convenient or
commodious to the Tenant
7. The right to erect signage in the Common Parts in such positions as the
Landlord consents to (such consent not to be unreasonably withheld or
delayed)
Part 3
Exceptions and reservations
Excepting and reserving in favour of the Landlord and its tenants agents and
licensees and those authorised by the Landlord, and Superior Landlord and all
other persons who now have or may hereafter be granted similar rights:
1. the full free and uninterrupted passage and running of water soil gas
telephone electricity telecommunication and all other services and supplies
of whatsoever nature from and to any other parts of the Building and any
other adjoining or neighbouring property of the Landlord through such of
the Conduits serving the same which are or may hereafter during the
Perpetuity Period be in on under or over the Premises and the right of
entry onto the Premises
for the purpose of inspecting repairing renewing re-laying cleansing and
maintaining and connecting up to any such existing or future Conduits at
reasonable times upon reasonable prior notice (save in case of emergency)
2. the right to erect or to consent hereafter to any person erecting a new
building or to alter any building for the time being on any adjoining or
neighbouring property of the Superior Landlord or Management Company in
such manner as the person or persons exercising such right may think fit
and notwithstanding that such alteration or erection may diminish the
access of light and air enjoyed by the Premises and the right to deal with
any adjoining or neighbouring property of the Superior Landlord or
Management Company as it may think fit in accordance with the provisions
set out in the Head Lease
3. the right to erect scaffolding for the purpose of repairing cleaning
rebuilding renewing or altering the Building or any part thereof during the
Term be on the adjoining or neighbouring property of the Landlord
notwithstanding that such scaffolding may restrict the access to or
enjoyment and use of the Premises provided that such scaffolding shall not
prevent the Tenant from accessing the Premises and carrying out its
business from it
4. the right for the Landlord or Superior Landlord and Management Company and
those authorised by the Landlord to enter the Premises for the purposes and
in the manner mentioned in this Lease and the Head Lease
5. so far as they apply to the Premises the exceptions and reservations in
favour of the Superior Landlord and Management Company contained in the
second schedule of the Head Lease
6. all rights of light air support shelter and protection for the parts of the
Building not included in the Premises and all such rights (if any) as shall
now or hereafter belong to and be enjoyed by any land or premises adjacent
to the Building
Part 4
Matters to which the Premises are subject
The covenants and other matters contained or referred to in the following
insofar as they relate to the Premises:
1. the Agreement dated 28 May 1986 made between Luton Borough Council (1) N H
Phillips (2) the Superior Landlord (3) Bedfordshire County Council (4) and
South Bedfordshire District Council (5)
2. the Agreement dated 28 May 1986 made between South Bedfordshire District
Council (1) and the Superior Landlord (2)
SCHEDULE 2
Part 1
Building Service Charge
1. In this schedule the following expressions shall have the following
meanings:
"Building Service Charge" means the due proportion of the Building Service
Costs which is attributable from time to time to the Premises in accordance
with this schedule
"Service Charge Period" means a period of 12 months ending on [31 March] in
any year
"Building Service Costs" means the total costs in any Service Charge Period
beginning or ending during the Term of providing the Building Services and
defraying the costs and expenses relating and incidental thereto in
accordance with this schedule
"Building Services" means the services referred to in part 2 of this
schedule or such of them as shall from time to time be provided or
undertaken by the Landlord
2. In calculating the due proportion of the Building Service Costs
attributable to the Premises the Landlord shall have regard to the
relationship between the total floor area of the Premises and the total
floor area of the Building but if having regard to the nature of the
premises in or forming part of the Building benefited thereby it shall be
inappropriate to apportion any item therein on such basis as aforesaid the
Landlord shall adopt such other method of calculation of the due proportion
of that item to be attributed to the premises benefited thereby as shall be
fair and reasonable in the circumstances (including if appropriate
attributing the whole of any such item of expenditure to the *premises
benefited thereby) and for the avoidance of doubt any premises may benefit
thereby even if unoccupied
3. The Building Service Charge shall be paid in manner following:
3.1 The Landlord shall be entitled to estimate the amount of the Building
Service Charge for any Service Charge Period and if the Landlord so
requires the Tenant shall pay in advance on account of the Building
Service Charge for that Service Charge Period the amount provisionally
so estimated by the Landlord by equal advance payments on each of the
Rent Days during the Service Charge Period the first such payment to
be made on the date of this Lease being an apportioned sum in respect
of the period
from the commencement date of the Term until the day preceding the
Rent Day next following the date of this Lease
3.2 The Building Service Charge shall be deemed to accrue on a day to day
basis in order to ascertain the yearly rate thereof and for the
purpose of apportionment in respect of any periods of other than one
year
3.3 The Landlord shall as soon as practicable after the end of each
Service Charge Period prepare or cause to be prepared and submitted to
the Tenant a statement showing the Building Service Costs and the
Building Service Charge for the Service Charge Period then ended and
upon such statement being certified by the Landlord the same shall be
final and binding on the Tenant save in the case of manifest error and
the Tenant shall on request be entitled to copies of any vouchers
relating to expenditure incurred as part of the Building Service Costs
3.4 If the amount of the Building Service Charge for the Service Charge
Period shall exceed the aggregate of the amounts paid on account
thereof for that period the amount of the excess shall be due
forthwith on demand from the Tenant but if it shall be less the amount
of the overpayment shall be credited to the Tenant against the next
quarterly payment of rent and/or Building Service Charge or (if the
Term shall have come to an end or otherwise been determined or if the
overpayment exceeds (pound)5,000) shall be repaid to the Tenant within
14 days
3.5 If the Landlord shall make any change to a Service Charge Period such
adjustments and apportionments shall be made as shall be fair and
reasonable for the purpose of computing the Building Service Charge
3.6 The provisions of this paragraph shall continue t apply
notwithstanding the expiry or sooner determination of this Lease in
respect of any Service Charge Period then current save that the Tenant
shall not be responsible for any Building Costs incurred after the
expiry or sooner determination of this Lease and in addition clause
3.2 shall apply
3.7 If the Landlord shall incur expenditure forming part of the Building
Service Costs which either is in respect of a matter which has not
been taken into account in arriving at the provisional assessment of
the Building Service Charge for that period or is of an amount
materially greater than has been allowed in arriving at such
provisional assessment the Landlord shall entitled to recover from the
Tenant the due proportion of the whole of such expenditure on the Rent
Day next following such expenditure being incurred by the Landlord
4. In calculating the Building Service Costs:
4.1 the Landlord may include all VAT at the applicable rate incurred or
paid by the Landlord in respect of any expenditure in connection with
the Building Services or any of them save to the extent that the same
is recovered by the Landlord as input tax
4.2 the Landlord may include all costs incurred in taking any steps deemed
desirable or expedient by the Landlord acting reasonably for complying
with or making any representations against or otherwise contesting the
incidence of the provisions of any legislation or orders or statutory
requirements thereunder concerning town planning compulsory purchase
public health highways streets drainage or other matters relating to
or allegedly relating to the Common Parts or Retained Parts
5. The Landlord shall be entitled to include in the Building Service Costs a
reasonable fee for itself or the cost of employing managing agents for the
carrying out and provision of the Building Services in accordance with this
schedule limited to no more than E5,000 per annum
6. The Tenant shall not be entitled to object to the Building Service Charge
or any item comprised in the Building Service Costs or otherwise on any of
the following grounds
6.1 the inclusion in a subsequent Service Charge Period of any item of
expenditure or liability omitted from the Building Service Costs for
any preceding Service Charge Period
6.2 that any item of the Building Service Costs might have been provided
or performed at a lower cost unless such Building Service Costs are
unreasonable or the Landlord fails to act in good faith in the
provision of such Building Service Cost
6.3 disagreement with any estimate of future expenditure for which the
Landlord requires to make provision so long as the Landlord acts
reasonably and in good faith and in the absence of manifest error and
in accordance with its obligations in part 2 of this schedule
6.4 the manner in which the Landlord exercises its discretion in providing
the Building Services so long as the Landlord acts in good faith and
in accordance with the principles of good estate management and in
accordance with its obligations in part 2 of this schedule
6.5 the employment of managing agents or contractors to carry out and
provide on the Landlord's behalf the Building Services in accordance
with this schedule
Part 2
Services
1. Maintaining and repairing and when the Landlord in its reasonable
discretion thinks it appropriate so to do when required so to do in order
to comply with the tenants repair obligations under the Head Lease amending
altering reinstating renewing and rebuilding the Structure and the Conduits
save insofar as the same are the responsibility of tenants in the Building
2. Maintaining repairing cleansing lighting and decorating to such standard as
the Landlord (acting reasonably) may from time to time consider appropriate
if required to comply with the tenants obligations under the Head Lease the
Retained Parts and the Common Parts or when the Landlord in its reasonable
discretion thinks it appropriate so to do amending altering reinstating
renewing and rebuilding the same
3. Inspecting servicing maintaining repairing amending overhauling and
replacing the Apparatus save insofar as the same is the responsibility of
tenants in the Building
4. Operating the Apparatus so as to provide
4.1 lift and escalator services in the Building via the lifts and
escalators now in the Building or such substituted lifts and
escalators as the Landlord (in its reasonable discretion) may from
time to time decide to install
4.2 central heating and air management and ventilation systems to the
Building so as to maintain the same to such temperatures and to
provide for such flow of air as the Landlord shall in its reasonable
discretion consider adequate
5. Maintaining renewing and when necessary upgrading any fire alarms fire
prevention and fire fighting equipment for the common benefit of persons
resorting to the Building (other than
those which exclusively serve the Premises and other parts of the Building
let or intended to be let to tenants)
6. Cleaning as frequently as the Landlord shall in its reasonable discretion
consider adequate the exterior of all windows and window frames of the
Building including those in the Retained Parts and the Common Parts
7. (Save insofar as insured under other provisions of this Lease or the Head
Lease) insuring the Apparatus the Common Parts and the Retained Parts
against the Insured Risks and insuring the Landlord against property
owners' liability third party liability and employers' liability in respect
of the Building and such other risks perils and contingencies as the
Landlord in its reasonable discretion shall from time to time deem
necessary or expedient
8. Discharging all charges assessments and outgoings (including meter charges)
for water electricity fuel telephone and public and other statutory
utilities consumed on the Retained Parts or used in connection with the
provision of any of the services referred to in this part of this schedule
9. Paying any existing or future taxes rates charges duties assessments
impositions and outgoings whatsoever in respect of the Common Parts and/or
the Retained Parts
10. Collecting and disposing of normal refuse from the Building (including
those parts thereof as are let or are capable of being let) and the
provision repair maintenance and renewal of plant and equipment for the
collection treatment packaging or disposing of refuse
