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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 1999
COMMISSION FILE NO. 333-65583
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
JAWS TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
603-7TH AVENUE S.W.
SUITE 380
CALGARY, ALBERTA CANADA T2P 2T5
(403) 508-5055
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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NEVADA 7371 98-0167013
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ROBERT KUBBERNUS
CHIEF EXECUTIVE OFFICER
JAWS TECHNOLOGIES, INC.
603-7th Avenue S.W., Suite 380
Calgary, Alberta, CANADA T2P 2T5
(403) 508-5055
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to the Public:
As soon as possible after the Registration Statement is declared effective.
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If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
=====================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Offering Price Per Aggregate Offering Amount of
To Be Registered Be Registered(1) Security (2) Price Registration Fee
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Common Stock Underlying 25,000,000 Shares of
Bristol Asset Shares Common Stock $0.28 $ 7,000,000 $2,372.88
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Common Stock Underlying 3,000,000 Shares of
Bristol Asset Warrants Common Stock $0.28 $ 840,000 $ 284.75
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Common Stock Underlying TK
Convertible Debentures 12,000,000 $0.28 $ 3,000,000 $1,016.95
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Common Stock Underlying TK
Warrants 1,428,572 $0.28 $ 400,000 $ 135.59
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TOTAL 41,428,572 Shares $0.28 $11,240,000 $3,810.17
=====================================================================================================================
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(1) Calculated pursuant to Rule 457(c) and (g).
(2) Based on the closing bid price of the Registrant's Common Stock on October
7, 1998, as quoted in
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the NASD OTC Bulletin Board.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act of 1933, or until the registration statement shall become
effective on such date as the securities and exchange commission, acting
pursuant to said section 8(a), may determine.
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The information in this registration statement is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the securities exchange commission is effective. This registration
statement is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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JAWS TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
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ITEM NUMBER AND HEADING IN LOCATION
FORM SB-2 REGISTRATION STATEMENT IN PROSPECTUS
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1. Front of the Registration Statement and Outside
Front Cover Page of Prospectus.................. Not Applicable
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Not Applicable
3. Summary Information and Risk Factors............ Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Use of Proceeds
5. Determination of Offering Price................. Not Applicable
6. Dilution........................................ Not Applicable
7. Selling Security Holders........................ Selling Security Holders
8. Plan of Distribution............................ Plan of Distribution
9. Legal Proceedings............................... Business
10. Directors, Executive Officers, Promoters and
Control Persons................................. Management; Certain Transactions; Risk Factors
11. Security Ownership of Certain Beneficial Owners
and Management.................................. Security Ownership of Certain Beneficial Owners and
Management
12. Description of Securities....................... Description of Securities
13. Interest of Named Experts and Counsel........... Not Applicable
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Not Applicable
15. Organization Within Last Five Years............. The Company; Business
16. Description of Business......................... Business; Prospectus Summary; Risk Factors;
Management's Discussion and Analysis
17. Management's Discussion and Analysis or Plan
of Operations................................... Management's Discussion and Analysis
18. Description of Property ........................ Business
19. Certain Relationships and Related Transactions.. Certain Transactions
20. Market for Common Equity and Related
Stockholder Matters............................. Market for Common Equity and Related Stockholder
Matters; Description of Securities
21. Executive Compensation.......................... Management; Executive Compensation
22. Financial Statements............................ Financial Statements
23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.......... Not Applicable
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Prospectus January 11, 1999
JAWS TECHNOLOGIES, INC.
This Prospectus relates to an aggregate of 41,428,572 shares of Common Stock
issuable to Bristol Asset Management V LLC and Thomson Kernaghan & Co. based
upon two separate financing arrangements which we have secured. The important
terms of each of the financing arrangements are detailed for you in the table
below.
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Name of financier Type of financing Important terms
Additional compensation
"Put" options giving Price per share at Bristol Asset is to
Bristol Asset us the right to which Bristol Asset receive warrants for
Management V LLC obligate Bristol Asset is to buy: 77% of the the purchase of up to
to buy up to lowest sale price in 3,000,000 shares
25,000,000 shares of the twenty days exercisable at 95%
Common Stock for immediately prior to of the average
up to $7,000,000. the purchase of the closing bid price on
shares. the day of the
issuance of the
warrant.
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10% Convertible Price per share for Thomson Kernaghan
Thomson Kernaghan Debenture with a conversion: 78% of is to receive warrants
& Co. principal amount of the average closing for the purchase of
$2,000,000. The bid price in the 3 up to 1,428,572
Debenture can be trading days prior to shares exercisable at
converted into up to (i) the date of the the average closing
12,000,000 shares of notice of conversion; bid price three days
Common Stock. or (ii) September 25, prior to the date of
1998, whichever is exercise.
lower.
</TABLE>
Please note that the number of shares to be issued to Bristol Asset and TK
depends upon: (i) the amount of financing which we choose to receive; and (ii)
the price per share at which the investment is made. Each of the financing
agreements requires us to register a maximum number of shares so that all shares
which could be issued by us per the financing agreements will have been
registered. We do not expect for all of these shares to be acquired by Bristol
Asset and/or TK and therefore it is likely that only a portion of the shares
will be available for resale.
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 14.
The information in this Registration Statement is not complete and may be
changed. We will not sell these securities to Bristol Asset or TK until the
Registration Statement filed with the Securities Exchange Commission is
effective. This Registration Statement is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal defense.
AVAILABLE INFORMATION
We have filed a registration statement with the Securities
Exchange Commission under the Securities Act with respect to the shares
registered hereby. This Prospectus omits certain information contained in said
registration statement as permitted by the rules and regulations of the
Commission. For further information with respect to Jaws Technologies, Inc. and
our Common Stock, reference is made to the registration statement, including the
exhibits thereto. Statements contained herein concerning the contents of any
contract or any other document are not necessarily complete, and in each
instance, reference is made to such contract or other document filed with the
Commission as an exhibit to the registration statement, or otherwise, each such
statement
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being qualified in all respects by such reference. The registration statement,
including all of the attached exhibits and schedules , may be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. Copies of
such materials can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates
and at the Commission's web site, www.sec.gov.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in or incorporated by reference into this Prospectus. The
statements which are not historical facts contained in this Prospectus are
forward-looking statements that include risks and uncertainties, including those
described under "Risk Factors."
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THE COMPANY
We are a Nevada corporation which owns a 100% interest in Jaws
Technologies, Inc., a Canadian company with offices in Alberta, Canada ("Jaws
Canada"). Jaws Canada has developed software encompassing encryption algorithms
which uses 4,096 keys to scramble data. Software, also developed by Jaws Canada,
is required in order to unscramble the encrypted data.
Jaws Canada software operates under Windows 3.1, Windows 95,
Windows 98, and Windows NT. Other platforms are currently under development.
The programming of Jaws Canada software has been in development
for approximately 15 years. In May, 1998, we concluded the research and
development stage for Jaws Canada's first product, JAWS L5 DATA ENCRYPTION
SOFTWARE. A sales and marketing team for the product was built and thus far, we
have three agreements with internet service providers ("ISP's") pursuant to
which such companies shall market and sell our products and services. The
product has been tested and validated through a number of engineering sources
for its programming efficiency, structure and strengths.
We believe that there are numerous markets for the Jaws Canada
software. Value Added Resellers (VAR) are a significant potential market for
Jaws Canada products. External software developers can use Jaws Canada software
as an added benefit in their product to enhance their particular product
offering. Accounting software programs, database developments, E-mail programs
and communication software are all potential channels for Jaws Canada software.
Additional potential customers include the Smart Card industry, hand-held
computing devices, telecommunications and access control devices. The Jaws
Canada product provides security enhancements to existing products offered by
other manufacturers. Direct sales channels for our company include Internet
service providers, data warehouses, corporate networks and personal computer
users.
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We recently entered into an investment agreement with Bristol
Asset Management V LLC ("Bristol Asset") dated August 27, 1998, pursuant to
which Bristol Asset granted us the right to require Bristol Asset to purchase up
to $7,000,000 in Common Stock of the Company, subject to conditions, at a price
equal to seventy-seven percent (77%) of the lowest sale price during the ten-day
period immediately prior to the purchase. As part of this transaction, Bristol
Asset also received warrants to purchase up to 3,000,000 shares at 95% of the
average closing bid price on the date of issuance. As of December 24, 1998, no
financing has been received from Bristol Asset.
In addition, we also entered into a Debenture Acquisition
Agreement dated September 25, 1998 with Thomson Kernaghan & Co., Ltd. an Ontario
corporation ("TK"). Pursuant to this agreement, TK purchased from Jaws up to
$2,000,000 of a 10% Convertible Debenture and $400,000 in warrants. As of the
date of this registration statement, we have taken $210,000 of Thomson
Kernaghan's Convertible Debenture and issued 1,912,320 shares.
We anticipate that the net proceeds from the exercise of the put
options related to the Bristol Asset financing and the 10% Convertible Debenture
granted to Thomson Kernaghan & Co. and all underlying warrants will be added to
the general funds of the Company and used for working capital and other general
corporate purposes. The TK financing and the proceeds which may be raised
pursuant to such transaction has been made pursuant to an exemption provided by
Regulation S of the Securities Act of 1933 (the "Reg S Offering"). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation." The Company will pay for all of the expenses of this Prospectus,
estimated to be approximately $50,000.
Our executive offices are located at 603-7th Avenue, S.W., Suite
380, Calgary, Alberta, Canada T2P-2T5 and our telephone number is (403) 508-
5055.
THE OFFERING
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Common Stock Offered Hereby.................. 41,428,572 shares
Common Stock Outstanding as of
November 10, 1998....................... 8,700,000 shares(1)
Common Stock Outstanding after
the Offering............................. 50,128,572 shares
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Use of Proceeds............................. For the product development, expansion of sales
and marketing and working capital. See "Use of Proceeds."
Risk Factors................................ An investment in the Common Stock involves a
high degree
of risk and immediate substantial dilution.. See "Risk Factors" and "Dilution".
NASD OTC Bulletin Board Symbol................. JAWZ
</TABLE>
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(1) An additional 10,428,572 shares are held in escrow pursuant to the terms of
the Debenture Acquisition Agreement. These shares underlie a Convertible
Debenture issued to Thomson Kernaghan & Co. which, as of the Record Date, had
not been converted. This figure also does not include the following shares
reserved for issuance: (a) 1,429,700 shares of Common Stock underlying grants
pursuant to the 1998 Jaws Stock Option Plan; (b) 25,000,000 shares of Common
Stock underlying the Bristol Asset Shares; and (c) 4,428,572 shares of Common
Stock pursuant to the Bristol Asset and TK warrants.
SUMMARY FINANCIAL DATA
CONSOLIDATED FINANCIAL STATEMENTS
The summary financial data in the table are derived from the
audited consolidated financial statements and related notes thereto of our
company. The data should be read in conjunction with the consolidated financial
statements and the related notes contained elsewhere herein.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
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Nine month period ended January 27, 1997 through
September 30, 1998 December 31, 1997
----------------------- ------------------------
Results of operations
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Revenue $ 28,440 $ --
Expenses $ 2,238,504 $ 136,854
Net loss for the period $ 2,210,064 $ 136,854
Financial position
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Current assets $ 47,200 $ 7,611
Working capital (Deficiency) $ (414,195) $ (25,365)
Total assets $ 130,272 $ 9,931
Total liabilities $ 476,953 $ 111,135
Stockholder's equity (Deficiency) $ (346,681) $ (101,204)
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus, including the documents that we incorporate by
reference, contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"), including, in particular,
the statements about our plans, strategies and prospects under the headings
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations ," and "Business." Such statements are
indicated by words or phrases such as "anticipate," "estimate," "plans,"
"projects," "continuing," "ongoing," "expects," "management believes," "the
Company believes," "the Company intends," "we believe," "we intend" and similar
words or phrases. Although we believe that our plans, intentions and
expectations reflected in or suggested by such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectations
will be achieved. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this Prospectus are
set forth below and elsewhere in this Prospectus. All forward-looking statements
attributable to the Company in persons acting on our behalf are expressly
qualified in their entirety by the following cautionary statements.
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RISK FACTORS
An Investment in the Securities Offered Hereby Involves a High
Degree of Risk. In Addition to the Other Information Contained in the
Prospectus, Prospective Investors Should Carefully Consider the Following Risk
Factors Before Making an Investment. The Cautionary Statements Made in this
Prospectus Should Be Read as Being Applicable to All Related Forward-looking
Statements Wherever They Appear in this Prospectus. The Company's Actual Results
Could Differ Materially from Those Discussed Herein. Factors That Could Cause or
Contribute to Such Differences Include Those Discussed Below, as Well as Those
Discussed Elsewhere Herein.
RISKS CONCERNING JAWS US
Minimal Revenues to Date. With exception of the fiscal quarter
ending September 30, 1998, we have not had revenues since our inception. Even
the revenues generated in the third quarter of 1998 were minimal ($28,440). We
can not foresee when we will be able to rely upon revenues for the operation of
the business. Outside financing is not guaranteed and is often on costly terms.
Accordingly, we can not assure investors that the Company will continue to
operate without revenues and/or other sources of funding.