11. Providing operating maintaining repairing renewing and replacing such
security systems for the Building as the Landlord shall in its reasonable
discretion from time to time determine
12. Insuring all plant machinery and boilers in the Building against damage and
destruction in the full reinstatement value in accordance with the tenants
obligations contained within the Head Lease
13. Providing maintaining and as often as reasonably necessary replacing and
renewing any notice boards or direction signs and the like in the Common
Parts
14. Providing and maintain (at the Landlord' reasonable discretion) plants and
floral decorations in the Common Parts and keeping the same properly
maintained and cultivated
15. Employing such staff and personnel as the Landlord acting reasonably shall
think fit for the management of the Building (including without prejudice
to the generality of the foregoing the provision of cleaning and security
and horticultural services)
16. Providing repairing maintaining renewing and replacing such plant machinery
equipment and materials as the Landlord in its reasonable discretion may
consider to be desirable for the proper provision or supply of the services
from time to time provided or supplied in accordance with this schedule
17. Employing and paying the fees of any agents retained by the Landlord to
manage the Building (including the preparation of accounts in relation to
the Service Charge) and the fees and charges of any accountant surveyor or
other professional adviser employed to certify any matter or thing
requiring to be certified for the purpose of any of the provisions of this
schedule
18. Such other services as the Landlord in its reasonable discretion shall
think are proper or beneficial for the better and more efficient management
use and promotion of the Building and the comfort and convenience of the
generality of the tenants in the Building having regard to the principals
of good estate management
SCHEDULE 3
Guarantee provisions
1. That the Tenant will at all times during the period in respect of which the
Tenant is liable under the covenants herein contained pay the rents
reserved by this Lease on the days and in manner herein provided for and
will duly observe and perform all the covenants and conditions contained in
this Lease and on the part of the Tenant to be observed and performed and
that if the Tenant shall during such period default in any respect to pay
the said rents or any of them in the manner aforesaid or to observe and
perform the said covenants and conditions or any of them the Guarantor will
on demand fully observe perform and discharge the same and without
prejudice to the generality of the foregoing the Guarantor hereby further
covenants by way of primary obligation and not merely liability as a
guarantor or merely collateral to that of the Tenant to pay and make good
to the Landlord forthwith on demand any proper losses costs damages and
expenses occasioned to the Landlord arising out of or by reason of any
default of the Tenant in respect of any of its obligations under the terms
and provisions of this Lease during the said period or in respect of any
judgment or order made against the Tenant during the said period and any
neglect or forbearance on the part of the Landlord in enforcing or giving
time for or other indulgence in respect of the observance or performance of
any of the said agreements provisions and conditions (other than a release
given executed as a deed) and (subject to the provisions of the 1995 Act)
any variation of the terms of this Lease shall not release the Guarantor
from its liability under the agreements or guarantee on its part contained
in this Lease
2. That if during such period as aforesaid:
2.1 the Tenant shall go into liquidation and the liquidator disclaims this
Lease or
2.2 the Tenant is dissolved or struck off the register and the Crown
disclaims this Lease or
2.3 the Tenant ceases to maintain its corporate existence (otherwise than
by merger consolidation or other similar corporate transaction in
which the surviving corporation assumes or takes over all the
liabilities of the Tenant under this Lease)
and
this Lease shall be forfeited or otherwise prematurely determined the
Landlord may within six months following any such event by notice in
writing require the Guarantor to enter into a lease in the like form
as this Lease for the residue of the Contractual Term unexpired at the
date of such event (or which but for any such disclaimer forfeiture or
other event would have remained unexpired) but with the Guarantor as
tenant thereunder at the same rents and subject to the like covenants
provisions and conditions as are herein contained as a substitute in
all respects for the Tenant under this Lease (the said new lease and
the rights and liabilities thereunder to take effect as from the date
of such disclaimer forfeiture or other event) and the Guarantor shall
thereupon execute and deliver to the Landlord a counterpart of the new
lease in exchange for the relevant lease executed by the Landlord and
contemporaneously therewith the Guarantor as tenant shall pay the
first installments of the rents due
3. That if the events set out in paragraphs 2.1 to 2.4 above occur and the
Landlord shall not require the Guarantor to take a new lease the Guarantor
shall nevertheless in addition and without prejudice to the Guarantor's
other obligations under this Lease upon demand pay to the Landlord a sum
equal to the rents and all other sums that would have been payable under
this Lease at the times and in the manner at and in which the same would
have been so payable in respect of the period of 12 months from and
including the date of disclaimer or forfeiture or (if sooner) until the
Landlord shall have granted a lease of the Premises to a third party
provided that the Landlord shall use all reasonable endeavours to secure
such a letting during that period or (if sooner) until the end of the Term
4. That the Guarantor shall be jointly and severally liable with the Tenant
(whether before or after any disclaimer by a liquidator or trustee in
bankruptcy) for the fulfillment of all the Tenant's covenants conditions
and other provisions contained in this Lease and the Landlord in the
enforcement of its rights may proceed against the Guarantor as if the
Guarantor was named as the Tenant in this Lease
5. That the Guarantor waives any right to require the Landlord to proceed
against the Tenant or to pursue any other remedy of any kind which may be
available to the Landlord before proceeding against the Guarantor
6. That the Guarantor shall not claim in liquidation bankruptcy administration
receivership composition or arrangement of the Tenant in competition with
the Landlord and shall remit all distributions it may receive from any
administrative receiver or supervisor of the Tenant and shall hold for the
sole benefit of the Landlord all security and rights the Guarantor may
have over assets of the Tenant while liabilities of the Tenant or the
Guarantor of the Landlord remain outstanding
7. That this guarantee shall subsist for the benefit of the successors and
assigns of the Landlord under this Lease without the necessity for any
assignment of it
EX-10.30
13
ex10_30.txt
EXHIBIT 10.30
June 7, 2000
Kirk Herrington
1073 Blue Grouse Way
North Vancouver, B. C.
V7R 4N7
Dear Kirk:
We are very excited about welcoming you to the Pivotal Corporation ("Pivotal")
team. This letter sets forth the terms of your employment with Simba
Technologies Inc. ("Simba"), as a subsidiary of Pivotal, subject to closing the
acquisition by Pivotal of all of the issued and outstanding shares of Simba (the
"Acquisition"). We are pleased to offer you employment under the following
terms:
1. Your position will be Vice President, Advanced Technology and Deputy CTO,
to be located in Vancouver. You will report to the Chief Technical Officer.
2. Your salary will be C$150,000 per year, payable semi-monthly.
3. Your annual vacation entitlement will be in accordance with the Pivotal
vacation policy. Details of this policy are available from Human Resources
for you to review. Simba holiday schedules will apply until such time as
the holiday schedule is incorporated into the Pivotal holiday schedule. Any
other accrued paid time off at Simba does not carry over or get paid out.
4. As a condition of employment, you are eligible to participate in the
Pivotal employee benefits plan, which has been established for Pivotal
employees based in Canada. You will, however, remain on the Simba employee
benefits plan until such time as the Simba plan is incorporated into the
Pivotal plan. Details of the Pivotal employee benefits plan are available
from Human Resources for you to review.
5. As a Pivotal employee, you will be eligible to participate in Pivotal's
Employee Stock Purchase Program (the "ESPP"). This program entitles
employees to purchase Pivotal stock via payroll deduction at a 15% discount
to the market price based on terms of the ESPP. To be eligible for
participation in the ESPP, you must be a permanent employee on payroll at
the commencement of one of two ESPP offering periods; either January 1 -
June 30 or July 1 - December 31. Details of the ESPP are available from
Human Resources. This paragraph sets forth only a general summary of the
ESPP and is subject to modification at the discretion of Pivotal. ESPP
documents and applicable law are controlling and govern.
6. Your employment will commence on or about June 16, 2000. You authorize
Pivotal to obtain your Simba employment records. Any medical information
contained therein will be kept confidential in accordance with applicable
law.
7. The terms and conditions of your currently unvested Simba options ("Simba
Options") will be changed as follows:
o The number of Pivotal options you will receive will be calculated by
dividing the number of your Simba options by an exchange ratio of 13;
o The exercise price of the Pivotal options you will receive will be
calculated by multiplying the exercise price of your Simba options by
an exchange ratio of 13;
o Your vesting schedule will not change; and,
o All other terms and conditions will be in accordance with the Pivotal
stock option plan, a summary of which is available for your review.
8. As a condition of your employment, you are required to sign an agreement of
confidentiality and acknowledge that the intellectual property, which
results from your employment, is owned by Pivotal. In addition, should your
employment by Pivotal terminate for any reason, the agreement prohibits you
from interfering with the employees, customers or business of Pivotal, or
competing with Pivotal for a period of 6 months following the cessation of
employment.
This offer of employment is open for your acceptance until the close of business
Monday, June 12, 2000. Please sign the attached copy of this letter and the
Employee Confidentiality Agreement to indicate your agreement, and return the
signed copies to Dave Pritchard.
This agreement supersedes any prior oral or written understandings between you
and Simba Technologies Inc. and/or Pivotal, with the sole exception being that
the rights to your unvested stock options earned prior to the Acquisition will
not be extinguished or altered by your acceptance of this offer, except as
otherwise specifically agreed to by you.
We look forward to you joining us in our quest to build a major Internet company
that dominates the growing business-to-business marketspace. We look forward to
a long and mutually rewarding relationship.
Yours very truly,
I agree with and accept the
above terms and conditions of employment.
Norm Francis ____________________________
President & CEO Kirk Herrington
/jm
Enc.
EX-10.31
14
ex10_31.txt
EXHIBIT 10.31
August 22, 2001
Mr. Bo Manning
Dear Bo:
I am very pleased to offer you employment with our team at Pivotal Corporation
("Pivotal"). The following are the terms of your employment, as we have
discussed:
1. Your position at Pivotal will be Chief Executive Officer and President. You
will report to the Board of Directors. Your responsibilities shall include
the overall operations of Pivotal, including developing and implementing
objectives and strategies to expand the business of Pivotal and increase
the shareholder value. You may be assigned other duties by the Board of
Directors. In addition, you will be a member of the Board of Directors.
2. Your annual salary will be $350,000.00 (US), payable semi-monthly and less
applicable statutory deductions. Your salary will be reviewed in accordance
with the policies established by the Pivotal Compensation Committee and any
salary increase granted will be effective upon your anniversary date of
employment.
In year two, you will be entitled to an increase in your annual salary
consistent with other increases granted by the Compensation Committee to
other members of the executive staff. In no event will your annual salary
be decreased in year two.
3. Your employment will commence on or about September 1, 2001 and will be for
an indefinite term subject to the provisions listed below concerning
termination of employment.
4. You will be entitled to earn incentive compensation of $300,000.00 (US)
annually based on the achievement of previously agreed objectives as
determined by the Board of Directors. For the first year of your
employment, the incentive compensation of $300,000.00 (US) will be
guaranteed and will be paid in equal quarterly instalments. The incentive
will be pro-rated for partial quarters.
In the second year of employment, a draw against the incentive compensation
will be paid in equal quarterly instalments commencing with the first day
of the second year of employment. The amount of this draw will be based on
an estimated after Canadian tax amount. The draw shall be repaid by you
from the following sources in priority:
(i) Incentive compensation actually earned;
(ii) 100% of capital gains earned by you from sales of the Employer's
stock; and
In the event of the termination of your employment without cause, you will
be entitled to receive any incentive compensation earned to the date you
are give notice of termination.
5. As a condition of your employment, you agree in advance to relocate
yourself and your family by January 1, 2002 to the general area of
Pivotal's headquarters in Vancouver, British Columbia. Pivotal will
reimburse you to maximum amount of $150,000.00 (US) on account of expenses
incurred by you in relocating. These expenses can include the movement and
storage of family and household goods, legal fees relating to the sale of
your family home, real estate commission payable on account of the sale of
your family home, the B.C. property purchase tax, up to 30 days
accommodation to effect the move, reasonable expenses incurred by you
and/or your spouse in locating a new residence and other expenses as
pre-approved by the Chairman. It is understood and agreed that the payments
referred to may render you liable for the payment of taxes in the United
States and/or Canada, and in such event you will be compensated net of all
taxes. In the event that you voluntarily resign your employment with
Pivotal within one year of the date of your employment, you are obligated
to reimburse Pivotal for the amount of the relocation costs paid by Pivotal
on your behalf.
6. In addition, Pivotal will pay for reasonable accommodation for you near the
company's headquarters up to the earlier of the date of your family's
relocation to Vancouver or December 31, 2001. Pivotal will reimburse travel
expenses to visit your current family home on weekends until you move your
family, or December 31, 2001, whichever comes first.
7. You will be entitled to four weeks paid vacation per annum with your
vacation to be taken at a time or times mutually agreeable to you and
Pivotal. You are also entitled to Statutory Holidays.
8. As a condition of employment, you are required to participate in the
Pivotal employee benefits plan. Details of this plan are available for you
to review. In summary, under this plan you are required to pay the premiums
for Long Term Disability, whereas Pivotal pays the total premium for MSP,
Extended Health, Dental and Life Insurance. Your entitlement to participate
in the plan shall be subject to the approval by the carrier of such plans
and subject to you taking the necessary steps to ensure that you, and where
applicable your eligible dependants, are properly registered. For the
insured benefits, Pivotal is only required to pay its portion of the
premiums and has no further obligation.
9. As a condition of your employment, you are required to sign an Agreement of
Confidentiality/Non-Competition/Non-Solicitation and acknowledge that the
intellectual property, which results from your employment, is owned by
Pivotal. In addition, should your employment with Pivotal terminate for any
reason, the Agreement prohibits you from interfering with the employees,
customers or business of Pivotal for a period of time following the
cessation of your employment. A copy of this Agreement is attached for your
review and signature.
2
10. Subject to approval by Pivotal's Board of Directors, you will be granted an
option to purchase 1,000,000 voting common shares of Pivotal at a price
equivalent to the closing price on NASDAQ on the date set by the Board of
Directors. The options will vest over a period of four years according to
the following schedule: 12.5% after the first six months of employment with
the remainder vesting on an equal quarterly basis thereafter
(6.25%/quarter).
This vesting period shall be adjusted on the following basis:
(a) In the event of termination of employment without cause within
the first twelve months of employment, 25% of the options vest
immediately upon notification of termination and the remainder
shall be cancelled;
(b) In the event that substantially all the shares or assets of
Pivotal are acquired by a third party as a result of a corporate
acquisition and, as a result of such acquisition, or within a six
month period following the acquisition, your employment is
terminated without cause, 50% of the options outstanding as of
the date of the acquisition shall vest immediately and the
remainder shall be cancelled. It is agreed that this termination
provision shall not apply if there is no reduction in your
aggregate compensation and you are offered a senior position
operating a business unit in substantially the same business as
Pivotal located within North America equal to or larger than
Pivotal's business as of the date of acquisition.
(c) In the event of termination of employment with just cause or for
death or incapacity, all options not vested shall be cancelled.
(d) Additional granting of options is discretionary and
performance-based. Your eligibility for additional options is
reviewed annually based on sustained high performance.
11. Your employment with Pivotal may be terminated in one of the following
ways:
(a) You may terminate your employment with Pivotal by giving not less
than 90 days' written notice of termination to Pivotal. In
Pivotal's sole discretion, if it receives written notice of
termination from you, it may immediately terminate your
employment without any notice or compensation in lieu of notice
and it will have no further obligations to you with respect to
the termination of your
3
employment, including, without limitation, any further
compensation, severance pay or damages.
(b) Pivotal may terminate your employment by giving notice or
compensation in lieu of notice in the amount equivalent to one
year's base salary payable semi-monthly and less applicable
statutory deductions over twelve months (the "Severance Period").
If such termination of your employment occurs within the first
year of employment, you will be entitled to a further payment of
$300,000 paid on the same basis as above. Pivotal shall continue
to provide all medical, healthcare and other benefits that are
permitted during the Severance Period. The amount payable to you
shall be the maximum compensation to which you are entitled in
lieu of reasonable notice and Pivotal shall have no further
obligations to you with respect to the termination of your
employment, including, without limitation, further severance pay
or damages. Upon termination without cause, you will have no
rights to any other unvested benefits or compensation except as
specifically provided herein. Your receipt of payments will be
subject to you signing a Release of Claims in a form acceptable
to Pivotal. It is agreed that the notice or pay in lieu of notice
provisions of 11(b) apply in the event of a constructive
dismissal as that term is defined by Canadian Courts.
(c) Your employment may be automatically terminated upon your death
or permanent incapacity which shall be deemed to occur if you
suffer any illness or injury that prevents you from performing
your usual employment duties for a period of six (6) consecutive
months. In the event of death or permanent incapacity, Pivotal
shall be under no obligation to provide you or your estate or
personal representative with notice of termination or payment in
lieu of notice or any other form of severance pay or damages.
(d) Notwithstanding any other provision, Pivotal may terminate your
employment with it at any time for just cause, without notice or
pay in lieu of notice or any other form of compensation,
severance pay or damages.
12. Upon the termination of your employment with Pivotal, you shall immediately
resign any directorship or office held in Pivotal or any parent, subsidiary
or affiliated company of Pivotal and you shall not be entitled to receive
any written notice of termination or payment in lieu of notice or to
receive any severance pay, damages or compensation for
4
loss of office or otherwise by reason of this resignation or resignations.
You shall also immediately relinquish all shares or stock and all equity
interests which may be held by you as a nominee for or on behalf of Pivotal
or any parent, subsidiary or affiliated company of Pivotal.
13. Upon termination of your employment with Pivotal, you shall repay Pivotal
any amounts owed to Pivotal as a result of advances or loans.
14. In the event you cannot legally work in Canada due to criminal convictions,
previous immigration violations or material misstatements to immigration
officials, your employment shall immediately terminate and Pivotal will
have no further obligations to you with respect to the termination of your
employment, including, without limitation, the payment of severance pay or
damages.
15. You will be eligible to be covered under the director and officer insurance
program maintained by Pivotal. In addition, Pivotal agrees to indemnify you
and your heirs, executors, administrators and legal representatives,
against all costs, charges and expenses, reasonably incurred by you in
respect of any civil, criminal or administrative action or proceeding to
which you are made a party by reason of being or having been a director or
officer of Pivotal, if you acted honestly and in good faith with a view to
the best interests of Pivotal and, in the case of a criminal or
administrative action or proceeding that is enforced by a monetary penalty,
you had reasonable grounds for believing that your conduct was lawful. To
the extent that the approval of the court is required for such
indemnification, Pivotal shall make such application and use reasonable
efforts to obtain such approval.
16. You acknowledge that it has been recommended to you by Pivotal that you
obtain independent legal advice before executing this offer and by
executing this offer you represent that you did obtain independent legal
advice.
Please sign the attached copy of this letter and the
Confidentiality/Non-Competition/Non-Solicitation Agreement to indicate your
agreement, and return the signed copies to us.
We look forward to you joining us in our quest to build a major technology
solutions company. We look forward to a long and mutually rewarding
relationship.
Yours very truly,
Norm Francis
Chairman of the Board
I agree with and accept the above terms and conditions of employment.
------------------------ -----------------------
BO MANNING DATE
5
EX-10.32
15
ex10_32.txt
EXHIBIT 10.32
[CIBC LOGO]
Amendment No. 1
to the
Business Credit Agreement
dated March 18, 1998
Between Canadian Imperial Bank of Commerce ("CIBC")and the Customer noted below
--------------------------------------------------------------------------------
Customer: CIBC Branch/Centre:
Pivotal Corporation 400 Burrard Street, 7th Floor
224 West Esplanade, Suite 300 Vancouver, B.C.
North Vancouver, B.C. V2M 3M6 V6C 3A6
--------------------------------------------------------------------------------
Amendments. The Agreement is amended as follows:
1) $1,600,000 U.S. Letter of Credit. The following additional security is
required for this facility: Liquid Security: Pledge of $1,600,000 U.S to be held
by CIBC Wood Gundy Securities Inc. in the form of Money Market Investments.
The Fees for this Letters of Credit are CIBC's standard L/C fees, minimum $150,
plus out of pocket expenses. Plus the completion of our standard L/C
documentation.
The credit facilities will remain on a demand basis and at the pleasure of the
Bank.
Please indicate your acceptance of these amended terms by returning a signed
copy of this Agreement by June 30, 2001, then it shall become null and void and
of no further force and effect.
---------------------------------------------------------------------------------------------------
Other Matters. (1) The term "the Agreement" means the Business Credit Agreement
referred to above, as it may have been revised up to the date of his Amendment.
(2) Except as revised by this Amendment, the Agreement remains in full force.
---------------------------------------------------------------------------------------------------
Dated as of: June 19, 2001
---------------------------------------------------------------------------------------------------
For CIBC: For the Customer:
---------------------------------------------------------------------------------------------------
By: /s/ T.A. Smith /s/ George Reznik /s/ Upton Jeans
---------------------------------------------------------------------------------------------------
Name: T.A. (Tom) Smith Name: George Reznik Name: Upton Jeans
---------------------------------------------------------------------------------------------------
Title: Director, Knowledge Based Business Title: V.P., Corporate V.P. Finance & Admin.
Finance
---------------------------------------------------------------------------------------------------
EX-10.33
16
ex10_33.txt
EXHIBIT 10.33
[CIBC LOGO]
Amendment No. 2
to the
Business Credit Agreement
dated March 18, 1998
Between Canadian Imperial Bank of Commerce ("CIBC")and the Customer noted below
--------------------------------------------------------------------------------
Customer: CIBC Branch/Centre:
Pivotal Corporation 400 Burrard Street, 7th Floor
224 West Esplanade, Suite 300 Vancouver, B.C.
North Vancouver, B.C. V2M 3M6 V6C 3A6
--------------------------------------------------------------------------------
Amendments. The Agreement is amended as follows:
An increase to the Overall Credit limit for the Operating Line to $5,750,000
Canadian.