Material Risks with Respect to Funding from Bristol Asset and
Thompson Kernaghan ("TK"). While we have secured financing from each of Bristol
Asset and TK, the terms of the financing are not very favorable for us. The
price at which each of the financiers shall receive shares is below the trading
price at the time of the exercise and this could have an adverse effect on the
market prices of the shares. In addition, in each of the financing agreements,
there are terms pursuant to which Bristol Asset and TK shall not be obligated to
purchase shares. Under these limited circumstances, financing can not be
guaranteed. While we believe that the financing by TK and Bristol Asset will be
enough to carry on the business of our Company for the next thirty-six months,
in the event that the financing is not
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available, we would need to find other sources of funding and no assurances can
be given that such funding will be available, and, if available, that it will be
upon terms satisfactory to us.
Accountant's Going Concern Opinion. The audited financial
statements of our Company include a note disclosing that our recurring losses
from operations and net capital deficiency raise substantial doubts about our
ability to continue as a going concern. While we have secured funding to
continue operation of the Company, it is not on favorable terms for the Company
and there is no guarantee that we will cease to have recurring losses from
operations and net capital deficiency in the near future.
Limited Contracts for the Sale of Products. To date, the Company
has entered into three contracts for the sale of our services and products.
While we are constantly exploring different opportunities for contracting with
others the sale of our services and products, no other contracts exist and we
can not guarantee that any other contracts will be signed. Without additional
contracts, it will be difficult to successfully market and sell our services and
products.
Tradename. A number of U.S. international companies currently use
all or a portion of the name "Jaws" in connection with products or services in
industries different from that of the Company. While we are attempting to
qualify under a trademark throughout the U.S. and Canada, significant issues may
be present as to the ability to widely use the name "Jaws" in connection with
the products or services to be rendered by our Company.
Intellectual Property and Proprietary Rights. The Company
attempts to protect its proprietary rights in the Company's software by
utilizing copyright, trademark, and trade secrets laws, employee and third party
non-disclosure/confidentiality agreements, and other methods of protection
common in the industry. Despite any precautions that may be taken by the
Company, it may be possible for an unauthorized third party to copy or
reverse-engineer certain portions of the Company's software or to obtain and use
information that the Company regards as proprietary. We do not presently own any
patents, copyright registrations, or registered trademarks, but we filed a U.S.
patent application for the L5 Data Encryption algorithm. We license the source
code for our software to some customers to enable them to customize the software
to meet particular requirements. Although the Company's source code license
contains confidentiality and nondisclosure provisions, there can be no assurance
that such customers will take adequate precautions to protect the source code.
In addition, the laws of some foreign countries do not protect the Company's
proprietary rights
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to the same extent as do the laws of the United States. There can be no
assurance that the mechanisms used by the Company to protect its software will
be adequate or that the Company's competition will not independently develop
software products that are substantially equivalent or superior to the Company's
software products. As the number of software products in the industry increases
and the functionality of these products further overlaps, the Company believes
that software programs could become increasingly the subject of infringement
claims. See "Business -- Intellectual Property."
Limitation of Liability of Directors. As permitted by the Nevada
General Corporation Law, the Company's Articles of Incorporation, as amended,
eliminate, with certain exceptions, the personal liability of its directors to
the Company and its shareholders for monetary damages as a result of a breach of
fiduciary duty. Such a provision makes it more difficult to assert a claim and
obtain damages from a director in the event of a breach of his fiduciary duty.
The Nevada General Corporation Law provides that a corporation has the power to
(i) indemnify directors, officers, employees and agents of the corporation
against judgments, fines and amounts paid in settlement in connection with
suits, actions and proceedings and against certain expenses incurred by such
parties if specified standards of conduct are met; and (ii) purchase and
maintain insurance on behalf of any of the foregoing parties against liabilities
incurred by such parties in the foregoing capacities. The Bylaws of the Company
provide for indemnification of its officers and directors against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are made parties by reason of being or
having been officers or directors of the Company; except in relation to matters
as to which any such director or officer is adjudged in such action, suit or
proceeding to be liable for gross negligence or willful misconduct in the
performance of duty. However, such indemnification is not exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of shareholders or otherwise.
Dependence on Key Personnel. The success of the Company depends
to a significant extent upon the performance of its key officers. The loss of
one or more of such officers could have a material adverse effect on the
Company. We believe that our company's future success will depend in large part
upon our ability to attract and retain highly skilled managerial, technical and
sales and marketing personnel, who are in demand. We can not assure that we will
be able to attract and retain such personnel.
Risks Related to Possible Acquisitions. While there are no
current plans for expansion, we may expand our operations in the future through
the acquisition of additional businesses. We cannot assure that the Company will
be able to identify, acquire or profitably manage additional businesses or
successfully integrate any acquired businesses into the Company
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without substantial expenses, delays or other operational or financial problems.
In addition, acquisitions may involve a number of special risks or effects,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Client satisfaction or performance problems of a single acquired firm could have
a material adverse impact on the reputation of the Company as a whole. We are
also unable to assure that acquired businesses, if any are acquired, will have
revenues and earnings. The failure of the Company to arrange its acquisition
strategy successfully could have a material adverse effect upon the Company's
business, operating results and financial condition.
Although the Company's products have never been the subject of
infringement claims, there can be no assurance that third parties will not
assert infringement claims against the Company in the future or that any such
assertion will not require the Company to enter into royalty arrangements or
result in costly litigation and liability.
Year 2000 Compliance Risk. We believe that our principal software
products are Year 2000 compliant. However, because our products are designed to
work with other software products developed and sold by third parties, any
failure of these third party software products to be Year 2000 compliant could
result in the failure of the Company's software products to effectively operate.
Any such failure could harm the Company's reputation in the market and could
have an adverse effect on sales of the Company's products and its financial
performance.
Dividends and Cash Flow. Our Company has a limited history and
currently does not have an operating business. We have no present intention to
pay dividends to our shareholders.
RISKS CONCERNING JAWS CANADA
Creditworthiness of Clients. The value of Jaws Canada's computer
equipment, software, and intellectual property may depend on the credit and
financial stability of its customers. Jaws Canada's projected income would be
adversely affected if a significant number of customers were unable to meet
their obligations to Jaws Canada or if Jaws Canada were unable to continue to
collect its account receivables. In the event of default by customers, Jaws
Canada could experience delays in enforcing its rights as a vendor and may incur
substantial costs in protecting its investment.
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Start-Up Company. The business of Jaws Canada should be
considered highly speculative due to its present stage of development. Jaws
Canada does not have a history of earnings nor has it sufficiently diversified
its business. Accordingly, it cannot mitigate the risks associated with planned
activities. Jaws Canada has limited cash and other assets and a limited business
history. Security holders must rely solely upon the ability, expertise,
judgment, discretion, integrity and good faith of the Company's management in
all aspects of the development and implementation of Jaws Canada's business
strategy.
Competition. The market for information technology services is
very competitive. There are a large number of competitors and it is a rapidly
changing environment. Primary competitors include participants from a variety of
market segments, including "Big Five" accounting firms, systems consulting and
implementation firms, application software firms, service groups of computer
equipment companies, facilities management companies, general management
consulting firms and programming companies. Many of these competi tors have
significantly greater financial, technical and marketing resources and greater
name recognition than Jaws Canada. In addition, Jaws Canada competes with its
client's internal resources, particularly where these resources represent a
fixed cost to the client. Such competition may impose additional pricing
pressures on Jaws Canada. There can be no assurances that Jaws Canada will
compete successfully with its existing competitors or with any new competitors.
Rapid Technological Change; Dependence on New Solutions. Jaws
Canada's success will depend in part on its ability to develop information
technology solutions that keep pace with continuing changes in information
technology, evolving industry standards and changing client preferences. There
can be no assurance that Jaws Canada will be successful in adequately addressing
these developments on a timely basis or that, if these developments are
addressed, Jaws Canada will be successful in the marketplace. In addition, there
can be no assurance that products or technologies developed by others will not
render Jaws Canada's services uncompetitive or obsolete. Jaws Canada's failure
to address these developments could have a material adverse effect on Jaws
Canada's business, operating results and financial conditions.
Attraction and Retention of Employees. Jaws Canada's business
involves the delivery of professional services and is labor-intensive. Jaws
Canada's success depends in large part upon its ability to attract, develop,
motivate and retain highly skilled technical employees. Qualified technical
employees are in great demand and are likely to remain a limited resource for
the foreseeable future. There can be no assurance that Jaws Canada will be able
to attract and retain sufficient numbers of highly skilled technical employees
in the future. Jaws Canada has historically experienced turnover rates which it
believes are consis tent with industry norms. An increase in this rate could
have a material adverse effect on Jaws Canada's business, operating results and
financial condition, including its ability to secure and complete engagements.
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Dividends. Since incorporation, Jaws Canada has not paid any
dividends on its outstanding Jaws Canada Common Shares and has no present
intention to pay such dividends.
RISKS CONCERNING THE SECURITIES OF JAWS US
Limited Trading History of Jaws US Common Shares; Stock Price
Volatility. Between February 1, 1998 and December 14, 1998, the closing sale
price for the Company's stock ranged from $.28 per share to $1.28 per share. The
market price of the Company's Common Stock could continue to fluctuate
substantially due to a variety of factors, including quarterly fluctuations in
results of operations, adverse circumstances affecting the introduction of
market acceptance of new products and services offered by the Company,
announcements of new products and services by competitors, changes in the
information technology ("IT") environment, changes in earnings estimates by
analysts, changes in accounting principles, sales of Jaws US Common Shares by
existing holders, loss of key personnel and other factors.
The market price for the Jaws US Common Shares may also be
affected by our ability to meet analysts' expectations. Failure to meet such
expectations, even if not material, could have a negative effect on the market
price of our shares.
In addition, the stock market is subject to extreme price and
volume fluctua tions. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Any such
litigation instigated against our company could result in substantial costs and
a diversion of management's attention and resources, which could have a material
adverse effect upon our business, operating results and financial condition.
Possible Volatility of Securities Prices. The stock market has
from time to time experienced significant price and volume fluctuations that may
be unrelated to the operating performance of any particular company. The market
prices of the securities of many publicly-traded companies in the computer
industry have in the past been and can be expected in the future to be
especially volatile. Factors such as our operating results, announcements
concerning technological innovations, new
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<PAGE> 20
products or systems may have a significant impact on the market price of the
Company's securities.
Risks of Low-Priced or Penny Stock. The Common Stock of the
Company is traded on the NASD OTC Bulletin Board. As such it is subject to Rule
15(g)-(9) under the 1934 Act such Rule adversely effects the ability of
purchasers in this Offering to sell of the securities acquire hereby in the
secondary market.
Rule 15g-9 requires additional disclosure, relating to the market
for penny stocks, in connection with trades in any stock defined as a penny
stock. The Commission defines a penny stock to be any equity security that has a
market price of less than $5.00 per share (exclusive of commissions), subject to
certain exceptions. Such exceptions include any equity security listed on Nasdaq
and any equity security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous operation
for less than three years. Unless an exemption is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith.
In addition, trading in the Common Stock would be covered by
Rules 15g-1 through 15g-6 under the 1934 Act for non-Nasdaq and non-exchange
listed securities. Under such rules, broker/dealers who recommend such
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities also are exempt from these rules if the market price is at least
$5.00 per share.
The regulations on penny stocks such as the Company's could limit
the ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
No Dividends Anticipated on Common Stock. The Company has not
paid any dividends on its Common Stock to date. The Company does not currently
intend to declare or pay any dividends on its Common Stock in the foreseeable
future, but plans to retain earnings, if any, for development and expansion of
its business operations.
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<PAGE> 21
USE OF PROCEEDS
It is currently anticipated that the net proceeds from the
exercise of the put options related to the Bristol Asset financing and the 10%
Convertible Debenture granted to Thomson Kernaghan & Co. and all underlying
warrants, to the extent that such financing is taken by us, will be added to the
general funds of the Company and used for working capital and other general
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation." To date, only $210,000 of the Convertible
Debenture has been converted and none of the Bristol Asset put options have been
exercised. Additional financing related to these or other transactions may not
occur. The Company will pay all the expenses of this Prospectus, estimated to be
approximately $50,000.
The foregoing represents the our best estimates of the
application of the net proceeds of the Reg. S Offering based upon present plans
and current business conditions. Unforeseen events, changed business conditions
and a number of other factors that are beyond the control of the Company, could
necessitate changes in the application of net proceeds. The Company reserves the
right to reallocate the net proceeds among the various uses described above or
for such other purposes as it, in its sole discretion, deems necessary or
desirable. In the event that the Company changes the use of proceeds of this
Offering, the Company may require immediate additional debt or equity financing
to meets its business plan. If the need should arise, there can be no assurance
that any such financing would be available on terms that are favorable to the
Company, if at all.
The Company may use a portion of the net proceeds to acquire
businesses, products or technologies complementary to the Company's current
business. The Company has no present commitments or agreements and is not
currently involved in any negotiations with respect to any such acquisitions.
The Company has not determined the amounts it plans to expend on each of such
uses or the timing of such expenditures. The amounts actually
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<PAGE> 22
expended for each such use, if any, are at the discretion of the Company and may
vary significantly depending upon a number of factors, including future revenue
growth and the amount of cash generated by the Company's operations.
DIVIDEND POLICY
The Company has not paid any dividends since its inception and
has no current plans to pay dividends on the Common Stock in the foreseeable
future. The Company intends to reinvest future earnings, if any, in the
development and expansion of its business. Any future determination to pay
dividends will depend upon the Company's results of operations, financial
condition and capital requirements and such other factors deemed relevant by the
Company's Board of Directors.