The following additional security is required for this increased facility:
Liquid Security: Pledge of $2,250,000 Canadian to be held by CIBC Wood Gundy
Securities Inc. in the form of Money Market Investments.
The Fees for this Letters of Credit are CIBC's standard L/C fees, minimum $150,
plus out of pocket expenses. Plus the completion of our standard L/C
documentation.
The credit facilities will remain on a demand basis and at the pleasure of the
Bank.
Please indicate your acceptance of these amended terms by returning a signed
copy of this Agreement by June 30, 2001, then it shall become null and void and
of no further force and effect.
-----------------------------------------------------------------------------------------------------------
Other Matters. (1) The term "the Agreement" means the Business Credit Agreement
referred to above, as it may have been revised up to the date of this Amendment. (2) Except
as revised by this Amendment, the Agreement remains in full force.
-----------------------------------------------------------------------------------------------------------
Dated as of: [June 26, 2001] [Preceding date was struck through and initialed] July 3, 2001
-----------------------------------------------------------------------------------------------------------
For CIBC: For the Customer:
-----------------------------------------------------------------------------------------------------------
By: /s/ T.A. Smith /s/ George Reznik /s/ Upton Jeans
-----------------------------------------------------------------------------------------------------------
Name: T.A. (Tom) Smith Name: George Reznik Name: Upton Jeans
-----------------------------------------------------------------------------------------------------------
Title: Director, Knowledge Based Business Title: V.P., Corporate V.P. Finance & Admin.
Finance
-----------------------------------------------------------------------------------------------------------
EX-21.1
17
ex21_1.txt
EXHIBIT 21.1
Pivotal Corporation - Subsidiaries
------------------------------------
Name of Subsidiary Jurisdiction of
------------------ Incorporation
------------------
Pivotal Corporation Washington
Pivotal Corporation Limited U.K.
Pivotal Corporation France S.A. France
Exactium Ltd. Israel
Exactium, Inc. Delaware
590813 British Columbia Ltd. British Columbia
590822 British Columbia Ltd. British Columbia
Pivotal Corporation Ireland Ireland
Pivotal Technologies Corporation Limited Ireland
Pivotal Corporation (N.I.) Limited Northern Ireland
Pivotal GmbH Germany
Digital Conversations Inc. British Columbia
Pivotal Corporation Australia Pty Ltd. Australia
Nihon Pivotal K.K. Japan
Project One Business Technologies Inc. British Columbia
Inform, Inc. Ontario
EX-99.1
18
ex99_1.txt
Exhibit 99.1
PIVOTAL CORPORATION
NOTICE OF ANNUAL GENERAL MEETING
and
MANAGEMENT INFORMATION CIRCULAR
AND FORM OF PROXY
for the
Annual General Meeting
to be held on
Thursday, November 15, 2001
--------------------------------------------------------------------------------
[Pivotal Logo]
October 12, 2001
Dear Shareholder:
It is my pleasure to invite you to attend the Company's 2001 Annual
General Meeting of shareholders. The Annual General Meeting will be held on
Thursday, November 15, 2001 at 2:30 p.m., Vancouver time, at The Delta Pinnacle
Hotel, 1128 West Hastings Street, Vancouver, British Columbia.
If you are unable to attend the Annual General Meeting in person,
please complete, date, sign and return the enclosed form of proxy to ensure that
your vote is counted.
The Notice of Annual General Meeting, Management Information Circular
and Form of Proxy for the Annual General Meeting, and a reply card for use by
shareholders who wish to receive the Company's interim financial statements, are
all enclosed. These documents contain important information and I encourage you
to read them carefully.
Yours truly,
(signed) BO MANNING
President and Chief Executive Officer
________________________________________________________________
Pivotal Corporation CHICAGO WASHINGTON, DC VANCOUVER
DALLAS TORONTO 224 West Esplanade
www.pivotal.com NEW YORK UNITED KINGDOM Suite 300
SAN FRANCISCO FRANCE North Vancouver, BC
SEATTLE IRELAND Canada V7M 3M6
Phone: 604/988-9982
Fax: 604/988-0035
PIVOTAL CORPORATION
Suite 300 - 224 West Esplanade
North Vancouver, British Columbia V7M 3M6
NOTICE OF ANNUAL GENERAL MEETING
Pivotal Corporation (the "Company") will hold its Annual General Meeting (the
"Annual General Meeting") of shareholders at The Delta Pinnacle Hotel, 1128 West
Hastings Street, Vancouver, British Columbia, on Thursday, November 15, 2001 at
2:30 p.m. (Vancouver time) for the following purposes:
(a) to receive the annual report to shareholders of the directors of
the Company;
(b) to receive and consider the financial statements of the Company
for the financial period ended June 30, 2001 and the report of
the auditors thereon;
(c) to elect directors of the Company for the ensuing year;
(d) to approve and confirm, by ordinary resolution, an amendment to
the Company's Incentive Stock Option Plan as set out in the
accompanying Information Circular. The full text of this
resolution is set out in Schedule "A" to the Information
Circular.
(e) to appoint Deloitte & Touche LLP, Chartered Accountants, as
auditor of the Company for the ensuing year and to authorize the
directors to fix the auditor's remuneration; and
(f) to transact such other business as may properly come before the
Annual General Meeting or any adjournments or postponements
thereof.
Accompanying this Notice of Annual General Meeting are: (1) a Management
Information Circular and Form of Proxy; (2) the Annual Report for the Company
for the year ended June 30, 2001; (3) the audited consolidated financial
statements of the Company for the year ended June 30, 2001, which have been
prepared in accordance with Canadian generally accepted accounting principles;
(4) a form of proxy for use at the Annual General Meeting; and (5) a reply card
for use by shareholders who wish to receive the Company's interim financial
statements.
If you are a registered shareholder of the Company and are unable to attend the
Annual General Meeting in person, please date and execute the accompanying form
of proxy, and deposit it with CIBC Mellon Trust Company at Suite 1600, 1066 West
Hastings Street, Vancouver, British Columbia, V6E 3X1, Attention: Ms. Leslie
MacFarlane before 2:30 p.m. (Vancouver time) on Tuesday, November 13, 2001, or
not less than 48 hours (excluding Saturdays and holidays) before any adjournment
of the Annual General Meeting.
If you are a non-registered shareholder of the Company and receive these
materials through your broker or through another intermediary, please complete
and return the materials in accordance with the instructions provided to you by
your broker or such other intermediary. If you fail to follow these
instructions, your shares may not be eligible to be voted at the Annual General
Meeting.
This Notice of Annual General Meeting, the Management Information Circular and
Form of Proxy, the Annual Report, the financial statements, the form of proxy
for the Annual General Meeting and, the reply card are first being sent to
shareholders of the Company on or about October 12, 2001.
DATED at Vancouver, British Columbia this 12th day of October 2001.
BY ORDER OF THE BOARD OF DIRECTORS
(signed) ANDRE J. BEAULIEU
General Counsel, Assistant Secretary
i
TABLE OF CONTENTS
LETTER TO SHAREHOLDERS
NOTICE OF ANNUAL GENERAL MEETING..................................................................................i
MANAGEMENT INFORMATION CIRCULAR AND FORM OF PROXY.................................................................1
Solicitation of Proxies........................................................................................1
Appointment and Revocation of Proxies..........................................................................1
Exercise of Discretion.........................................................................................1
Abstention from Voting.........................................................................................2
Securities Entitled to Vote....................................................................................2
Principal Shareholders.........................................................................................2
Currency.......................................................................................................2
PARTICULARS OF MATTERS TO BE ACTED UPON...........................................................................2
Election of Directors..........................................................................................2
Amendment to Incentive Stock Option Plan.......................................................................6
Appointment of Auditor.........................................................................................7
CORPORATE GOVERNANCE..............................................................................................7
Mandate of the Board of Directors..............................................................................7
Composition of the Board of Directors..........................................................................8
Description of Decisions Requiring Prior Approval of the Board of Directors....................................8
Expectations of Management.....................................................................................8
Shareholder Communication......................................................................................8
Recruitment of New Directors and Assessment of the Board of Directors' Performance.............................8
Committees of the Board of Directors...........................................................................8
Audit Committee..............................................................................................9
Compensation Committee.......................................................................................9
Options Committee............................................................................................9
Nominating Committee.........................................................................................9
EXECUTIVE COMPENSATION...........................................................................................10
Summary Compensation Table....................................................................................10
Stock Options.................................................................................................11
Employment and Consulting Contracts...........................................................................13
Remuneration of Directors.....................................................................................13
Report on Executive Compensation..............................................................................13
Performance Graph.............................................................................................14
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS................................................15
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS....................................................................15
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON..........................................................15
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE........................................................................15
OTHER BUSINESS...................................................................................................15
ii
PIVOTAL CORPORATION
MANAGEMENT INFORMATION CIRCULAR AND FORM OF PROXY
This Management Information Circular and Form of Proxy ("Information Circular")
is furnished in connection with the solicitation of proxies by the management of
Pivotal Corporation ("Pivotal" or the "Company") to be voted at the Annual
General Meeting of the shareholders of the Company to be held on Thursday,
November 15, 2001 (the "Annual General Meeting") at the time and place and for
the purposes set forth in the accompanying Notice of Annual General Meeting.
It is anticipated that this Information Circular and the accompanying Notice of
Annual General Meeting and form of proxy will be first mailed to the
shareholders of the Company on or about October 12, 2001. Unless otherwise
stated, the information contained in this Information Circular is given as at
September 12, 2001.
Pursuant to section 111 of the Company Act (British Columbia), advance notice of
the Annual General Meeting was published in The Vancouver Sun on September 20,
2001.
Solicitation of Proxies
While it is expected that the solicitation for proxies will be conducted
primarily by mail, proxies may be solicited personally or by telephone by
directors, officers and regular employees of the Company. All costs of
solicitation will be borne by the Company.
Appointment and Revocation of Proxies
The individuals named in the accompanying form of proxy are the President and
Chief Executive Officer and the Assistant Secretary and General Counsel of the
Company. A shareholder has the right to appoint a person, who need not be a
shareholder, to attend and act for the shareholder and on the shareholder's
behalf at the Annual General Meeting other than either of the persons designated
in the accompanying form of proxy, and may do so either by inserting the name of
that other person in the blank space provided in the accompanying form of proxy
or by completing and delivering another suitable form of proxy.
A proxy may not be valid unless the completed, signed and dated form of proxy is
delivered to CIBC Mellon Trust Company, Suite 1600, 1066 West Hastings Street,
Vancouver, British Columbia, V6E 3X1, not less than 48 hours (excluding
Saturdays, Sundays and holidays) before the time for holding the Annual General
Meeting or any adjournment thereof at which the proxy is to be used.
A shareholder who has given a proxy may revoke it by an instrument in writing
duly executed and delivered either to CIBC Mellon Trust Company or to the
registered office of the Company at any time up to and including the last
business day that precedes the day of the Annual General Meeting, or any
adjournment thereof, at which the proxy is to be used, or to the Chairman of the
Annual General Meeting on the day of the Annual General Meeting or any
adjournment thereof. A revocation of a proxy will not affect a matter on which a
vote is taken before the revocation.
Exercise of Discretion
On a poll, the nominees named in the accompanying form of proxy will vote or
withhold from voting the shares represented thereby in accordance with the
instructions of the shareholder on any ballot that may be called for. The proxy
will confer discretionary authority on the nominees named therein with respect
to:
1
(a) each matter or group of matters identified therein for which a
choice is not specified other than the appointment of an auditor
and the election of directors;
(b) any amendment to or variation of any matter identified therein;
and
(c) any other matter that properly comes before the Annual General
Meeting.
In respect of a matter described in this Information Circular for which a choice
is not specified in the proxy, the nominees named in the accompanying form will
vote shares represented by the proxy for the approval of such matter.
As of the date of this Information Circular, management of the Company knows of
no amendment, variation or other matter that may come before the Annual General
Meeting, but if any amendment, variation or other matter properly comes before
the Annual General Meeting each nominee intends to vote thereon in accordance
with the nominee's best judgement.
Abstention from Voting
Shareholders may abstain from voting in respect of certain matters described in
this Information Circular by completing, if applicable, the box marked
"Withhold" on the accompanying form of proxy, or by attending the Annual General
Meeting in person, and abstaining from voting for or against a particular
matter.
Securities Entitled to Vote
As of September 12, 2001, the Company had outstanding 23,996,235 fully paid and
non-assessable Common Shares without par value, each carrying the right to one
vote.
Only shareholders of record at the close of business on October 5, 2001 who
either attend the Annual General Meeting personally or complete, sign and
deliver a form of proxy in the manner and subject to the provisions described
above will be entitled to vote or to have their shares voted at the Annual
General Meeting.
Principal Shareholders
To the knowledge of the directors and senior officers of the Company, as at
September 12, 2001, no one beneficially owned directly or indirectly, or
exercised control or direction over, voting securities carrying 10% or more of
the voting rights of the Company.
Currency
All references to monetary amounts are in Canadian dollars unless otherwise
indicated.
PARTICULARS OF MATTERS TO BE ACTED UPON
Election of Directors
The directors of the Company are elected at each Annual General Meeting and hold
office until the close of the next annual general meeting or until their
successors are duly elected or appointed. Management proposes to nominate each
of the following six persons for election as a director of the Company. All the
proposed nominees are presently directors of the Company.
2
The six nominees who receive the most votes in favour of their respective
appointments will be elected to the Board of Directors.
Proxies cannot be voted for a greater number of persons than the number of
nominees named. In the absence of instructions to the contrary, if the enclosed
form of proxy is signed and returned in accordance with the instructions above,
it will be voted for the nominees set out below.
Information concerning the six nominees, as furnished by them individually, is
set forth below.
Nominee's Name and Residence Resume
----------------------------------- -----------------------------------
KENT ROGER (BO) MANNING (1)(2) KENT ROGER (BO) MANNING has served as President, Chief
Vancouver, British Columbia, Canada Executive Officer and a director since August 2001. Prior to
joining Pivotal, Mr. Manning served as co-founder and Chief
Executive Officer of Roundarch, a CRM solutions joint
venture between Deloitte Consulting, BroadVision, and WPP
Group (holding company for Ogilvy & Mather, Young & Rubicam,
J. Walter Thompson), from January 2000 to August 2001. Mr.
Manning served as Global CRM Practice Leader, for Deloitte
Consulting, from 1995 to 1999. Mr. Manning also served as a
Consultant to Deloitte Consulting from 1987 to 1995. Prior
to that, Mr. Manning served as General Manager of Infopro
from 1984 to 1987. Mr. Manning holds a triple Bachelor of
Arts degree from the University of Michigan in business,
economics and psychology and received his MBA in 1987, from
Northwestern University with a double major in marketing and
finance.
NORMAN B. FRANCIS (1)(2) NORMAN B. FRANCIS co-founded Pivotal in 1990 and has served
West Vancouver, British Columbia a director since December 1990 and as President and Chief
Canada Executive Officer from December 1990 to August 2001. Mr.
Francis' experience prior to co-founding Pivotal includes
co-founding Basic Software Group Inc., an accounting
software company, in 1979. Mr. Francis served as Basic
Software Group's Vice President, Operations until the
company was acquired by Computer Associates International,
Inc., a software company, in 1985. Mr. Francis served as
Vice President, Micro Products Division of Computer
Associates International Inc. from 1985 to 1990. Mr. Francis
holds a bachelor of science degree in Computer Science from
the University of British Columbia, Canada and is a
Chartered Accountant.
-----------------------------------
1 Member of the Options Committee
2 Member of the Nominating Committee
3
KEITH R. WALES KEITH R. WALES co-founded Pivotal in 1990 and has served as
West Vancouver, British Columbia a director since December 1990 and as Executive Vice
Canada President, Corporate Projects since January 2001. Mr. Wales
also served as Chief Technical Officer from July 1999
through December 2000 and as Vice President, Research and
Development from December 1990 through July 1999. Mr. Wales'
experience prior to co-founding Pivotal includes co-founding
Basic Software Group Inc., an accounting software company,
in 1979. Mr. Wales served as Basic Software Group's Vice
President, Research and Development until the company was
acquired by Computer Associates International, Inc. in 1985.
Mr. Wales served as Divisional Vice President, Research and
Development of Computer Associates International, Inc. from
1985 to 1986. Mr. Wales holds a bachelor of science degree
in Mathematics and a master's of science degree in Computer
Science from the University of British Columbia, Canada.
JEREMY A. JAECH
Seattle, Washington JEREMY A. JAECH has served as a director since July 1996.
Mr. Jaech currently serves as Managing Member, Poseidon
Ventures LLC. Prior to Poseidon Ventures, Mr. Jaech served
as Vice President for the Business Tools Division at
Microsoft Corporation. Prior to Microsoft, Mr. Jaech
co-founded Visio Corporation in September 1990, a supplier
of enterprise-wide business diagramming and technical
drawing software for Microsoft Windows, which was later sold
to Microsoft. Prior to co-founding Visio Corporation, Mr.
Jaech co-founded Aldus Corporation in 1984 and served as
Vice President, Engineering. Aldus Corporation was purchased
by Adobe Systems Incorporation in 1989. Mr. Jaech holds a
bachelor's degree in Mathematics and a master's degree in
Computer Science from the University of Washington.
--------------------------------------
3 Member of the Compensation Committee
4 Member of the Audit Committee
4
ROBERT J. LOUIS(3)(4) ROBERT J. LOUIS has served as a director since June 1995.
West Vancouver, British Columbia Since March 1999, Mr. Louis has served as President of
Canada Ventures West Management Ltd., a venture capital firm which
he joined as an Executive Vice President in January 1991.
Mr. Louis earned a bachelor of science degree and a master's
degree in Science from the University of Victoria, British
Columbia, Canada and a Ph.D. in Physics from the University
of British Columbia, Canada.
STEVEN M. GORDON(2)(4) Steven M. Gordon has served as a director since November
Seattle, Washington 2000. Mr. Gordon currently serves as Strategic Advisor to
Wavelink Corporation. Prior to Wavelink, Mr. Gordon has
served as Vice President of Microsoft Corporation from
January 2000 to August 2000, as Senior Vice President and
Chief Financial Officer of Visio Corporation from February
1997 to January 2000, as Vice President and Chief Financial
Officer of Data I/O Corporation from October 1993 to
February 1997, as Vice President, Finance of Data I/O
Corporation from May 1992 to October 1993 and as Corporate
Controller of Data I/O Corporation from April 1989 to May
1992. Mr. Gordon holds a Bachelor of Arts degree from
Washington State University and is a Certified Public
Accountant.
-----------------------------------
2 Member of the Nominating Committee
3 Member of the Compensation Committee
4 Member of the Audit Committee
Douglas J. Mackenzie is currently a director of the Company but will not be
standing for re-election for the upcoming year.
5
The following table sets out the number of Common Shares and stock options
beneficially owned by each nominee for election to the Board of Directors and
the senior officers of the Company, directly or indirectly, or over which each
nominee or officer exercised control or direction, as at September 12, 2001.
Name of Beneficial Owner Number of Shares (1) Number of Options
------------------------ --------------------- -------------------
KENT ROGER (BO) MANNING Nil 500,000(2)
President, Chief Executive Officer and Director
NORMAN B. FRANCIS 1,966,600(3) 97,850
Director
KEITH R. WALES 975,800(4) 50,000
Executive Vice President,Corporate Projects and
Director
JEREMY A. JAECH 55,556(5) 100,000
Director
ROBERT J. LOUIS 1,559,458(6) Nil
Director
STEVEN M. GORDON Nil 40,000
Director ----------- ---------
TOTAL: 4,557,414 787,850
=========== ==========
% of total outstanding: 18.99% 18.89%
=========== ==========
--------------------
Notes:
(1) Information as to the number of Common Shares beneficially owned, directly
or indirectly, is based on information furnished by the Registrar and
Transfer Agent of the Company and by the nominees or officers.
(2) The Board of Directors have approved additional grants of 250,000 options
on each of November 1, 2001 and February 1, 2002.
(3) The Common Shares owned by Mr. Francis represent 8.20% of the outstanding
voting securities of the Company.
(4) The Common Shares owned by Mr. Wales represent 4.07% of the outstanding
voting securities of the Company.
(5) The Common Shares owned by Mr. Jaech represent 0.23% of the outstanding
voting securities of the Company.
(6) The Common Shares owned by Mr. Louis represent 6.50% of the outstanding
voting securities of the Company. Includes (a) 363,514 shares held of
record by Bank of Montreal Capital Corporation which is managed by Ventures
West Management TIP Inc., an entity wholly owned by Ventures West Capital
Ltd.; and (b) 1,195,944 shares held of record by VW B.C. Technology
Investment Fund Limited Partnership, of which Ventures West Management B.C.
Ltd. is the general partner. Ventures West Management B.C. Ltd. is wholly
owned by Ventures West Capital Ltd. Mr. Louis, as President of Ventures
West Capital Ltd., a venture capital firm with controlled subsidiaries
which include Ventures West Management TIP Inc. and Ventures West
Management B.C. Ltd., disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest.
Amendment to Incentive Stock Option Plan
At the Annual General Meeting, approval of the shareholders will be sought to
pass an ordinary resolution, being a resolution passed by a majority of
shareholders at the Annual General Meeting, confirming an amendment to the
Incentive Stock Option Plan (the "Plan") of the Company as approved by the
directors of the Company. The amendment will:
(a) increase the maximum number of Common Shares reserved for issuance
under the Plan by 1,000,000 Common Shares, from 7,376,186 to
8,376,186; and
6
(b) delete the words "the lesser of (i) 800,000 shares or (ii)" in Section
5(a) of the Plan.