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of
Jaws Technologies, Inc. as at September 30, 1998 before and after giving effect
to the offerings:
<TABLE>
<CAPTION>
Authorized Outstanding as at Pro Forma at September 30,
---------- September 30, 1998 After Giving Effect to
1998 the Offerings
----------------- ---------------------------
<S> <C> <C> <C>
Common 20,000,000 common shares $2,030,084(2) $13,177,041(2)(3)(4)(5)
stock at $0.001 par value (8,700,000 shares) (47,286,081 shares) (1)
Preferred 5,000,000 preferred shares Nil Nil
shares at $0.001 par value
</TABLE>
NOTES
1. The Company proposes to increase authorized common stock to 95,000,000
common shares at $0.001 par value, subject to shareholder approval in
January, 1999 and prior to the issuance of these shares.
2. Includes $2,021,384 of capital in excess of par value.
3. Assumes the issuance of the following shares of Common Stock:
i) 25,000,000 shares pursuant to the put option issued by Bristol Asset
Management V LLC ("Bristol Asset") for cash consideration of
$7,000,000 based on a price per share of $0.28. See Note 5 to the
consolidated financial statements included herein.
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<PAGE> 23
ii) 3,000,000 shares pursuant to the exercise of Bristol Asset warrants
for cash consideration of $840,000 based on a price per share of
$0.28. See Note 5 to the consolidated financial statements included
herein.
iii) 9,157,509 shares pursuant to the exercise of the $2,000,000 10%
convertible debenture held by Thomas Kernaghan & Co. Ltd. ("TK"),
convertible at a conversion price of $0.2184 per common share. See
Note 7 to the consolidated financial statements included herein.
iv) 1,428,572 shares pursuant to the exercise of warrants issued to TK, at
an exercise price of $0.28 per common share, for cash consideration of
$400,000. See Note 7 to the consolidated financial statements included
herein.
4. Includes contributed surplus totaling $564,100 pursuant to the issuance of
the $2,000,000 10% convertible debenture held by TK, representing the
amount attributed to the value of the conversion option.
5. Includes contributed surplus totaling $342,857 pursuant to the issuance of
1,428,572 warrants to TK, representing the value attributed to the
warrants.
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company commenced quotation on the OTC
Bulletin Board under the symbol "JAWZ" in late 1997. Until the third quarter of
1997 no substantial public trading market had developed for the Common Stock of
Jaws.
NASD OTC Bulletin Board ........ Symbols
Common Stock ........... JAWZ
The Company has not paid any dividends on its Common Stock since
its inception and has no current plans to pay dividends on the Common Stock in
the foreseeable future. In addition, the Company's ability to pay cash dividends
is restricted by the Company's current credit facilities, and future borrowings
may contain similar restrictions. The Company intends to reinvest future
earnings, if any, in the development and expansion of its business. Any future
determination to pay dividends on the Common Stock will depend upon the
Company's results of operations, financial condition and capital requirements
and such other factors deemed relevant by the Company's Board of Directors.
The closing price of the Common Stock of the Company as reported
on the NASD OTC Bulletin Board Issues on December 20, 1998, by brokers making a
market, was $.42.
Jaws US' Common Stock is traded on the NASDAQ OTC Bulletin Board
under the symbol JAWZ. The following table summarizes the trading activity of
Jaws from February 1998.
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<PAGE> 24
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Price Range Trading Volume
- --------------------------------------------------------------------------------
High Low
<S> <C> <C> <C>
February, 1998 1.00 0.59 333,800
March, 1998 1.06 0.88 693,200
April, 1998 1.22 0.94 2,480,000
May, 1998 0.88 0.75 869,700
June, 1998 0.85 0.55 1,740,000
July 6-10, 1998 0.64 0.48 274,500
July 13-17, 1998 0.51 0.58 289,700
July 20-31, 1998 0.76 0.47 1,993,900
August 3-7, 1998 0.78 0.66 344,500
August 10-14, 1998 0.68 0.54 887,100
August 17-21, 1998 0.60 0.54 475,400
August 24-31, 1998 0.56 0.35 575,900
Totals 10,957,700
- --------------------------------------------------------------------------------
</TABLE>
On December 30, 1998 the high and low prices of the Company's Common Stock were
$.37 and $.43 per share, respectively. As of November 10, 1998 there were
approximately 42 holders of record of Jaws US Common Stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Jaws Canada develops software encompassing encryption algorithms
to be used to secure binary data in various forms. Since the commencement of
operations in October of
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<PAGE> 25
1997 and through the present, the Company and Jaws Canada have been in a
development stage. During this period, the Company has been and is engaged
primarily in recruiting personnel, establishing a corporate headquarters,
developing software and licensing software from external developers for
integration in Jaws Canada proprietary software.
The Company's internal product development costs incurred prior
to establishing technological feasibility are expensed in accordance with the
Financial Accounting Standards Board Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." In accordance with SFAS No. 86, the Company
capitalizes product development costs subsequent to establishing technological
feasibility and amortizes previously capitalized product development costs by
using: (i) the revenue curve method; or (ii) the straight-line method over the
estimated economic life of the product, which typically ranges from six months
to two years.
The Company has experienced significant losses since its
inception, resulting primarily from overhead and other costs incurred in the
development and growth of the Company. Moreover, the Company expects to incur
substantial up-front expenditures and operating costs in connection with the
expansion of its marketing efforts, which may result in significant losses for
the foreseeable future. There can be no assurance that the Company will be able
to successfully implement its growth and business strategies, that its revenues
will continue to increase in the future or that it will be able to achieve or
sustain profitable operations.
COMPARATIVE AMOUNTS
Jaws US was incorporated on January 27, 1997 but did not commence
operations until July, 1997. Accordingly, the following discussion and analysis
compares the financial position of the Company as at September 30, 1998 with
that as at December 31, 1997, and compares the results of operations for the
nine months ended September 30, 1998 with those for the fiscal period ended
December 31, 1997.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 compared to fiscal period
ended December 31, 1997.
The Company did not earn any revenues during 1997 since it was in
the initial stages of development and startup. Revenues earned during the nine
months ended September 30, 1998 in the amount of $28,440. Although substantial
sales and marketing efforts were undertaken during this period, sales contracts
are not booked as revenue until actually realized. Management believes that
sales for the next period will positively reflect these efforts.
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<PAGE> 26
Expenses in all categories have increased significantly as a
result of establishment of operations and moving toward commercialization stage.
These include expenses related to the preparation of various marketing and sales
documents and materials, requirements for office space, supplies and stationery,
and related costs. The significant increase in consulting expenses reflects the
Company's decision to obtain various marketing, promotion, financial and general
business assistance and expertise on a contract basis for the immediate term.
Management anticipates that all its operating, and general and administrative
expenses will continue to rise as the operation grows its markets and sales
opportunities.
The loss from operations includes a one time write-off of the
Company's acquired software development costs. The Company's policy of expensing
software development costs as incurred until technological feasibility has been
established, is consistent with generally accepted accounting principles;
however, the write-off of $909,003 is a non-cash item and therefore did not
result in any cash flow hardship for the company.
Management believes that expenses will continue to increase and
revenues for the next period will not be sufficient to support the expenses.
Management will continue to require equity investment for the next period to
support these losses, with the gap between revenue and expenses lessening
slightly.
The Company has budgeted around the equity investments available
to be drawn upon from Bristol Asset and Thomson Kernaghan. Management believes
that these funds should be sufficient for the next 36 months and will meet the
growing needs of the Company. The Company believes that it will not need further
financing other than what has been arranged. However, the Company continues to
search for alternative forms of financing in the event that either Thomson
Kernaghan or Bristol Asset fail to meet their contractual obligations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $727,588 for the nine
month period ended September 30, 1998 compared to $110,798 for the fiscal period
ended December 31, 1997, as a result of the increased expenses incurred as noted
above. The Company's working capital deficiency of $414,195 as at September 30,
1998 has increased from the deficiency of $25,365 at December 31, 1997.
Management believes the negative working capital position must be addressed in
the next period and is working towards arranging the appropriate equity
investments to maintain reasonable levels of working capital.
Cash on hand at September 30, 1998 decreased to $00.00 from $111
at December 31, 1997 primarily as a result of the cash used for operations as
noted. A net amount of $954,686 was raised from stock issuances during the nine
months ended September 30, 1998 (compared to only
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<PAGE> 27
$35,650 during 1997) and was deployed primarily to fund working capital
requirements, with a balance remaining of $00.00 at September 30, 1998. In
addition, the Company repaid stockholder loans in the amount of $117,044 during
this period, and acquired approximately $90,008 of fixed assets as part of
building the necessary infrastructure and systems needed to support the
additional staff hired during the period. Management estimates that for each new
position created in the Company, approximately $7,200 will be expended in
infrastructure costs (i.e. furniture, software licensing, technology and general
office and stationery requirements).
Prepaid expenses, consisting of premises deposits and legal fee
retainers increased from $7,500 at December 31, 1997 to $27,112 at September 30,
1998. The decrease in organizational costs from December 31, 1997 to September
30, 1998 reflects the amortization of these costs over a 60 month period.
Accounts payable have increase dramatically from $32,976 at
December 31, 1997 to $437,086 at September 30, 1998 as a result of the efforts
expended to commercialize the products and services offered by the company. The
Company has moved from research and development to full commercialization during
this reporting period and an increase in this category was anticipated as a
result of the increased activity. Management also believes that this trend will
continue until cash flow from sales are realized allowing the company to reduce
the trade accounts in a more timely fashion.
The Company has not established any lines of credit outside of
trade accounts, and will not be in a position to negotiate any lines of credit
until sales contracts have been validated and matured. The Company has not used
any debt instruments to date due to its early stage of operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company's quarterly operating results have fluctuated
significantly in the past and will likely fluctuate significantly in the future
depending on a variety of factors, several of which are not in the Company's
control. Such factors include the demand for the Company's products and the
products of its competitors, development and promotional expenses related to the
introduction of products or enhancements, the degree of market acceptance for
the Company's products and enhancements, the timing of orders from significant
customers, delays in shipment, the level of price competition, changes in
computing platforms, the nature and magnitude of product returns, order
cancellations, software defects and other quality problems, the length of
product life cycles, the percentage of the Company's sales related to
international sales and changes in personnel. Based on the foregoing, the
Company believes that period to period comparisons of operating results should
not be relied upon as indicative of future results.
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<PAGE> 28
FINANCING
Bristol Asset
The Company has entered into an Investment Agreement with Bristol
Asset Management V LLC ("Bristol Asset") dated August 27, 1998 pursuant to which
Bristol Asset has granted to the Company the right to require Bristol Asset to
purchase up to $7,000,000 in shares of Common Stock of the Company. Bristol
Asset, upon request of the Company, is required to purchase shares at a 23%
discount to the lowest trade price in the prior ten (10) days. Bristol also
received warrants to purchase up to 3,000,000 shares at 95% of the average
closing bid price on the day of the issuance. As of the date herein the Company
has not received any financing and has not issued any shares thereunder to
Bristol Asset.
The total number of shares of Common Stock underlying the Bristol
Asset put options and warrants that are registered pursuant to the Form SB-2
Registration Statement equals 28,000,000.
Thomson Kernaghan
The Company entered into a Debenture Acquisition Agreement dated
September 25, 1998 with Thomson Kernaghan & Co., Ltd., an Ontario corporation
("TK"). Pursuant to this agreement, TK purchased from Jaws US up to $2,000,000
of a 10% Convertible Debenture ("Debenture") and $300,000 in a series of
warrants.
The purchase price for the Debenture shall be payable in a series
of the closings. The initial closing on October 1, 1998 provided Jaws US with
$200,000, less commissions and fees, to be utilized by the Company primarily for
operating capital.
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<PAGE> 29
Additional closings at the rate of no more than one per month and
in the amount $200,000 per month are scheduled conditioned upon effectiveness of
the Company's 1933 Securities Act and 1934 Securities Act Registration
maintenance, minimum bid prices and daily volume requirements.
TK shall receive a 10% commission on all payments made for the
Debenture, and $100,000 principal amount of a series of warrants of Jaws US
exercisable at a per share price equal to the average of the closing bid prices
of the Common Stock of the Company as quoted on the NASD Electronic Bulletin
Board for the three days prior to the initial funding date.
The Company will be depositing into escrow a total of 13,428,572
shares of Common Stock, all of which shall be registered pursuant to this Form
SB-2 Registration Statement with the Securities and Exchange Commission, as the
Common Stock underlying the Debenture and the warrants issued to TK.
The Debenture is all due and payable on October 31, 2001,
provided that TK shall have the right, at its option beginning on the 30th day
after the initial funding date to convert in $100,000 increments or multiples
thereof the principal amount to shares of the Company's at a conversion price
equal to the lower of 78% of the average closing bid price of the Common Stock
on the principal market for the Common Stock for the three trading days
immediately preceding (i) the date of notice of conversion, or (ii) the date of
the Convertible Debenture (September 25, 1998). If the price of the Common Stock
of the Company has substantially diminished for the three trading days prior to
notice of conversion, the number of shares of Common Stock issuable upon
conversion could exceed the amount registered hereunder.
The warrants to purchase Common Stock consist of two separate
warrants, one for $300,000 face amount and the other for $100,000 face amount,
both issued to TK in consideration for its execution and funding under the
Debenture Acquisition Agreement. The total number of shares of the Common Stock
underlying the TK warrants that are registered pursuant to the Form SB-2
Registration Statement equals 1,428,572.