These amendments are required in order to ensure sufficient options are
available to permit the Company to maintain its policy of granting options to
employees to align their interests with those of the Company's shareholders.
Copies of the amended Plan may be obtained by any shareholder from the Secretary
of the Company and are available for inspection by shareholders of the Company
at its corporate head office at Suite 300 - 224 West Esplanade, North Vancouver,
British Columbia V7M 3M6, and will be available for review at the Annual General
Meeting. Implementation of the amendment to the Plan is subject to the approval
of regulatory authorities. The remainder of the Plan remains unchanged from the
form previously approved by shareholders.
The text of the proposed resolution to approve this amendment to the Plan is set
out in Schedule "A" hereto.
Appointment of Auditor
Unless otherwise instructed, the proxies received pursuant to this solicitation
will be voted for the appointment of Deloitte & Touche LLP, Chartered
Accountants, of Vancouver, British Columbia, as the auditors of the Company to
hold office until the close of the next annual general meeting of the Company or
until a successor is appointed. The appointment of Deloitte & Touche LLP as
auditor of the Company must be approved by a majority of more than fifty per
cent of the votes cast by the holders of Common Shares who vote in person or by
proxy at the Annual General Meeting.
It is proposed that the remuneration to be paid to the auditor be fixed by the
Board of Directors. Deloitte & Touche LLP has been the auditor of the Company
since July, 1998.
CORPORATE GOVERNANCE
Mandate of the Board of Directors
Pursuant to the British Columbia Company Act, the Board of Directors is required
to manage or supervise the management of the business and affairs of the
Company. The Board of Directors' principal responsibilities are to supervise and
evaluate management, to oversee the conduct of the business, to set policies
appropriate for the business and to approve corporate strategies and goals. The
mandate and responsibilities of the Board of Directors are to be carried out in
a manner consistent with the fundamental objective of protecting and enhancing
the value of the Company and providing ongoing benefit to the shareholders.
The responsibilities of the Board of Directors include the review and critique
of management's strategy and plans on a formal basis at least once each year,
and on an ongoing basis as part of the continuing dialogue between management
and directors. A fundamental part of the planning and review process includes
the identification by management and the directors of areas of risk to the
Company and the development of plans to address those risks. The Board of
Directors also makes inquiries to satisfy itself that the Company has in place
proper management information systems and internal controls.
The directors are kept informed of the Company's operations at meetings of the
Board of Directors and its committees and through reports and analyses by
management. There were 13 meetings (in person or by teleconference) of the Board
of Directors during the financial year ended June 30, 2001. Only Mr. Jaech
missed more than one meeting of the Board, due to business obligations. The
frequency of meetings, as well as the nature of the matters dealt with, will
vary from year to year depending on the state of the Company's business and the
opportunities or risks which the Company faces from time to time. Within this
framework, it is anticipated that the Board of Directors will meet eight times
during the financial year ending June 30, 2002. In addition, informal
communications between management and directors occur outside of regularly
scheduled board and committee meetings.
7
Composition of the Board of Directors
The Board of Directors is currently composed of three related directors and
three unrelated directors. The guidelines for corporate governance adopted by
The Toronto Stock Exchange recommends that the Board of Directors be constituted
with a majority of individuals who qualify as unrelated directors. An unrelated
director is a director who is independent of management and is free from any
interest and any other business or other relationship which could, or could
reasonably be perceived to, materially interfere with the director's ability to
act with a view to the best interests of the corporation, other than interests
and relationships arising from shareholding. A related director is a director
who is not an unrelated director.
The Board of Directors has determined that of its six present directors, three
are unrelated and three, Kent Roger (Bo) Manning, Norman B. Francis and Keith R.
Wales are related directors as they currently serve as President and Chief
Executive Officer, former President and Chief Executive Officer and Executive
Vice President, Corporate Projects of the Company, respectively.
The Company does not have a significant shareholder with the ability to exercise
a majority of the votes for the election of the Board of Directors.
Description of Decisions Requiring Prior Approval of the Board of Directors
In addition to matters which by law or by the Articles of the Company must be
approved by the Board of Directors, management is required to seek Board of
Director approval for major transactions such as strategic alliances,
acquisitions and financings.
Expectations of Management
Management is responsible for developing and implementing the strategies and
tactics of the Company within the context of authorized budgets and corporate
policies and procedures. Management provides information to the Board of
Directors in a regular and comprehensive fashion. The Board of Directors uses
this information along with other information requested from time to time to
assist management by providing advice and guidance to identify issues and
opportunities for the Company.
Shareholder Communication
The Company employs a combination of active and passive methods to communicate
with its shareholders. Regular communications are conducted with shareholders
through press releases, newsletters and annual and quarterly reports. At the
Annual General Meeting, a full opportunity is afforded shareholders to ask
questions concerning the Company's business and, in addition, the Company
organizes or makes presentations at many investor conferences each year. The
Company's investor relations department also answers numerous queries and makes
information about the Company available on the Company's Website at
www.pivotal.com. The Board of Directors believes that the Company's
communications with shareholders and investors is responsive and effective.
Recruitment of New Directors and Assessment of the Board of Directors'
Performance
The Nominating Committee, a subcommittee of the Board of Directors, is
responsible for identifying, evaluating and recommending nominees for the Board
of Directors and reviewing incumbent directors for re-election to the Board of
Directors.
Committees of the Board of Directors
The Board of Directors has established four standing committees: the Audit
Committee, the Compensation Committee, the Options Committee and the Nominating
Committee. The Board of
8
Directors has delegated certain responsibilities to each of these Committees and
has also instructed each of them to perform certain advisory functions and make
recommendations and report to the Board of Directors. Where considered prudent,
certain matters falling under the responsibility of these Committees are at
times dealt with at a meeting of the entire Board of Directors.
Audit Committee
The Audit Committee meets with the financial officers of the Company and the
independent auditors to review and inquire into matters affecting financial
reporting, the system of internal accounting and financial controls and
procedures and audit procedures and plans. The Committee also makes
recommendations to the Board of Directors regarding the appointment of
independent auditors. In addition, the Committee reviews and recommends to the
Board of Directors for approval the annual financial statements of the Company
and certain other documents required by the regulatory authorities. The
Committee is also responsible for approving the policies under which the
financial officers of the Company may invest funds in excess of those required
for current operations. In the financial year ended June 30, 2001, this
Committee met four times. This Committee is composed of Steven M. Gordon, Robert
J. Louis and Jeremy A. Jaech, none of whom are current or former officers of the
Company. All members of the Committee are unrelated directors.
Compensation Committee
The Compensation Committee is responsible for establishing and monitoring the
Company's long range plans and programs for attracting, training, developing and
motivating employees. The Committee reviews recommendations for the appointment
of persons to senior executive positions, considers terms of employment,
including succession planning and matters of compensation and recommends awards
under the Company's incentive stock option plan and the employee share purchase
plan. In the financial year ended June 30, 2001, this Committee met once. The
Committee is composed of Jeremy A. Jaech and Robert J. Louis, none of whom are
current or former officers of the Company. Both members of the Committee are
unrelated directors.
Options Committee
The Option Committee has been given the authority to grant options to employees
of Pivotal pursuant to Pivotal's Incentive Stock Option Plan. The Committee is
currently composed of Norman B. Francis and Kent Roger (Bo) Manning, both of
whom are related directors. The corporate governance policies of The Toronto
Stock Exchange recommend that the committees of the Board of Directors be
composed of outside directors, the majority of whom are unrelated directors,
although some board committees may include one or more inside directors. The
Board has considered this issue and supports the continued membership of Mr.
Francis and Mr. Manning on this Committee.
Nominating Committee
The Nominating Committee is responsible for identifying, screening and
interviewing candidates for positions on the Board of Directors. The Nominating
Committee submits, to the Board of Directors, recommendations for the
appointment of directors. The Committee is currently composed of Norman B.
Francis and Kent Roger (Bo) Manning, both of whom are related directors and
Steven M. Gordon, an unrelated director.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
During the Company's financial year ended June 30, 2001, the aggregate cash
compensation paid or payable by the Company to its directors and senior officers
was $1,064,669 (the average conversion rate for the year ended June 30, 2001 is
U.S.$1.00 = Cdn.$1.52571).
The table below contains a summary of the compensation paid to the Company's
President and Chief Executive Officer and the Company's four most highly
compensated executive officers (other than the President and Chief Executive
Officer) who were serving as executive officers at the end of the Company's most
recently completed financial year (collectively, the "Named Executive
Officers"), for each of the Company's three most recently completed financial
years ended June 30, 2001, 2000 and 1999.
Summary Compensation Table
Long Term
Annual Compensation Compensation
Securities Other
Name and Principal Position Year Salary Bonus Under Options Compensation
------------------------------- ---- ------ ----- ------------- ------------
NORMAN B. FRANCIS 2001 $175,000 $19,689 25,000 Nil
President and Chief Executive 2000 $175,000 $78,983 25,000 Nil
Officer(1) 1999 $120,000 Nil Nil Nil
KEITH R. WALES 2001 $112,500 $9,063 25,000 Nil
Executive Vice President, 2000 $150,000 $35,931 25,000 Nil
Corporate Projects 1999 $120,000 $37,064 Nil
VINCENT D. MIFSUD 2001 $225,000 $108,532 250,000 Nil
Chief Operating Officer, Chief 2000 $175,000 $103,755 20,000 Nil
Financial Officer and Executive 1999 $85,192 $47,068 160,000 $14,269
Vice President(2)
ROBERT A. RUNGE 2001 US$190,000 Nil 70,000 Nil
Chief Marketing Officer 2000 US$160,000 $53,665 20,000 Nil
1999 US$141,000 $39,651 60,000 Nil
KIRK HERRINGTON 2001 $125,000 Nil 10,000 Nil
Chief Technical Officer and 2000 80,636 Nil
Executive Vice President, 1999
Product Development(3)
----------------------------------
Notes:
(1) On August 27, 2001 Mr. Francis resigned as President and Chief Executive
Officer and Kent Roger (Bo) Manning was appointed President and Chief
Executive Officer.
(2) We hired Mr. Mifsud in December 1998. Mr. Mifsud's annual salary was
$150,000 of which $85,192 was paid to Mr. Mifsud during the fiscal year
ended June 30, 2000. Mr. Mifsud's guaranteed annual bonus was $57,750 of
which $32,799 was paid to Mr. Mifsud during the fiscal year ended June 30,
1999.
(3) Mr. Herrington's salary is from September 1, 2000 to June 30, 2001.
10
Stock Options
Pivotal's Board of Directors and shareholders approved the Company's Incentive
Stock Option Plan (the "Plan") in July, 1992. Initially, 1,096,800 Common Shares
were reserved for issuance under the Plan. This reserve has been increased
several times. Initially, the eligible persons under the Plan were Pivotal's
directors, officers and employees and the directors, officers and employees of
Pivotal's subsidiaries. The Plan was subsequently amended to extend eligibility
to include Pivotal's independent contractors and consultants, independent
contractors and consultants of Pivotal's subsidiaries and any partnership, joint
venture, or other entity in which Pivotal holds a 50% or greater voting
interest, and directors of any such partnership, joint venture, or other entity.
The exercise price for options granted under the Plan is determined by the Board
of Directors, and must not be less than the fair market value of the Common
Shares on the date of grant as determined by the Board of Directors, less any
discount permitted by law and by regulatory bodies having jurisdiction over
Pivotal. In the case of U.S. residents and citizens, the Plan provides for the
grant of both incentive stock options that may qualify under section 422 of the
U.S. Internal Revenue Code and non-qualified stock options on terms determined
by the Board of Directors, subject to statutory and other limitations in the
Plan, including limitations on the exercise price, which for incentive options
to comply with section 422 of the Code, may not be less than 100% of the fair
market value of the Common Shares on the date of grant. Incentive options may be
granted to Pivotal's employees and those of Pivotal's subsidiaries, while
non-qualified options may be issued to non-employee directors, and independent
contractors, as well as to employees.
The Plan is administered by the Board of Directors, which determines the
individuals who receive options, the time period during which the options may be
partially or fully exercised, the number of Common Shares issuable upon the
exercise of each option and the option exercise price.
No option may be transferred by an optionee other than by the laws of
succession, descent and distribution, and, during the lifetime of an optionee,
the option is exercisable only by the optionee.
If an optionee's employment or engagement is terminated other than by death or
disability, no further instalments of options that have not vested as of the
date of termination will become exercisable, and the optionee will be entitled
to exercise vested options for a period of 30 days following termination. If an
optionee is terminated for cause, any option or unexpired portion granted to the
optionee terminates immediately. Upon termination of employment or engagement of
an optionee by reason of death or permanent and total disability, the optionee's
options remain exercisable for 12 months to the extent that the options had
vested and were exercisable on the date of termination.
Each option vests and becomes exercisable at such times determined by the Board
of Directors at the time of grant. Holders of options granted before June 1999
under the Plan cannot exercise these options more than five years from the date
of grant, or an earlier date as may be fixed by the Board of Directors. In June
1999, Pivotal's shareholders approved amendments to the Plan which became
effective on August 5, 1999. These amendments, among other things: (a) permitted
the grant of options with a duration of up to ten years; (b) extended the expiry
date for the Plan from July 31, 2002 to July 31, 2006; (c) deleted the
requirements for shareholders approval for future amendments to the Plan, other
than as required by law; (d) allowed administration of the Plan by a committee
of the Board of Directors; and (e) permitted the Plan administrator to authorize
two of Pivotal's officers acting together to make option grants to eligible
individuals other than executive officers or directors within limits set by the
Plan administrator.
The amendments also increased the number of Common Shares reserved for issuance
pursuant to the Plan by: (a) 1,076,186 Common Shares (which, when combined with
earlier increases, resulted in a maximum of 5,076,186 Common Shares being
issuable under the Plan); plus (b) an automatic increase on the first day of
each fiscal year beginning in 2001, equal to the lesser of 800,000 Common Shares
or 4% of the average Common Shares outstanding as used to calculate fully
diluted earnings per share as reported in Pivotal's annual report to
shareholders for the preceding year. Should the proposed changes
11
be approved, the number of Common Shares reserved for issuance pursuant to the
Plan will be (a) 8,376,186 Common Shares; plus (b) an automatic increase on the
first day of each fiscal year equal to 4% of the average Common Shares
outstanding as used to calculate fully diluted earnings per share as reported in
Pivotal's annual report to shareholders for the preceding year.
On September 21, 2000, the Board of Directors of the Company approved a further
increase in the maximum number of Common Shares reserved for issuance under the
Plan by 1,500,000 Common Shares, from 5,076,186 to 6,576,186, in order to ensure
sufficient options are available to permit the Company to maintain its policy of
granting options to employees to align their interests with those of the
Company's shareholders prior to the automatic increase which, as discussed
above, occurred on July 1, 2001.
On September 12, 2001, the Board of Directors of the Company approved a further
increase in the maximum number of Common Shares reserved for issuance under the
Plan by 1,000,000 Common Shares, from 7,376,186 to 8,376,186 and deleted the
restriction of the lesser of 800,000 Common shares in the automatic increase on
the first day of each fiscal year in order to ensure sufficient options are
available to permit the Company to maintain its policy of granting options to
employees to align their interests with those of the Company's shareholders
prior to the automatic increase which, as discussed above, will not occur until
July 1, 2002. This amendment to the Plan is subject to the approval of the
shareholders of the Company, as described in the attached Schedule "A" and to
the approval of regulatory authorities.
The usual period over which options become vested under the Plan is four years,
with vesting as to 25% on the first anniversary of the date of grant and 12.5%
at the end of each six month period thereafter, but the Plan administrator may
provide for different vesting schedules in particular cases. The exercise price
payable for Common Shares purchased under the Plan must be paid in cash or by
certified cheque, or other consideration with equivalent value at the time of
purchase as the Plan administrator may determine.
Any unexercised options that expire or that terminate upon an employee ceasing
to be employed by Pivotal become available again for issuance under the Plan.
The Plan as amended will terminate on July 31, 2006.
A summary of stock options granted to the Named Executive Officers under the
Plan during the financial year ended June 30, 2001 is set out in the table
below. No stock appreciation rights ("SARs") are outstanding, and it is
currently intended that none be issued.
As at September 12, 2001, options to purchase 4,215,583 Common Shares were
outstanding.
Options Granted During 2001 Financial Year(1)
Market Value of
Securities
% of Total Exercise Underlying Options
Securities Options Price (per on the Date of Expiration Date
Name Under Options Granted in the Common Share) Grant (per Common Date of Grant
Year Share)
NORMAN B. FRANCIS 25,000 1.06% US$35.375 US$35.375 Jul. 26, 2010 Jul. 26, 2000
KEITH R. WALES 25,000 1.06% US$35.375 US$35.375 Jul. 26, 2010 Jul. 26, 2000
VINCENT D. MIFSUD 20,000 0.85% US$35.375 US$35.375 Jul. 26, 2010 Jul. 26, 2000
80,000 3.40% US$50.00 US$50.00 Nov. 13, 2010 Nov. 13, 2000
20,000 0.85% US$23.75 US$23.75 Jan. 8, 2011 Jan. 8, 2001
130,000 5.53% US$ 9.4375 US$ 9.4375 Apr. 3, 2011 Apr. 3, 2001
ROBERT A. RUNGE 20,000 0.85% US$35.375 US$35.375 Jul. 26, 2010 Jul. 26, 2000
12
20,000 0.85% US$29.8125 US$29.8125 Jan. 25, 2011 Jan. 25, 2001
20,000 0.85% US$22.00 US$22.00 Apr. 26, 2011 Apr. 26, 2001
10,000 0.43% US$ 9.4375 US$ 9.4375 Apr. 3, 2011 Apr. 3, 2001
KIRK HERRINGTON 10,000 0.43% US$ 9.4375 US$ 9.4375 Apr. 3, 2011 Apr. 3, 2001
----------------------------
(1) All stock options are for Common Shares of the Company.
The following table summarizes all stock options exercised by Named Executive
Officers during the financial year ended June 30, 2001.
Aggregated Options Exercised During 2001 Financial Year and Financial Year-End
Option Values(1)
Value of Unexercised
Securities Unexercised Options at in-the-Money Options at
Acquired on Aggregate Value June 30, 2001 June 30, 2001
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---------------- --------------- --------------- ------------------------- --------------------------
NORMAN B. FRANCIS Nil Nil 50,762/47,088 $738,307/$113,244
KEITH R. WALES Nil Nil 9,375/40,625 $0/$0
VINCENT D. MIFSUD 52,500 $1,068,983 28,750/308,750 $127,752/$1,905,635
ROBERT A. RUNGE 15,000 $503,538 10,000/102,500 $0/$382,695
KIRK HERRINGTON 1,442 $84,761 20,157/69,037 $22,495/$132,631
-----------------------------
(1) Based on the closing price of the Common Shares on the NASDAQ National
Market on July 2, 2001, being US$18.20.
Employment and Consulting Contracts
The Company has entered into employment agreements with each of Robert Runge
(effective from September 8, 1997), Vincent D. Mifsud (effective from November
16, 1998) and Kent Roger (Bo) Manning (effective from August 22, 2001). Each
agreement requires the execution of confidentiality agreements containing
customary terms, including non-solicitation provisions. The agreements with
Messrs. Runge, Mifsud and Manning also provide that in the event of dismissal
without just cause or where all or substantially all of the shares or assets of
Pivotal are acquired, the standard vesting schedule under the Company's
Incentive Stock Option Plan will be accelerated.
Remuneration of Directors
The Company does not pay cash compensation to directors for serving on the Board
of Directors, but it does reimburse directors for out-of-pocket expenses for
attending board and committee Annual General Meetings. The Company does not
provide additional compensation for committee participation or special
assignments of the Board of Directors. Of the Directors, Messrs. Francis, Wales,
Jaech, MacKenzie and Gordon received stock options for their participation on
the Board of Directors for the year ended June 30, 2001. Both Messrs. Francis
and Wales received options to purchase 25,000 Common Shares at a price of
US$35.375 per share. Each of Messrs. Jaech, MacKenzie and Gordon received
options to purchase 40,000 Common Shares at a price of US$36.25 per share.
Report on Executive Compensation
The Compensation Committee of the Board of Directors reviews and recommends to
the Board of Directors the compensation and benefits of all Pivotal's executive
officers and establishes and reviews general policies relating to compensation
and benefits of Pivotal's employees.
13
The Company's compensation policies and programs are designed to be competitive
with similar customer relationship management companies in the e-commerce
environment and to recognize and reward executive performance consistent with
the success of the Company's business. These policies and programs are intended
to attract and retain capable and experienced people.
In addition to industry comparables, the Committee considers a variety of
factors when determining both compensation policies and programs and individual
compensation levels. These factors include the long range interests of the
Company and its shareholders, overall financial and operating performance of the
Company and the Committee's assessment of each executive's individual
performance and contribution towards Annual General Meeting goals and
objectives.
The total compensation plan for executive officers is comprised of four
components: base salary, cash bonuses, stock options and an employee stock
purchase plan. In establishing base salaries, the Committee reviews competitive
market data for each of the executive positions and determines placement at an
appropriate level in a range. Compensation levels are typically negotiated with
the candidate for the position prior to his or her final selection as an
executive officer. The compensation range for executives normally moves annually
to reflect external factors such as inflation. Cash bonuses are used to reward
officers for meeting specific performance targets as mutually agreed upon on an
annual basis. The third component of the compensation plan is the Incentive
Stock Option Plan, which is intended to emphasize management's commitment to
growth of the Company and the enhancement of shareholder value. The fourth
component of the compensation plan is the employee stock purchase plan, which is
used to encourage participants to remain in the employ of the Company and to
have a strong commitment to, and a personal interest in, the success of the
Company.