As of the date herein, the Company had received an aggregate of
$210,000 less commissions and fees, from TK pursuant to the terms of the
Debenture. The conversion rate in each of the transactions was at $.11 per share
and accordingly 1,543,320 shares of Common Stock were taken out of escrow and
are held by TK.
YEAR 2000 COMPUTER ISSUE
The Company, as well as its customers and suppliers and the
financial institutions and governmental entities with which it deals
(collectively, "Third Parties"), utilize information systems that will be
affected by the date change to the year 2000. Many of these
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<PAGE> 30
systems, if not modified or replaced, will be unable to properly recognize and
process date- sensitive information before, on and after January 1, 2000.
State of Readiness
In July, 1998, the Company organized a Year 2000 project team to
assess the impact of the Year 2000 issue on its operations, develop plans to
address the issue and implement compliance. The project team developed a
company-wide, Year 2000 remediation plan which consists of a ten-step process to
examine the Company's own system and those which the Company estimated may
adversely affect the Company's systems: (1) in-house computer equipment; (2)
outside supported network equipment; (3) bandwidth providers; (4) in-house
software; (5) outside supported network software; (6) contractors; (7) in-house
auxiliary equipment; (8) physical plant; (9) suppliers; and (10) liability.
For each of the above-listed systems, the Company's approach
toward becoming Year 2000 compliant has been as follows:
(1) In-house computer equipment:
Since inception, the company has insisted that all new
equipment purchased be certified to be year 2000
compliant. The Company has not dealt with legacy equipment
for internal use and will only purchase computer equipment
manufactured by Year 2000 compliant manufacturers.
(2) Outside supported network equipment:
The Company has limited its outside resource affiliations
to one company. FutureLink Distribution Corporation
maintains the Company's network system, the Company has
requested a full report from this company relative to
their compliance.
(3) Bandwidth providers:
The Company has limited its bandwidth provider to
FutureLink Distribution Corporation.
(4) In-house software:
The Company's own products have been carefully scrutinized
for compliance. The Company believes that all in-house
software products developed by the Company meet are year
2000 compliant.
(5) Outside support network software:
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<PAGE> 31
The Company relies on FutureLink Distribution Corporation
for all outside software needs with the strict mandate to
only supply Year 2000 compliant support software. A full
report has been requested from FutureLink.
(6) Contractors:
No contractors have been engaged to perform programming
work. Due to the nature of the Company's product line,
strict controls are followed to ensure no outside
contractors have access to the Company's systems, designs
and programming.
(7) In-house auxiliary equipment:
All auxiliary equipment used and owned by the Company is
less than 12 months old, including phone systems, printers
and photocopiers. We have requested Year 2000 compliance
certificates from each manufacturer.
(8) Physical plant:
The Company currently leases office space in the downtown
core of Calgary, Alberta. A notice requesting Year 2000
compliance has been delivered to the landlord.
(9) Suppliers:
All critical stock items will be in stock prior to the
beginning for the year 2000 thus eliminating inventory
pressure for the first quarter of 2000.
(10) Liability:
The Company has received definitive answers from all
insurance carriers with the common consensus that no
liability is covered under the Company's current policies.
The Company believes that it has reduced its risk to
levels such that they do not warrant additional or special
insurance at this time.
Estimated Cost of Remediation
The Company currently estimates total expenditures of
approximately $25,000 of which approximately $5,000 had been expended as of
September 30, 1998, to make the required Year 2000 modifications and
replacements to its own systems. All modification and
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<PAGE> 32
maintenance costs, including costs to replace embedded technology that does not
significantly extend the life or improve the performance of the related asset,
are expensed as incurred. Costs to purchase new hardware and software and to
replace embedded technology that does significantly extend the life or improve
the performance of the related asset are capitalized and depreciated over the
assets' useful lives. All of these costs are being funded through internal cash
flow. The estimated total cost does not include any expenditures that may be
incurred in connection with the implementation of contingency plans, discussed
below.
Most Reasonably Likely Worst-Case Scenario
The Company currently believes that it will be able to modify or
replace its own affected systems in a timely fashion so as to minimize
detrimental effects on its operations, subject to timely assistance by the
vendors of certain process-control systems. The Company has received written
assurances regarding Year 2000 compliance from some, but not all, Third Parties
with respect to their own systems and is not in a position to reliably predict
whether third parties will experience remediation problems. If the Company or
major Third Parties fail to successfully address the Year 2000 issue, there
could be a material adverse impact on the business and results of operations of
the Company.
The Company has not determined the most reasonably likely
worst-case scenario that would result from any failure by the Company or Third
Parties to resolve the Year 2000 issue. The Company will consider this matter in
connection with its development of contingency plans, discussed below. However,
such a scenario could include a temporary curtailment or cessation of operations
at the Company's facilities, with a resulting loss of production; safety and
environmental exposure and a temporary inability on the part of the Company to
process orders and deliver finished software products to customers on a timely
basis.
Contingency Plans
To date, the Company's Year 2000 efforts have been devoted
primarily to the readiness program described above. The Company has not yet
developed contingency plans to address and mitigate the potential risks
associated with the most reasonably likely worst-case scenario. The Company
expects to have such plans in place by mid-1999. Such plans may include, among
other things, seeking alternative sources of supply, stockpiling raw materials
and increasing inventory levels.
The Company's Year 2000 program is an ongoing process. Estimates
of remediation costs and completion dates as well as projections of the possible
effects of any non-compliance are subject to change.
The Company has not conducted a systematic evaluation of the Year
2000 compliance of its vendors and customers. As a result, it is possible that
the Company's future performance may be adversely impacted by payment and
financial difficulties experienced by
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<PAGE> 33
customers, and by shipping, fulfillment and accounting difficulties experienced
by vendors. The Company believes that it has sufficient resources, including
cash reserves and inventory supplies, to maintain operations during delays in
payments or supplies of inventories. However, the Company is aware that extended
difficulties by larger vendors may have a significant impact; however, it is
unable, at this time, to anticipate the extent of any such impact, were it to
occur.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes new
guidance for the reporting and display of comprehensive income and its
components. The Company believes the adoption of SFAS No. 130 will have no
impact on the Company's net income or stockholders' equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information ," which changes the way
public companies report information about operating segments. SFAS No. 131,
which is based on the management approach to segment reporting, establishes
requirements to report elected segment information quarterly and to report
entity-wide disclosures about products and services, major customers and major
countries in which the entity holds assets and reports revenues. The Company has
not yet evaluated the effects of this change on its reporting segment
information.
In February, 1998, the FASB issued SFAS No. 132, "Employers Disclosures about
Pensions and other Post Retirement Benefits". The Company does not have any such
plans for its employees.
In June 1998, the FASB issued Statement #133, "Accounting for
Derivative Instruments and Hedging Activities." The Company does not acquire
derivatives or engage in hedging activities.
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<PAGE> 34
BUSINESS
Jaws US is a Nevada corporation which owns a 100% interest of
Jaws Technologies, Inc. a corporation formed under the laws of the Province of
Alberta, Canada ("Jaws Canada"). Jaws Canada has offices in Alberta, Canada and
develops encryption proprietary software encompassing encryption algorithms
which are used to secure binary data in various forms, including streamlining or
block based data. Jaws US was incorporated as a Nevada corporation on January
27, 1997 under the name E-Biz Solutions Inc. On March 27, 1998, the Company
changed its name to Jaws Technologies, Inc.
Jaws Canada develops software encompassing encryption algorithms
used to secure binary data on various forms, including streaming and blocked
based data. Currently, Jaws Canada's software technology is capable of
encrypting to a bit level of 4,096. Jaws Canada software operates under Windows
3.1, Windows 95, Windows 98, and Windows NT. Other platforms are currently under
development.
The programming of Jaws Canada software has been in development
for approximately 15 years. Marketing efforts for Jaws Canada's first product,
JAWS L5 DATA ENCRYPTION SOFTWARE, began in May 1998. This product was tested and
validated through a number of engineering sources for its programming
efficiency, structure and strengths by SNC Kilborn Western, Inc. an
international high technology engineering and consulting firm, hired by Jaws to
review the L5 algorithm. The review concluded that the L5 code is an efficient
easy-to-use means of private key encryption which appears to be a very strong
form of encryption. The term "strong encryption" is used to describe codes that
are nearly impossible to break if not undecipherable in a finite number of
tries. Given these results, the Company has concluded that no further research
and development is necessary prior to marketing the L5 products. In December
1998, the Company entered into three agreements pursuant to which the Company
has contracted companies to market its products and services. According to the
first agreement with AI Axion Internet Communications, Inc. ("Axion"), Axion
shall market products and services of Jaws on an exclusive basis in the Province
of Vancouver for a period of six months and on a non-exclusive basis thereafter
and elsewhere. The two additional agreements, with Calgary On-Line and ABC
Internet, Inc. are also for the marketing and sale of the L5 Data Encryption
Software in consideration for royalties on sales to be paid by the Company.
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<PAGE> 35
In addition, Jaws has recently completed development of L5 Data
Encryption-PDA Edition Software for Palm III(TM) connected organizers. The new
software provides encryption capabilities, thereby securing sensitive
information stored in the Palm III(TM) organizer memo pad application. Marketing
for this product has just begun. As of the date of this Registration Statement,
the Company does not have any contracts to facilitate the distribution of this
product.
The Company has also completed a beta release of L5 e-mail
encryption software for Microsoft Outlook users. This product is currently being
tested by selected e-mail Users. The product enables users to protect e-mail and
attachments by pressing a single button for encrypt/decrypt.
Numerous markets exist for the Jaws Canada software. Management
believes that Value Added Resellers (VAR) entail a significant potential market
for Jaws Canada products. Such external software developers can use the Jaws
software as a utility embedded in their product to augment or enhance their
particular product offering. Accounting software programs, database
developments, e-mail programs and communication software are all potential
channels for Jaws software. Additional potential customers include the Smart
Card industry, hand-held computing devices, telecommunications and access
control devices. The product is implemented as a software utility to provide
security enhancements to existing product offerings by other manufacturers.
Direct sales channels include product offerings to Internet service providers
(ISP), data warehouses, corporate networks and personal computer users.
Services
The Company's efforts to remain competitive in the marketplace
include providing customers with professional services such as security audit
practices, security business plan development (including security policy
development), implementation practices and re-audit or validation processes. The
Company has developed its services around the premise of full information
security solutions. This means professional services followed by strong product
offerings to maintain the best possible solution for the given client. The
Company believes that the marketplace is not geographically restricted, size
restricted, or sector specific. The Company's professional services can be
offered to government agencies, military agencies, small corporations, large
corporations, financial institutions, industrial clientele and foreign entities.
The Company's security audit technology is sold to customers and
used by customers so that they may understand the full magnitude and risks
inherent with their current systems information technology ("IT"). This is
achieved through a number of practices including intrusion testing, penetration
testing, site mapping and systems testing with specialized software. Once the
Company fully understands the risk revealed in the audit, its customer-specific
business plan for IT securities can be developed. At the option of the client,
the Company can then integrate the appropriate software and products to meet
customer needs.
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<PAGE> 36
The cost analysis associated with such implementation and products is a critical
planning path. This ensures that the customer meets its objectives, and provides
policy guideline development to ensure that the Company, and the customer,
understand the necessary uses of security. The business plan generally includes
a cost analysis to ensure the customer understands the true cost of security in
relationship to its risk, a critical path schedule to ensure the customer meets
its objectives and policy guidelines development to ensure employees of the
Company fully understand the security elements. Finally, the Company provides
training for the customers' staff to ensure that its employees adopt the
corporate culture established by the business plan.
The Company also offers re-auditing practices to assist the
customer in maintaining its security policies. The re-audit is much like a
report card for the customer to ensure that it is maintaining the policies and
procedures underlying the Jaws Canada software.
The security service division of the Company believes that in
order to provide satisfactory solutions for its customers, product offerings
must include those of competitors, and in most cases, suppliers of security
software, hardware and firmware. This is achieved through standard licensing
contracts with other security product vendors such as Network Associates, and
providers of intrusion detection products, and other security products.
Information Security Marketplace
The Company believes that the marketplace for encryption software
is virtually unrestricted by size and geography. With the ongoing drive of the
computer industry toward open computing, enormous security risks have been
revealed. Corporations, government, institutions and foreign entities are all
faced with security questions, and as these organizations grow, their network
security will constantly be faced with new challenges. The information industry
in the last ten years has changed from information gathering and information
warehousing, to information sharing. Such information sharing is growing
exponentially, with security being the first component of any solid information
system, whether it is internal or external. More and more, corporations are
finding that their information is their asset and such proprietary information
whether it is market intelligence, corporate planning, corporate development, or
client information, must at all costs remain secure within the organization
while at the same time, be available to strategic partners, employees and
management. The only way to ensure maximum use of all information gathered and
deployed is through security.
According to San Jose, CA, based Data Quest, IT services now make
up 37.5% of all IT spending. Computer sales represent 28.8%, software 14.3% and
telecommunication equipment 9.3%. Approximately $262 billion were spent on IT
services in 1996 and it is anticipated that users will spend approximately $413
billion in the year 2000. A portion of this enormous IT budget for the year 2000
will include a significant amount towards system security.
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COMPETITION
Products
A number of companies have developed various security products
ranging from encryption software to firewalls to intrusion detection software or
hardware solutions. No one particular product in the marketplace controls market
share. Two distinctive competitors, RSA and PGP (Network Associates) have led in
the sale of encryption software. The Company believes that this lead is a result
of being first to the marketplace and commercializing a product specific to
individual users rather than government agencies. With only two strong
competitors in the marketplace, the Company believes that there is room for
additional products, specifically those products that provide stronger, faster,
and easier to use solutions for the consumer.