Performance Graph
The following graph compares the monthly percentage change in the Company's
cumulative total shareholder return on its Common Shares with the cumulative
total return of the NASDAQ National Market(1), for the period from July 1, 2000
to June 30, 2001.
[The performance graph is presented in a bar graph format that compares the
performance of Pivotal common shares with other stock indices]
14
Note:(1) The Company completed an initial public offering and its securities
were listed on the NASDAQ National Market on August 5, 1999. The Company's
securities were listed on the Toronto Stock Exchange on August 17, 2000.
INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS
During the year ended June 30, 2001, an aggregate of $320,000 was loaned to the
directors, executive officers or senior officers of the Company or any proposed
nominees for directors of the Company, or any associates of any of them, or any
subsidiary thereof. Of the $320,000, $250,000 was loaned to Vincent Mifsud,
Chief Operating Officer, Chief Financial Officer and Executive Vice President.
The largest amount of Mr. Mifsud's loan outstanding during the year ended June
30, 2001 and the amount outstanding as at September 12, 2001 is $250,000. The
loan to Mr. Mifsud is non-interest bearing, due within one year and is secured
by certain shares of a private company.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS
To the knowledge of management of the Company, no insider or nominee for
election as a director of the Company had any interest in any material
transaction involving the Company during the year ended June 30, 2001 or has any
interest in any actual or proposed material transaction involving the Company in
the current year.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
None of the directors or senior officers of the Company, nor any person who has
held such a position since the beginning of the last completed financial year
end of the Company, nor any proposed nominee for election as a director of the
Company, nor any associate or affiliate of the foregoing persons, has any
substantial or material interest, direct or indirect, by way of beneficial
ownership of securities or otherwise, in any matter to be acted on at the Annual
General Meeting.
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company is a "foreign private issuer" under the Securities Exchange Act of
1934 (the "Act") and as such its insiders are not required to file reports under
section 16(a) of the Act.
OTHER BUSINESS
At this time management knows of no other business proposed for the Annual
General Meeting.
DATED at Vancouver, British Columbia this 12th day of October, 2001.
BY ORDER OF THE BOARD OF DIRECTORS
(signed) DIANE MALAHERSecretary
15
Schedule "A"
Proposed Text of Resolution Regarding Amendment to Incentive Stock Option
Plan
BE IT RESOLVED, as an ordinary resolution of the shareholders of Pivotal
Corporation (the "Company") that, subject to receipt of all necessary regulatory
approvals:
(a) the maximum number of common shares reserved for issuance under the
Company's Incentive Stock Option Plan (the "Plan") is hereby increased
by 1,000,000 common shares, from 7,376,186 common shares to 8,376,186
common shares;
(b) Section 5(a) of the Plan is hereby amended by deleting the words "the
lesser of (i) 800,000 shares or (ii)";
(c) the Plan, as amended, is hereby confirmed and approved as the
Company's Incentive Stock Option Plan; and
(d) any one director or officer is hereby authorized, on behalf of the
Company, to execute and deliver all documents or take all steps as may
be necessary or advisable in connection with, and in order to give
effect to, the foregoing resolutions.
PIVOTAL CORPORATION
(CUSIP #72581R106)
SUPPLEMENTAL MAILING LIST RETURN CARD
National Policy Statement No. 41 adopted by the Canadian Securities
Administrators establishes an exemption to the requirement to send unaudited
interim financial statements to shareholders. If you wish to receive the
unaudited interim financial statements of Pivotal Corporation, you must complete
this form and forward it, either with your proxy or separately, to our transfer
agent at the following address:
CIBC Mellon Trust Company
Suite 1600
1066 West Hastings Street
Vancouver, British Columbia
V6E 3X1
Please note that both registered and non-registered shareholders should return
this form. Registered shareholders will not automatically receive unaudited
interim financial statements. (Registered shareholders are those with shares
registered in their name; non-registered shareholders have their shares
registered in an agent, broker or bank's name).
--------------------------------------------------------------------------------
Please put my name on the Supplemental Mailing list to receive the unaudited
interim financial statements of Pivotal Corporation (CUSIP #72581R106).
--------------------------------------------------------------------------------
(First Name and Surname)
--------------------------------------------------------------------------------
(Number and Street)
--------------------------------------------------------------------------------
(City) (Province) (Postal Code)
Signature:________________________ __________________________________
(Signature of Shareholder) (Date)
PIVOTAL CORPORATION
Suite 300 - 224 West Esplanade
North Vancouver, BC V7M 3M6
PROXY
FOR THE 2001 ANNUAL GENERAL MEETING
NOVEMBER 15, 2001
THIS PROXY IS SOLICITED BY MANAGEMENT OF THE COMPANY
The undersigned shareholder of Pivotal Corporation (the "Company") hereby
appoints Kent Roger (Bo) Manning, or failing him, Andre J. Beaulieu, or failing
either of them ___________________________ as the proxyholder for and on behalf
of the undersigned to attend, act and vote for and on behalf of the undersigned
at the Annual General Meeting (the "Annual General Meeting") of the shareholders
of the Company to be held at The Delta Pinnacle Hotel, 1128 West Hastings
Street, Vancouver, British Columbia, on Thursday, November 15, 2001 at 2:30 p.m.
and at any adjournment thereof, to the same extent and with the same powers as
if the undersigned were present at the Annual General Meeting or any adjournment
thereof, and, without limiting the foregoing, the persons named are specifically
directed to vote as indicated below. For further information regarding the
Annual General Meeting and the matters that will be acted upon at the Annual
General Meeting, reference is specifically made to the accompanying Notice of
Annual General Meeting, and Management Information Circular and Form of Proxy,
both dated October 12, 2001. The instructions to this proxy form part of this
proxy.
The undersigned directs the proxyholder appointed by this proxy to vote as
follows:
1. To elect the following persons as directors of the Company until the next
annual general meeting:
Kent Roger (Bo) Manning....FOR |_| WITHHOLD |_|
Norman B. Francis..........FOR |_| WITHHOLD |_|
Keith R. Wales.............FOR |_| WITHHOLD |_|
Jeremy A. Jaech............FOR |_| WITHHOLD |_|
Robert J. Louis............FOR |_| WITHHOLD |_|
Steven M. Gordon...........FOR |_| WITHHOLD |_|
2. To approve and confirm amendments to the Company's Incentive Stock Option
Plan as described in the accompanying Information Circular.
FOR |_| AGAINST |_|
3. To appoint Deloitte & Touche LLP, Chartered Accountants, as auditor of the
Company until the next annual general meeting at a remuneration to be fixed
by the directors of the Company.
FOR |_| WITHHOLD |_|
EXECUTED on the _____ day of __________________, 2001.
_____________________________________________ ____________________________
Signature of Shareholder (or Authorized Number of Common Shares Held
Attorney or Signatory on behalf of Shareholder)
_____________________________________________
Name of Shareholder (Please Print Clearly)
_____________________________________________
Address
_____________________________________________
City/Province
INSTRUCTIONS:
1. The common shares represented by this proxy will, on any ballot, be voted as
you may have specified by marking an "X" in the spaces provided for that
purpose. IF NO CHOICE IS SPECIFIED AND EITHER OF KENT ROGER (BO) MANNING OR
ANDRE J. BEAULIEU IS APPOINTED AS PROXYHOLDER, THE COMMON SHARES WILL BE VOTED
AS IF YOU HAD SPECIFIED AN AFFIRMATIVE VOTE.
2. YOU MAY APPOINT AS PROXYHOLDER SOMEONE OTHER THAN THE PERSONS NAMED IN THIS
PROXY BY STRIKING OUT THEIR NAMES AND INSERTING IN THE BLANK SPACE PROVIDED THE
NAME OF THE PERSON YOU WISH TO ATTEND AND ACT AS PROXYHOLDER, AND THAT PERSON
NEED NOT BE A SHAREHOLDER OF THE COMPANY. IF THE INSTRUCTIONS ON THIS PROXY ARE
CERTAIN, THE COMMON SHARES REPRESENTED BY THE PROXY WILL BE VOTED ON ANY POLL IN
ACCORDANCE WITH SUCH INSTRUCTIONS, AND WHERE YOU SPECIFY A CHOICE WITH RESPECT
TO ANY MATTER TO BE ACTED ON, THE COMMON SHARES WILL BE VOTED ON ANY POLL IN
ACCORDANCE WITH THE SPECIFICATIONS SO MADE.
3. THIS PROXY ALSO CONFERS A DISCRETIONARY AUTHORITY TO VOTE THE COMMON
SHARES WITH RESPECT TO:
(a) AMENDMENTS TO, OR VARIATIONS OF, MATTERS IDENTIFIED IN THE NOTICE OF ANNUAL
GENERAL MEETING; AND
(b) OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL GENERAL MEETING,
BUT ONLY IF MANAGEMENT HAS NOT BEEN MADE AWARE, A REASONABLE TIME PRIOR TO THIS
SOLICITATION, THAT THE AMENDMENTS, VARIATIONS OR OTHER MATTERS ARE TO BE
PRESENTED FOR ACTION AT THE ANNUAL GENERAL MEETING. No matters other than those
stated in the attached Notice of Annual General Meeting are, at present, known
to be considered at the Annual General Meeting but, if such matters should
arise, proxies will be voted in accordance with the best judgment of the
proxyholder.
4. In order to be valid this proxy must be signed by the shareholder or by his
or her attorney duly authorized in writing or, in the case of a corporation,
executed under its corporate seal or by an officer or officers or attorney for
the corporation duly authorized. If this proxy is executed by an attorney for an
individual shareholder or joint shareholder or by an officer or officers or
attorney of a corporate shareholder not under its corporate seal, the instrument
so empowering the officer or officers or the attorney, as the case may be, or a
notarial copy thereof, should accompany the proxy. The signature and name must
conform to the name of the shareholder as registered. Executors, administrators
and trustees signing on behalf of the registered shareholder should so indicate.
If common shares are jointly held, either of the registered owners may sign the
proxy. If this proxy is not dated in the blank space provided, it will be deemed
to bear the date on which it was mailed by management of the Company.
5. This proxy may not be used at the Annual General Meeting unless it is
deposited at the office of CIBC Mellon Trust Company at Suite 1600, 1066 West
Hastings Street, Vancouver, British Columbia, V6E 3X1, Attention: Ms. Leslie
MacFarlane before 2:30 p.m. (Vancouver time) on Tuesday, November 13, 2001, or
not less than 48 hours (excluding Saturdays and holidays) before any adjournment
of the Annual General Meeting. The Chairman of the Annual General Meeting has
the discretion to accept proxies received subsequently.