An added enhancement of the opportunity for new players in the
marketplace is the typical customer's unwillingness to turn over all security to
a specific product or corporation. Jaws US engages in market study and
competitive study research to ensure that the Company remains aware of other
competing product development. Although other products have entered the
marketplace, due to the size of the market plus the constantly changing
atmosphere, the Company believes it can penetrate the market with its products.
The Company also believes that healthy competition has aided in the development
of the marketplace through customer awareness that information security is
critical.
Services
Information auditing services, security business planning,
implementation, and security management are relatively new industries, as such,
very few large size competitors exist and only small firms are providing the
services at this time. The growth is anticipated to be exponential over the next
number of years. The Company is positioning itself to be one of the dominant
market players in these areas of professional services. It will achieve this
through both internal growth, and external growth through acquisitions. The
Company is aggressively pursuing a number of the small operators in this field
in order to maintain its high sales expectations.
BUSINESS STRATEGY
The blend of both product and services offered by Jaws US is the
Company's strategy for ensuring that it is well positioned in the customer's
mind as being the number one source for information security solutions. The
Company has developed specific business processes and marketing strategies that
will ensure that it meets and exceeds the market expectations. Reaching the
marketplace is achieved through conventional marketing tactics but also through
educational processes, such as seminar delivery through accounting and legal
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<PAGE> 38
firms to their client base, value added reselling programs and a strong channel
marketing strategy. The Company believes it can grow its practices, deliver
services and products in a cost-effective manner, but yet be able to handle
superior volumes through exceptional business processes developed by the
Company.
Customer Support
The Company provides a high degree of initial and continuing
customer service, and support at a level the Company believes generally exceeds
industry standards. The Company believes that its focus on customer service will
be a key factor in its high level of customer retention and growth in revenues.
Support is available to the customer through a help desk process and eventually
regional technicians.
Technological Change
Although the Company is not aware of any pending or perspective
technological change that would adversely affect its business, new development
in technology could have material effect on the development or sale on some or
all of the Company's services or could render its services not competitive or
obsolete. There can be no assurance that the Company will be able to develop or
acquire new or improved services or systems, which may be required in order to
remain competitive. The Company believes however, that technological change does
not present a material risk to the Company's business but enhances its business
opportunities. Each technological change reveals new security issues which must
be addressed by professional services and results in new products.
Intellectual Property Matters
The Company is in the process of applying for a U.S. patent. The
Company maintains strict confidentiality practices with its employees including
contractual obligations by the employees. The Company has not registered any of
its trademarks, trade names or service marks. The Company owns the copyright in
all the software created by its employees and the copyrights which it has
contractually acquired. The Company also believes that because of the rapid pace
of technological change in the computer industry, copyright and other forms of
intellectual property protection are of less significance within its services
division. The Company's business is not dependent on a single license or group
of licenses. The Company is experienced in handling confidential and sensitive
client information that is intrinsic or critical to its corporate culture.
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ENVIRONMENTAL LAWS
The Company endeavors to follow all recycling programs and
maintains its awareness of the changing environmental laws.
EMPLOYEES
As of November 10, 1998, the Company had approximately 15 full
time employees with an aggressive hiring plan over the next 12 months. None of
the Company's employees are represented by any type of labor organization and
the Company is not aware of any activity seeking organization. The Company
considers its relationships with it employees to be satisfactory. The Company
has, in its early stages, developed strong human resources practices with belief
that the growth of the Company is completely reliant on its human resources and
as such, pays great detail and attention to human resource factors.
INSURANCE
The Company maintains insurance coverage that management believes
is reasonable, including key man life insurance policies, business interruption
insurance, asset protection and public liability insurance. The Company also
maintains extensive data backup procedures to protect both client and Company
data.
DESCRIPTION OF PROPERTY
The Company maintains its offices and computer center in a
facility containing approximately 3,000 square feet in Calgary, Alberta, Canada,
under a lease, which expires
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<PAGE> 41
December 15, 2000. In the past, the Company has purchased most of its equipment,
and is now considering leasing all future equipment. The Company believes that
its current and proposed facilities are in good condition.
LEGAL PROCEEDINGS
There are no pending legal proceedings that in the opinion of
management would materially affect the financial condition or results of the
operation of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of the
outstanding shares of Common Stock owned beneficially as of November 10, 1998,
by each director of the Company, by each officer of the Company, by the four
other most highly compensated executives other than the CEO, by all directors
and executive officers as a group, and by each person who, to the knowledge of
the Company, beneficially owns more than 5% of any class of the Company's voting
stock on such date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND OFFICE OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS(2)
- ----------------------------------- ----------------------- -------------------
<S> <C> <C>
Robert J. Kubbernus 637,000 7.32%
Cameron B. Chell 637,000 7.32%
Vera Gmitter 2,000 .02%
Julia Johnson 50,000(3) .57%
Garry Leitch - -
Tej Minhas 12,000 .13%
Mitch Tarr - -
Arthur Wong 50,000(3) .57%
All directors and officers as a group (8 persons) 1,388,000 15.93%
</TABLE>
- ------------------
(1) Unless otherwise stated, the business address of each of the stockholders
named in the table is c/o the Company at 603 7th Avenue S.W., Suite 380, Calgary
Alberta T2P 2TS Canada. Except as otherwise indicated and subject to applicable
community property and similar laws, the Company assumes that each named person
has the sole voting and investment power with respect to such person's shares.
(2) Percent of class is based on 8,700,000 shares outstanding on the Record
Date. Does not include 10,428,572 shares held in escrow by Thomson
Kernaghan & Co. ("TK") as of the Record Date.
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<PAGE> 42
pursuant to the terms of the Debenture Acquisition Agreement and are not
eligible to be voted as of the Record Date. These shares are not considered
issued and outstanding for purposes of a quorum or voting. Such shares underlie
a Convertible Debenture for the purchase of such shares which, as of the Record
Date, had not been converted.
(3) Options for the purchase of shares which have vested and are exercisable at
any time.
MANAGEMENT
DIRECTORS AND OFFICERS
The current directors and executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
Robert J. Kubbernus 39 Chairman of the Board and Chief Executive Officer
Cameron B. Chell 30 Vice President and Director
Julia Johnson 34 Director
Arthur Wong 30 Director
Mitch Tarr 39 Vice President Marketing
Vera Gmitter 41 Vice President Operations
Tej Minhas 38 Vice President Technology
Garry Leitch 46 Vice President Sales
</TABLE>
Robert Kubbernus has 13 years of financial experience working
with high tech firms in the Calgary area. Before joining Jaws in 1997, he raised
more than $475 million in debt financing for a long-term corporate client base.
Since joining Jaws as CEO and Chairman, his primary responsibilities have been
to oversee the Company's security product developers, provide executive
direction and develop key contacts within government, corporations, funders,
clients, insurance underwriters and the investment community. From 1992 to 1997,
Mr. Kubbernus held the position of President and CEO at Bankton Financial
Corporation. He headed up a team of corporate financial consultants who
specialize in the placement of debt instruments with institutional and private
lenders. Before 1992, he was the Chief Financial Officer as well as the Chief
Development Officer at Bankers Capital Group, where he developed new products
and markets as well as overseeing the financial controls of the organization.
Cameron Chell has several years of experience in developing
financing solutions for high-tech organizations. As a registered broker, he has
aided corporations through their initial financing and start-up phases. As Vice
President of Corporate Finance for the Company, Mr. Chell is responsible for
securing financing opportunities to bring Jaws products to market. Mr. Chell is
also CEO and Chairman of FutureLink Distribution Corp. In 1997,
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<PAGE> 43
in partnership with Mr. Chris McNeill, an investor relations specialist, Mr.
Chell opened his own investment banking firm, Chell McNeill Inc. The firm was
established to assist high-tech companies like Jaws, FutureLink and others in
acquiring market and investor relations support.
On November 6, 1998, Cameron Chell entered into a Settlement
Agreement with the Alberta Stock Exchange to resolve a pending investigation
into alleged breaches by Mr. Chell of Alberta Stock Exchange rules and bylaws.
As part of the Settlement Agreement, (i) Mr. Chell acknowledged that he had
breached certain duties of supervision, disclosure, or compliance in connection
with various offers and sales of securities, and (ii) Mr. Chell was prohibited
from receiving Alberta Stock Exchange approval for a five-year period, subjected
to a CDN$25,000 fine and a three-year period of enhanced supervision.
Julia L. Johnson is a nationally-recognized authority on utility
regulation in the U.S. She currently serves as Chairman of the Florida Public
Service Commission (the "Commission"), state Chair person of the Federal/State
Joint Board on Universal Service, Vice Chairman of the Communications Committee
of the National Association of Regulatory Utility Commissioners, and board
member for the Markle Foundation on a project that encourages the use of new
communications technologies for socially beneficial purposes. Before being
appointed to the Commission, Ms. Johnson served as the Director of Legislative
Affairs and senior land use attorney for the Department of Community Affairs.
She was the chief lobbyist representing the agency before the
Florida Legislature on land use issues. In 1997, Ms. Johnson received the
Dollars & $ense Magazine's Best and Brightest Business & Professional Men and
Women award. In 1996, she received the University of Florida Association of
Black Alumni's Outstanding Leadership Award. Ms. Johnson holds a Juris Doctorate
with a concentration in corporate and real estate transactions from the
University of Florida School of Law, as well as a Bachelor of Science in
Business Administration from the University of Florida.
Art Wong provides strategic direction to the Company in the area
of channel development. In the past seven years Mr. Wong has founded one oil and
gas and three technology companies, taking two of those companies public. In his
current role of Fellow for Network Associates Inc. of Santa Clara, California,
Mr. Wong heads up Active Security issues and spearheads the adoption of new
security infrastructures for global enterprises and integrators. He also
develops standards for new security infrastructures and works on its integration
and adaptation internationally. In 1996, Mr. Wong founded and managed Secure
Networks Inc., an organization that developed Internet security tools and
offered security consulting before it was acquired by Network Associates Inc.
for approximately $25 million. He is the Managing Director and Founder of H2O
Entertainment Corp., a Calgary-based organization that develops products for
Nintendo and its N64 game platform. Mr. Wong also founded Millennium Systems
Canada Inc., a wholesale distributor of high-end computer equipment. Mr. Wong
holds a Bachelor of Science in Communication from the University of Calgary.
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Mitch Tarr is Vice President of Marketing for the Company. Mr.
Tarr is responsible for developing a client-directed, solutions-oriented
approach to delivering top-notch security products and services. Mr. Tarr has
worked in the high tech field for almost 20 years, marketing software solutions
for a variety of high tech organizations across Canada. His experience includes
six years with IBM Corporation where he specialized in direct sales to Canadian
businesses, two years with Applied Data Research, a subsidiary of Ameritech
Inc., and two years with Petroleum Information Canada. He also operated his own
sales consultancy for five years. Before joining Jaws in April, 1998, Mr. Tarr
delivered marketing solutions to Calgary-based AccuMap, EnerData Corp and QC
Data. Mr. Tarr received his Bachelor of Economics from the University of
Alberta.
Vera Gmitter is Vice President of Operations for Jaws. Ms.
Gmitter is responsible for day to day operations including financing, government
regulation, policies and procedures. Ms. Gmitter has owned and operated numerous
businesses in the service and retail industries. Before joining Jaws, Ms.
Gmitter held the position of General Manager at Bankton Financial Corporation.
Through Continuing Education, she has helped women entrepreneurs retraining to
enter the workforce. She has also taught Junior Achievement, a North
America-wide business program aimed at educating Elementary school aged
children. Ms. Gmitter holds a Bachelor of Arts in Political Science and
Economics from the Augustana University.
Tej Minhas has professional experience with Sybase Professional
Services, Dofasco, Pace and the Government of Ontario. His knowledge of software
development platforms includes expertise in C, C++, COBOL, Pascal, OO, Assembly,
PL1 and hardware (e.g. IBM, SUN, HP, Intel, DEC, Apple, GEAC) platforms. Mr.
Minhas has provided IT consulting services to a variety of industry sectors
including insurance, banking, telecommunications, oil & gas, retail and
agriculture. While working with Sybase, Mr. Minhas moved from principal
consultant to district manager for Canada. Mr. Minhas holds a Bachelor of
Science in Computer Science from the University of Toronto.
Garry Leitch is Vice President of Sales for the Company. Mr.
Garry Leitch is responsible for the establishment of all direct and indirect
sales channels for Jaws' suite of products and services. Mr. Leitch has held the
position of President of The Sales Consultancy, a management and leadership
effectiveness training company from 1983-1998. He was responsible for sales,
sales support and service professionals training, specializing in the
technology, telecommunications and financial services sectors. He has also held
senior sales and marketing management positions with high profile technology
organizations including Archives Corporation (1991-1993), Digital Equipment
(1987-1990) and NBI (1982-1987). His educational background includes a Bachelor
of Arts and a Diploma in Education from the University of Victoria, British
Columbia.
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<PAGE> 45
BOARD OF DIRECTORS AND COMMITTEES
Jaws US. The Board of Directors has nominated a Compensation
Committee consisting of two outside directors and one internal director. Any and
all compensation plans for the executive members are reviewed on an annual
basis. The executive compensation for Jaws US is pursuant to a Company Stock
Option Plan.
The Compensation Committee currently consists of Julia Johnson,
Arthur Wong and Cameron Chell. The Compensation Committee establishes salaries,
incentives and other forms of compensation for officers of Jaws US. The Audit
Committee consists of Julia Johnson, Arthur Wong and Cameron Chell.
COMPENSATION OF BOARD OF DIRECTORS
Out of pocket expenses of directors related to their attendance
at meetings of the Board of Directors of Jaws Canada are paid by Jaws Canada.
Jaws Canada may reimburse expenses incurred by directors related to Board of
Directors meetings. Each of Ms. Johnson and Mr. Wong are to be compensated in
1998 for their directors' services rendered to the Company in an amount equal to
US$60,000 (CDN$87,000) payable in the Company's sole discretion, in stock or in
cash. In addition, the directors are eligible to receive stock options under the
Jaws US 1998 Stock Option Plan. No other payments have been made to the
directors.
EXECUTIVE COMPENSATION
The following table sets forth information concerning
compensation of the eight senior officers and directors of Jaws Canada for the
fiscal period from January 1 to September 1, 1998.
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<PAGE> 46
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
OTHER SECURITIES
SALARY BONUS ANNUAL UNDERLYING
NAME AND GRANTED COMPENSATION COMPENSATION OPTIONS ALL OTHER
PRINCIPAL POSITION PERIOD ENDED ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chief Executive 1998 261,000 CDN$ Nil Nil 350,000 CDN$
Officer
Robert Kubbernus
Vice-President 1998 87,000 CDN$(1) Nil Nil 250,000 CDN$
Cameron Chell
Director 1998 87,000 CDN$(1) Nil Nil 200,000 CDN$
Julia Johnson
Director 1998 87,000 CDN$ Nil Nil 200,000 CDN$
Arthur Wong
VP, Sales & 1998 100,000 CDN$ Nil Nil 110,000 CDN$
Marketing
Mitch Tarr
VP, Operation 1998 45,000 CDN$ Nil Nil 49,500 CDN$
Vera Gmitter
VP, Technology 1998 80,000 CDN$ Nil Nil 88,000 CDN$
Tej Minhas
</TABLE>
(1) To be paid by the Company, in its sole discretion, in cash or in shares.
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<PAGE> 47
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
OTHER SECURITIES
SALARY BONUS ANNUAL UNDERLYING
NAME AND GRANTED COMPENSATION COMPENSATION OPTIONS ALL OTHER
PRINCIPAL POSITION PERIOD ENDED ($) ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Chief Executive 1998 261,000 CDN$ Nil Nil 350,000 CDN$
VP, Channel Sales 1998 90,000 CDN$ Nil Nil 110,000 CDN$
Garry Leitch
</TABLE>
STOCK OPTION PLAN
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<PAGE> 48
-48-
<PAGE> 49
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<PAGE> 50
In July 1998, Jaws US adopted the 1998 Stock Option Plan ("SOP") which provides
for the grant of incentive and restricted stock options.
The purpose of the SOP is to enable the Company to attract and
retain qualified persons as employees, officers and directors and to motivate
such persons by providing them with an equity participation in the Company. The
options granted which are intended to qualify as Incentive Stock Options under
Section 422 of the U.S. Internal Revenue Code of
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<PAGE> 51
1986, as amended (the "Code"), is designed to afford qualified optionees certain
tax benefits available under the Code.
The SOP is administered by the Board who is authorized to appoint
a stock option committee to determine the persons entitled to receive options.
The maximum number of shares with respect to which options may be
granted to any employee in any one calendar year is 250,000 shares. The purchase
price for the shares subject to the SOP is determined by the plan administrator
at the time of the grant, but shall not be less than the par value per share.
The purchase price for shares subject to any Incentive Stock Option shall not be
less than 100% of the fair market value of the shares of Common Stock of the
Company on the date the option is granted. In the case of an Incentive Stock
Option granted to an employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
subsidiaries, the exercise price shall not be less than 110% of the fair market
value per share of the Common Stock of the Company on the date the option is
granted.
As November 10, 1998, the Company had granted options under the
SOP to purchase a total of 1,850,200 shares of Common Stock at exercise prices
ranging from $.37 to $.69 per share. Of such options, 1,363,500 options were
granted to officers and directors and expire in July, 2008.
DESCRIPTION OF SECURITIES
JAWS US
As of the effective date of this Registration Statement, the
Company shall be authorized to issue: (a) 95,000,000 shares of Common Stock, par
value of $.001 per share; and (b) 5,000,000 shares of Preferred Stock, par value
$.001 per share. As of November 10, 1998, there were 10,234,320(1) shares of
Common Stock issued and outstanding as fully paid and non-assessable and no
shares of Preferred Stock issued. As of the date hereof, the Company has
reserved for issuance: (a) 1,429,700 shares of Common Stock pursuant to the
Stock Option Plan; and (b) 25,000,000 shares of Common Stock underlying the
Bristol Asset Shares; and (c) 4,428,572 shares of Common Stock pursuant to the
Warrants. There are no issued and outstanding Preferred Shares.
- ----------
(1) In addition, 8,894,252 shares are currently held in escrow by Thomson
Kernaghan & Co. ("TK") pursuant to the terms of the Debenture Acquisition
Agreement and are not eligible to be voted. These shares are not considered
issued and outstanding for purposes of a quorum or voting. Such shares underlie
a Convertible Debenture for the purchase of such shares which, as of the
effective date of the Registration Statement.
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<PAGE> 52
The following is a general description of the material rights,
privileges and restrictions and conditions attaching to each class of shares:
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of liquidation,
dissolution or winding up of the company, and subject to the prior distribution
rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by the laws of the State of Nevada, with approval by the Company's
stockholders, to provide for the issuance of up to 5,000,000 shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
to be included in each such series, to fix the designations, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding) without any further vote or action by the stockholders. The
Board of Directors may authorize and issue Preferred Stock with voting or
conversion rights that could adversely affect the voting power or other rights
of the holders of Shares.
TRANSFER AGENT
U.S. Stock Transfer Corporation is the transfer agent and
registrar for the shares of Common Stock.
CERTAIN TRANSACTIONS
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<PAGE> 53
Directors' Agreement
Each of Ms. Julia Johnson and Mr. Arthur Wong have entered into agreements with
the Company pursuant to which they have agreed to act as a director on the
Board. In consideration of such services, the agreement grants each of such
directors a fee of stock or cash equal to $60,000 per annum. In addition, these
directors have been granted options to purchase 200,000 shares of the Company at
a price per share equal to $0.48, exercisable until August 1, 2000. One quarter
of such shares have vested and the remainder vest in July 1999.
Indemnity Agreement
Each of the Company's directors entered into an indemnity agreement with the
Company pursuant to which the Company has agreed to indemnify them in third
party proceedings and in proceedings by or in the name of the Company.
Consulting Fees
Since inception in 1997, the Company has paid $152,585 in consulting fees to
related parties pursuant to resolutions of the Board of Directors. Consulting
fees in an amount of $75,225 were paid to Robert Kubbernus, $14,514 was paid to
Bankton Financial Corp., a corporation managed by Robert Kubbernus, $76,322 was
paid to Cameron Chell and $16,524 was paid to Mitch Tarr.
SELLING SECURITY HOLDERS
The Selling SECURITY HOLDERS (or pledges, donees, transferees or
successors in interest) may sell all or a portion of the respective Selling
SECURITY HOLDERS' Securities held by them from time to time while the
registration statement of which this Prospectus is a part remains effective. The
aggregate proceeds to the Selling SECURITY HOLDERS from the sale of the
respective Selling SECURITY HOLDERS' Securities offered by the Selling SECURITY
HOLDERS hereby will be the prices at which such securities are sold, less any
commissions. There is no assurance that the Selling SECURITY HOLDERS will sell
any or all of the Selling SECURITY HOLDERS' Securities offered hereby.
The Selling SECURITY HOLDERS' Securities may be sold by the
Selling SECURITY HOLDERS in transactions on the OTC Bulletin Board, in
negotiated transactions, or by a combination of these methods, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at prices
related to such market prices or at
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<PAGE> 54
negotiated prices or through the writing of options on the Selling SECURITY
HOLDERS' Securities. The Selling SECURITY HOLDERS may elect to engage a broker
or dealer to effect sales in one or more of the following transactions: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Selling SECURITY HOLDERS' Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers and dealers engaged by the Selling SECURITY HOLDERS may arrange for
other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from the Selling SECURITY HOLDERS in amounts to be
negotiated (and, if such broker-dealer acts as agent for the purchaser of such
Selling SECURITY HOLDERS' Securities, from such purchaser). Broker-dealers may
agree with the Selling SECURITY HOLDERS to sell a specified number of such
Selling SECURITY HOLDERS' Securities at a stipulated price per Selling Security
Holder's Security, and to the extent that such broker-dealer is unable to do so,
acting as agent for the Selling SECURITY HOLDERS to purchase as principal any
unsold Selling SECURITY HOLDERS' Securities at the price required to fulfill the
broker-dealer commitment to the Selling SECURITY HOLDERS. Broker-dealers who
acquire Selling SECURITY HOLDERS' Securities as principal may thereafter resell
such Selling SECURITY HOLDERS' Securities from time to time in transactions
(which may involve crosses and block transaction and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Selling SECURITY HOLDERS' Securities
commissions as described above.
The Selling SECURITY HOLDERS and any broker-dealers or agents
that participate with the Selling SECURITY HOLDERS in sales of the Selling
SECURITY HOLDERS' Securities may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agent and any profit
on the resale of the Selling SECURITY HOLDERS' Securities purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act
of 1933.
The Company will pay all expenses incidental to this offering and
sale of the Selling SECURITY HOLDERS' Securities to the public other than
selling commissions and fees.
The Selling SECURITY HOLDERS have been advised that during the
time they are engaged in "distribution" (as defined under Regulation M under the
Securities Exchange Act of 1934, as amended) of the securities covered by this
Prospectus, they must comply with Regulation M under the Securities Exchange Act
of 1934, as amended, and pursuant thereto: (i) shall not engage in any
stabilization activity in connection with the Company's securities;
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<PAGE> 55
and (ii) shall not bid for or purchase any securities of the Company or attempt
to include any person to purchase any of the Company's securities other than as
permitted under the Securities Exchange Act of 1934, as amended. Any Selling
SECURITY HOLDERS who are "affiliated purchasers" of the Company, as defined in
Regulation M, have been further advised that they and their affiliates must
coordinate their sales under this Prospectus and otherwise with the Company and
any other "affiliated purchasers" of the Company for purposes of Regulation M.
The Selling SECURITY HOLDERS must also furnish each broker through which Selling
SECURITY HOLDERS' Securities are sold copies of this Prospectus.
LEGAL OPINION
The validity of certain of the Securities offered hereby will be
passed upon for Jaws US by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles,
California.
EXPERTS
The Consolidated Financial Statements of Jaws US audited by Ernst
& Young LLP, Independent Chartered Accountants have been included herein in
reliance on their report given in their authority as experts in accounting and
auditing.
The audited Financial Statements of Jaws Canada, audited by Ernst
& Young LLP, Independent Chartered Accountants have been included herein in
reliance on their report given on their authority as experts in accounting and
auditing.
CONSOLIDATED FINANCIAL STATEMENTS
JAWS TECHNOLOGIES, INC.
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<PAGE> 56
(A DEVELOPMENT STAGE COMPANY)
SEPTEMBER 30, 1998
-56-
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of JAWS TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheets of JAWS
TECHNOLOGIES, INC. (a development stage company) as at September 30, 1998 and
December 31, 1997 and the related consolidated statements of loss, deficit, and
cash flows for the nine month period ended September 30, 1998, the period from
the date of incorporation on January 27, 1997 to December 31, 1997 and for the
cumulative period since inception. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Jaws
Technologies, Inc. (a development stage company) as at September 30, 1998 and
December 31, 1997 and the consolidated results of its operations and its
consolidated cash flows for the nine month period ended September 30, 1998 and
for the period from the date of incorporation on January 27, 1997 to December
31, 1997 and for the cumulative period since inception in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and net capital deficiency raise substantial doubts about
its ability to continue as a going concern. Management's plans as to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Calgary, Canada [signed: Ernst & Young LLP]
December 10, 1998 Chartered Accountants
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<PAGE> 58
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(all amounts are in U.S. dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> $ <C> $
ASSETS
Current
Cash -- 111
Accounts receivable 20,088 --
Prepaid expenses and deposits 27,112 7,500
47,200 7,611
Fixed assets [note 4] 81,187 --
Organization costs, net of amortization 1,885 2,320
130,272 9,931
LIABILITIES AND STOCKHOLDERS' EQUITY
</TABLE>
-58-
<PAGE> 59
<TABLE>
<S> <C> <C>
CURRENT
Bank overdraft 24,309 --
Accounts payable and accrued liabilities 32,976
437,086
--------- --------
461,395
Due to stockholders [note 6] 15,558 78,159
STOCKHOLDERS' EQUITY
Common stock [note 5] -- 35,650
2,030,084
Foreign currency translation adjustment (29,847) --
Deficit accumulated during the development stage (46,918)(2,3) (136,854)
--------- --------
(346,681) (101,204)
130,272 9,931
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 60
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(all amounts are in U.S. dollars)
For the nine month period ended September 30, 1998 (with comparative figures for
the period from the date of incorporation on
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<PAGE> 61
January 27, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
Cumulative
Amounts Since
1998 1997 Inception
$ $ $
---------- ---------- ----------
(note 11)
<S> <C> <C> <C>
REVENUE 28,440 -- 28,440
---------- ---------- ----------
EXPENSES
Accounting and legal 105,372 69,952 175,324
Advertising and promotion 194,764 35,000 229,764
Wages and employee benefits 124,599 -- 124,599
Rent 13,523 -- 13,523
Consulting (note 6) 685,375 30,731 716,106
Depreciation and amortization 8,877 580 9,457
Travel 120,342 -- 120,342
Write-off of acquired software development costs
[note 3] 909,189 -- 909,189
Other 76,463 591 77,054
2,238,504 136,854 2,375,358
Loss before income taxes (2,210,064) (136,854) (2,346,918)
Provision for income taxes [note 8] -- -- --
---------- ---------- ----------
NET LOSS FOR THE PERIOD (2,210,064) (136,854) (2,346,918)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (29,847) -- (29,847)
---------- ---------- ----------
COMPREHENSIVE LOSS (2,239,911) (136,854) (2,376,765)
---------- ---------- ----------
DEFICIT, BEGINNING OF PERIOD (136,854) --
NET LOSS FOR THE PERIOD (2,210,064) (136,854)
---------- ---------- ----------
DEFICIT, END OF PERIOD (2,346,918) (136,854)
---------- ---------- ----------
Net loss per common share (0.31) (0.03)
Weighted average number of shares outstanding 7,101,869 4,000,000
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 62
JAWS TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine month period ended September 30, 1998 (with comparative figures for
the period from the date of incorporation on
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<PAGE> 63
January 27, 1997 to December 31, 1997)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNTS SINCE
1998 1997 INCEPTION
$ $ $
---------- ---------- ----------
(note 11)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (2,210,064) (136,854) (2,346,918)
Adjustments to reconcile net loss to net cash
provided by operating activities
Consulting expense not involving the payment of
cash [note 5] 200,000 -- 200,000
Depreciation and amortization 8,877 580 9,457
Write-off of acquired software development
costs 909,189 -- 909,189
Changes in non-cash working capital balances 364,410 389,886
[note 10] 25,476
(727,588) (110,798) (838,386)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of fixed assets (90,008) -- (90,008)
Cash acquired on acquisition of subsidiary 1,380 -- 1,380
Organizational costs -- (2,900) (2,900)
(88,628) (2,900) (91,528)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net
of issue costs 954,686 35,650 990,336
Increase in (repayment of) stockholder loans (117,044) 78,159 (38,885)
Increase in bank overdraft 24,309 -- 24,309
861,951 113,809 975,760
EFFECTS OF FOREIGN EXCHANGE ON CASH (45,846) -- (45,846)
---------- ---------- ----------
INCREASE IN CASH -- 111 --
Cash, beginning of period 111 -- --
CASH, END OF PERIOD -- 111 --
---------- ---------- ----------
</TABLE>
See Accompanying Notes
-63-
<PAGE> 64
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated on January 27, 1997 under the laws of the State of
Nevada. The Company maintains a fiscal year ending on December 31. The business
purpose is developing and selling encryption software. These activities are
carried out through the Company's wholly owned Canadian Subsidiary. The Company
is in the development stage.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company is in the development stage and, at September 30, 1998,
has accumulated losses from operations amounting to $2,346,918. Management
believes that
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<PAGE> 65
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
additional funding will be required to finance expected operations until a
market has been developed for the Company's software. Management intends to seek
additional financing through future private or public offerings of stock and
through the exercise of stock options. The Company's continuation as a going
concern is dependent on its ability to generate sufficient cash flow, to meet
its obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain successful operations. However, no assurance
can be given at this time as to whether the Company will achieve any of these
conditions. These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern
for a reasonable period of time.
On March 27, 1998, "E-Biz " Solutions, Inc. changed its name to Jaws
Technologies, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The financial statements have, in management's opinion, been properly prepared
in accordance with generally accepted accounting principles in the United
States. Because a precise determination of many assets and liabilities is
dependent upon future events, the preparation of financial statements for a
period necessarily involves the use of estimates which would affect the amount
of recorded assets, liabilities, revenues and expenses. Actual amounts could
differ from these estimates.
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<PAGE> 66
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Jaws Technologies, Inc., an Alberta, Canada
corporation, after elimination of intercompany accounts and transactions.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash and bank overdraft,
accounts payable, and amounts due to or from stockholders approximate their fair
values. It is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
instruments.
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<PAGE> 67
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated at the following annual
rates which are designed to amortize the cost of the assets over their estimated
useful lives.
Furniture and fixtures - 20% diminishing balance
Computer hardware - 33% straight line
Computer software - 33% straight line
SOFTWARE DEVELOPMENT
Software development costs are expensed when technological feasibility has not
yet been established. Subsequent to establishing technological feasibility, such
costs are capitalized until the commencement of commercial sales.
ORGANIZATION COSTS
Organization costs are capitalized and amortized over 60 months on a
straight-line basis.
ADVERTISING
Advertising costs are expensed as incurred.
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<PAGE> 68
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
-68-
<PAGE> 69
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's subsidiary is Canadian dollars.
Accordingly, assets
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<PAGE> 70
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
and liabilities of the subsidiary are translated at the year-end exchange rate
and revenues and expenses are translated at average exchange rates. Gains and
losses arising from the translation of the financial statements of the
subsidiary are deferred in a "Foreign Currency Translation Adjustment " account
in shareholders' equity.
NET LOSS PER COMMON SHARE
The net loss per common share has been calculated based on the weighted average
number of common shares outstanding during the period. Outstanding stock options
would not have a dilutive effect on the net loss per common share.
3. ACQUISITION
On February 10, 1998 the Company issued 1,500,000 restricted common shares as
well as options to purchase 400,000 shares of its restricted common stock at
$0.50 per share to the stockholders of Jaws Technologies, Inc., an Alberta,
Canada corporation ("Jaws Alberta"), in exchange for all of its outstanding
common stock. The options issued in connection with the acquisition have been
ascribed no value. Jaws Alberta is a development stage company which at the time
of acquisition was in the process of creating a new encryption software product.
The acquisition has been accounted for by the purchase method.
The purchase price was determined based on estimates by management as to the
replacement cost for the encryption software development which had been incurred
by Jaws Alberta prior to the acquisition date. The purchase price has been
allocated to the net assets acquired based on their estimated fair values as
follows:
<TABLE>
<S> <C>
Net assets acquired $
Non-cash working capital (5,087)
Software under development 909,003
Fixed assets 2,891
Due to stockholders (54,443)
</TABLE>
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<PAGE> 71
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<S> <C>
852,364
Net assets acquired, excluding cash
Less accrued acquisition costs (13,996)
Cash 1,380
NET ASSETS ACQUIRED FOR COMMON STOCK 839,748
========
The amount of the purchase price allocated to acquired software under
</TABLE>
development has been immediately expensed
in the accompanying consolidated statements of loss and deficit.
-71-
<PAGE> 72
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
The operating results of the acquired company are included in the consolidated
statement of loss and deficit from the date of acquisition.
Pro forma loss and pro forma net loss per common share for the nine month period
ended September 30, 1998, giving effect to the acquisition of Jaws Alberta as at
January 1, 1998 are $2,217,462 and $0.31 respectively.
Pro forma loss and pro forma net loss per common share for the period from the
date of incorporation on January 27, 1997 to December 31, 1997, giving effect to
the acquisition of Jaws Alberta as at September 18, 1997 (being the date of
inception of Jaws Alberta), are $1,038,995 and $0.19 respectively.
4. FIXED ASSETS
September 30, 1998 December 31, 1997
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<PAGE> 73
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<CAPTION>
Accumulated Net Book Cost and Net
Cost Depreciation Value Book Value
$ $ $ $
------ ------ ------ ------
<S> <C> <C> <C>
31,914 4,269 27,645 --
Furniture and fixtures
Computer hardware 45,288 3,651 41,637 --
Computer software for internal use 12,806 901 11,905 --
90,008 8,821 81,187 --
------ ------ ------ ------
</TABLE>
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<PAGE> 74
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
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<PAGE> 75
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
5. SHARE CAPITAL
a) Authorized
20,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
b) COMMON STOCK ISSUED
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<PAGE> 76
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<CAPTION>
CAPITAL IN
PAR EXCESS OF
VALUE PAR VALUE TOTAL
DATE SHARES $ $ $
- --------------------------- ---------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 27, 1997 -- -- -- --
Issuance of common stock for
cash 4,000,000 4,000 56,000 60,000
Less share issue costs -- -- (24,350) (24,350)
BALANCE, DECEMBER 31, 1997 4,000,000 4,000 31,650 35,650
</TABLE>
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<PAGE> 77
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Issuance of common stock Feb. 3/98 50,000 50 24,950 25,000
Issuance of common stock for
acquisition of subsidiary
[note 3] Feb. 10/98 1,500,000 1,500 838,248 839,748
Issuance of common stock for
cash Feb. 18/98 600,000 600 299,400 300,000
Issuance of common stock April 2/98 625,000 625 249,375 250,000
Issuance of common stock April 5/98 50,000 50 19,950 20,000
Issuance of common stock April 8/98 625,000 625 249,375 250,000
Issuance of common stock Jan. 1/98 250,000 250 124,750 125,000
Issuance of common stock July 20/98 -- -- 20,000 20,000
Issuance of common stock July 24/98 900,000 900 179,100 180,000
Issuance of common stock July 24/98 100,000 100 49,900 50,000
Less share issue costs -- -- (65,314) (65,314)
BALANCE, SEPTEMBER 30, 1998 8,700,000 8,700 2,021,384 2,030,084
</TABLE>
The Company issued 400,000 restricted common shares to two consultants for
services provided in relation to the establishment of the capital structure of
the Company. The shares were recorded at their estimated fair value of $200,000.
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<PAGE> 78
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
Of the stock options to purchase 400,000 shares of the Company's restricted
common stock at $0.50 per share issued to the founder stockholders of the
acquired subsidiary (see note 3), none have been exercised as at September 30,
1998. The outstanding options expire two years from February 10, 1998.
Additional stock options to purchase 50,000 shares at $0.50 per share were
issued during the period. None of these have been exercised at September 30,
1998. They expire February 9, 2000.
As at September 30, 1998, the Company had issued 1,297,000 options to purchase
Common Stock to the Company's directors, officers and employee. Of the total
issued, none have been exercised as at September 30, 1998. Details of the stock
options outstanding at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE
- ------------------------------------------------------------------------
<S> <C> <C>
400,000 0.48 July 30, 2008
39,667 0.48 February 1, 2009
10,333 0.33 June 30, 2009
33,333 0.48 July 1, 2009
28,500 0.48 July 23, 2009
36,667 0.49 July 23, 2009
6,000 0.89 July 23, 2009
33,333 0.59 July 27, 2009
12,000 0.69 August 4, 2009
47,667 0.37 September 1, 2009
7,333 0.40 September 8, 2009
10,833 0.58 September 8, 2009
21,667 0.31 September 17, 2009
11,667 0.32 September 21, 2009
39,667 0.48 February 1, 2010
10,333 0.33 June 30, 2010
33,333 0.48 July 1, 2010
28,500 0.48 July 23, 2010
36,667 0.49 July 23, 2010
6,000 0.89 July 23, 2010
33,333 0.59 July 27, 2010
12,000 0.69 August 4, 2010
47,667 0.37 September 1, 2010
7,333 0.40 September 8, 2010
10,833 0.58 September 8, 2010
11,667 0.32 September 21, 2010
39,667 0.48 February 1, 2011
10,333 0.33 June 30, 2011
33,333 0.48 July 1, 2011
28,500 0.48 July 23, 2011
36,667 0.49 July 23, 2011
6,000 0.89 July 23, 2011
33,333 0.59 July 27, 2011
12,000 0.69 August 4, 2011
47,667 0.37 September 1, 2011
7,333 0.40 September 8, 2011
10,833 0.58 September 8, 2011
21,667 0.31 September 17, 2011
11,667 0.32 September 21, 2011
- ------------------------------------------------------------------------
1,297,000
- ------------------------------------------------------------------------
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", and related interpretations in accounting for its
stock option plans. Had compensation cost
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<PAGE> 79
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
for these plans been determined based upon the fair value at grant date,
consistent with the methodology prescribed in Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based compensation" (FAS 123), the
Company's net loss for the period and net loss per common share for the nine
month period ended September 30, 1998 would have been $2,996,987 and $0.36
respectively.
On August 27, 1998 the Company entered into a Put Option agreement with an
investor which, subject to meeting certain conditions, allows the Company to
require the investor to purchase up to 25,000,000 shares of the common stock of
the Company for consideration of up to $7,000,000, over a three year period. The
investor, upon request of the Company, is required to purchase shares at a 23%
discount to the lowest trading price in the prior ten days. The investor was
also granted warrants to purchase up to 3,000,000 at $0.28 per share. If and
when the Put Option or warrants are exercised, they will be accounted for at
that time as an issuance of share capital.
6. RELATED PARTY TRANSACTIONS
Amounts due to stockholders at September 30, 1998 consist of the following
amounts, which are non-interest bearing and have no set repayment terms:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
DUE TO 1998 1997
-------- --------
<S> <C> <C>
$ 13,592 $ --
======
Bankton Financial Corporation
Cameron Chell 1,966 --
-------- --------
Other stockholders -- 78,159
</TABLE>
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<PAGE> 80
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
- --------------------------------------------------------------------------------
15,558 78,159
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The amounts due to Bankton are for consulting services provided to the Company.
All other amounts due to stockholders represent advances received by the
Company.
Consulting fees include $152,588 paid to officers of the Company for services
provided.
7. CONVERTIBLE DEBENTURES
On September 25, 1998 the Company entered into an agreement to issue 10%
convertible debentures in series of $200,000 up to a total of $2,000,000 subject
to the Company meeting certain conditions, which mature on October 31, 2001. The
initial funding amount of $200,000 was received on October 1, 1998. The holders
have the right to convert the debentures in increments of at least $100,000, at
a price equal to the lower of $0.28 and 78% of the average closing bid price of
the Company's common stock for the three trading days immediately preceding the
Notice of Conversion served on the Company. The Company may prepay any or all of
the outstanding principal amounts at any time, upon thirty days' notice, subject
to the holders' right to convert into common shares. Interest is payable on the
maturity date. At the holders' election, interest can be settled in common stock
of the Company based on market prices.
Of each issuance of $100,000 of convertible debentures pursuant to the
agreement, an amount of $28,205 will be attributed to the value of the
conversion option and will be recorded as contributed surplus, with an
offsetting amount charged as interest on long term debt.
-80-
<PAGE> 81
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
At the time of the initial funding on October 1, 1998, the Company issued
1,428,572 common share purchase warrants to the underwriter of the issue. Each
warrant give the holder the right to purchase one common share of the Company at
$0.28 until October 31, 2001. An amount of $342,857 will be recorded as
contributed surplus as the value attributed to these warrants, with an
offsetting amount charged as interest on long term debt.
8. INCOME TAXES
The Company accounts for income taxes under the liability method required by
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
-81-
<PAGE> 82
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
recovery of income taxes differ from the amount computed by applying corporate
income tax rates to loss before income taxes. The reasons for this difference
are as follows:
-82-
<PAGE> 83
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
-83-
<PAGE> 84
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
$ $
------------ -----------
<S> <C> <C>
Corporate income tax rate 35% 34%
Recovery of income taxes based on corporate income
tax rate (773,522) (46,530)
Increase (decrease) in taxes resulting from:
Accounting losses not tax effected 968,663 46,530
Foreign tax rate differences (195,141) --
Total deferred tax assets(liabilities) -- --
</TABLE>
- -------------
(b) the components of the Company's deferred tax assets and liabilities,
including the valuation allowance, comprise the following:
-84-
<PAGE> 85
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
$ $
------------ -----------
<S> <C> <C>
Depreciation and write-off of acquired software development
costs in excess of capital cost allowance 412,934 --
Net operating loss carryforwards 491,982 --
Start-up costs not deducted for tax purposes 136,708 46,333
Organization costs not deducted for tax purposes 349 197
---------- ----------
1,041,973 46,530
Valuation allowance (1,041,973) (46,530)
Total deferred tax assets (liabilities) -- --
---------- ----------
</TABLE>
(c) the Company has Canadian net operating loss carryforwards of approximately
$1,042,000 which expire in 2004 and 2005.
The foreign currency translation adjustment included in comprehensive loss for
the period has not been tax effected.
-85-
<PAGE> 86
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
-86-
<PAGE> 87
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
9. COMMITMENTS
The Company is committed to the following minimum lease payments under operating
leases for premises and equipment:
<TABLE>
<CAPTION>
$
------
<S> <C>
5,016
Remainder of
1998
1999 20,063
======
2000 20,063
======
2001 2,742
======
2002 2,462
======
2003 615
======
</TABLE>
-87-
<PAGE> 88
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
9. NET CHANGE IN NON-CASH WORKING CAPITAL
RELATED TO OPERATING ACTIVITIES
10.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Accounts receivable $(20,088) $ --
Prepaid expenses and deposits (19,612) (7,500)
Accounts payable and accrued liabilities 404,110 32,976
364,410 25,476
</TABLE>
-88-
<PAGE> 89
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
11. COMPARATIVE AMOUNTS
The Company was incorporated on January 27, 1997 but did not commence operations
until July, 1997. Accordingly, the comparative 1997 figures provided are for the
period from the commencement of operations on July, 1997 to December 31, 1997.
-89-
<PAGE> 90
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
-90-
<PAGE> 91
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
12. SEGMENTED INFORMATION
The Company's activities are conducted in two geographic segments: Canada and
the United States. All activities relate to the development and sale of
encryption software.
As at December 31, 1997 and during the period from January 27, 1997 to December
31, 1997, all the Company's activities were carried out in the United States.
<TABLE>
<CAPTION>
Nine month period ended
September 30, 1998
- --------------------------------------------------------------------------------
Canada U.S. Total
<S> <C> <C> <C>
$ $ $
- --------------------------------------------------------------------------------
28,440 -- 28,440
Revenue
</TABLE>
-91-
<PAGE> 92
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
<S> <C> <C> <C>
Expenses 1,979,854 258,650 2,238,504
</TABLE>
-92-
<PAGE> 93
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss for the period (1,951,414) (258,650) (2,210,064)
- --------------------------------------------------------------------------------
</TABLE>
-93-
<PAGE> 94
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets 128,387 1,885 130,272
- --------------------------------------------------------------------------------
</TABLE>
-94-
<PAGE> 95
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures 90,008 -- 90,008
- --------------------------------------------------------------------------------
Depreciation, depletion and amortization 8,442 435 8,877
- --------------------------------------------------------------------------------
</TABLE>
-95-
<PAGE> 96
JAWS TECHNOLOGIES, INC.
(a development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in U.S. dollars)
September 30, 1998
13. RECENT PRONOUNCEMENTS
In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise on Related Information", which changes the way public companies
report information about operating segments. SFAS No. 131, which is based on the
management approach to segment reporting, establishes requirements to report
elected segment information quarterly and to report entity-wide disclosures
about products and services, major customers and major countries in which the
entity holds assets and reports revenues. The Company has not yet evaluated the
effects of this change on its reporting segment information.
In February, 1998, the FASB issued SFAS No. 132, "Employers Disclosures about
Pensions and Other Post Retirement Benefits". The Company does not have any such
plans for its employees.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities". The Company does not acquire derivatives or engage in
hedging activities.
-96-
<PAGE> 97
FINANCIAL STATEMENTS
JAWS TECHNOLOGIES INC.
(AN ALBERTA CORPORATION)
SEPTEMBER 30, 1998
-97-
<PAGE> 98
AUDITORS' REPORT
To the Directors of
JAWS TECHNOLOGIES INC. (AN ALBERTA
CORPORATION)
We have audited the balance sheets of JAWS TECHNOLOGIES INC. (AN ALBERTA
CORPORATION) as at September 30, 1998 and December 31, 1997 and the statements
of loss and deficit and cash flows for the nine month period ended September 30,
1998 and for the period from the date of incorporation on September 18, 1997 to
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
-98-
<PAGE> 99
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at September 30, 1998 and
December 31, 1997 and the results of its operations and the changes in its
financial position for the nine month period ended September 30, 1998 and for
the period from the date of incorporation on September 18, 1997 to December 31,
1997 in accordance with accounting principles generally accepted in Canada.
Calgary, Canada [signed: Ernst & Young LLP]
December 10, 1998 Chartered Accountants
-99-
<PAGE> 100
COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the company's ability to continue as a going concern, such as those described in
Note 1 to the financial statements. Our report to the directors dated December
10, 1998 is expressed in accordance with Canadian reporting standards which do
not permit a reference to such events and conditions in the auditors' report
when these are adequately disclosed in the financial statements.
Calgary, Canada [signed: Ernst & Young LLP]
December 10, 1998 Chartered Accountants
-100-
<PAGE> 101
JAWS TECHNOLOGIES INC. (AN ALBERTA
CORPORATION)
BALANCE SHEET
-101-
<PAGE> 102
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
$ $
ASSETS
CURRENT
Cash -- 275
Accounts receivable 30,650 --
Prepaid expenses and deposits 41,367 1,900
72,017 2,175
Capital assets [note 3] 123,875 2,746
Software [note 4] 1,166,667 1,200,000
1,362,559 1,204,921
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT
Bank overdraft 37,090 --
Accounts payable and accrued liabilities 605,268 7,761
642,358 7,761
--------- ---------
Due to related parties [note 6] 23,739 65,300
--------- ---------
</TABLE>
-102-
<PAGE> 103
<TABLE>
<CAPTION>
<S> <C> <C>
Due to shareholder [note 6] 1,185,575 --
SHAREHOLDER'S EQUITY
Share capital [note 5] 1,200,000 1,200,000
Deficit (1,689,113) (68,140)
---------- ----------
(489,113) 1,131,860
1,362,559 1,204,921
---------- ----------
</TABLE>
See Accompanying Notes
On Behalf of the Board:
Director Director
-103-
<PAGE> 104
JAWS TECHNOLOGIES INC. (AN ALBERTA
CORPORATION)
STATEMENTS OF LOSS AND DEFICIT
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
For the nine months ended September 30, 1998 (with comparative figures for the
period from the date of incorporation on September 18, 1997 to December 31,
1997)
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C>
$ $
REVENUE
Sales 3,247 --
Service 24,996 --
Other 14,785 --
---------- -------
43,028 --
---------- -------
EXPENSES
Accounting and legal 134,825 4,000
Advertising 294,665 --
Consulting 682,637 2,750
Depreciation and amortization 46,105 687
Office and administration 76,689 --
Other 41,534 60,703
Rent 22,494 --
Wages and employee benefits 188,509 --
Travel 176,542 --
1,644,000 68,140
Loss before income taxes (1,620,972) (68,140)
Provision for income taxes -- --
---------- -------
</TABLE>
-104-
<PAGE> 105
<TABLE>
<CAPTION>
<S> <C> <C>
NET LOSS FOR THE PERIOD (1,620,972) (68,140)
DEFICIT, BEGINNING OF PERIOD (68,140) --
DEFICIT, END OF PERIOD (1,689,112) (68,140)
</TABLE>
See accompanying notes
-105-
<PAGE> 106
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
STATEMENT OF CASH FLOWS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
For the nine months ended September 30, 1998 (with comparative figures for the
period from the date of incorporation on September 18, 1997 to December 31,
1997)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
$ $
Cash provided by (used in)
OPERATING ACTIVITIES
Net loss for the period (1,620,972) (68,140)
Items not requiring cash
Depreciation and amortization 46,105 687
Funds from operations (1,574,867) (67,453)
Net change in non-cash working capital
related to operating activities [note 8] 527,389 5,861
(1,047,478) (61,592)
INVESTING ACTIVITIES
Purchase of capital assets (133,901) (3,433)
- ------------------------------------------------------------------------------------
(133,901) (3,433)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Loan from related party -- 65,300
Repayment of loan from related party (41,561) --
Loan from shareholder 1,185,575 --
Bank overdraft 37,090 --
1,181,104 65,300
INCREASE IN CASH -- 275
Cash, beginning of period -- --
CASH, END OF PERIOD -- 275
- ------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
-106-
<PAGE> 107
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Jaws Technologies Inc. (the "Company") was incorporated under the laws of
Alberta on September 18, 1997 and is engaged in the business of developing
selling encryption software. The business comprises one segment for financial
reporting purposes.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has accumulated losses from operations amounting to
$1,689,113 at September 30, 1998. Management believes that additional funding
will be required to finance expected operations until a market has been
developed for the Company's software, and the Company is economically dependent
on its parent to provide this funding. The Company's continuation as a going
concern is dependent on its ability to generate sufficient cash flow, to meet
its obligations on a timely
-107-
<PAGE> 108
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
basis, to obtain additional financing as may be required, and ultimately to
attain successful operations. However, no assurance can be given at this time as
to whether the Company will achieve any of these conditions. These factors,
among others, raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern for a reasonable period of
time.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
Canadian generally accepted accounting principles. The effects of differences
between accounting principles generally accepted in Canada and the United States
are described in Note 9. Because a precise determination of many assets and
liabilities is dependent upon future events, the preparation of financial
statements for a period necessarily involves the use of estimates and
approximations which have been made using careful judgment. The financial
statements have, in management's opinion, been properly prepared within
reasonable limits of materiality and within the framework of the significant
accounting policies summarized below:
-108-
<PAGE> 109
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash and bank overdraft,
prepaid expenses and deposits, accounts payable and accrued liabilities and due
to shareholder approximate their fair values.
CAPITAL ASSETS
Capital assets are recorded at cost and are depreciated at the following annual
rates which are designed to amortize the cost of the assets over their estimated
useful lives
Furniture and fixtures - 20% diminishing balance
Computer hardware - 33% straight line
Computer software - 33% straight line
-109-
<PAGE> 110
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
SOFTWARE DEVELOPMENT
The cost of acquired software under development has been capitalized. Subsequent
expenditures required to establish that the product is technologically and
commercially feasible are expensed as incurred. Amortization of acquired
software costs commenced when the software became available for general release
to customers. Amortization is recorded on a straight line basis over three
years.
-110-
<PAGE> 111
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
STATEMENT OF CASH FLOWS
The Company has adopted the new accounting recommendation of the Canadian
Institute of Chartered Accountants on cash flow statements, issued in June,
1998.
FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in a foreign currency are translated
into Canadian dollars at rates of exchange in effect at the balance sheet date.
Revenues and expenses are translated at rates of exchange prevailing on the
transaction dates. The resulting exchange gains and losses on these items are
reflected in income when incurred, except for gains or losses on translation of
foreign currency denominated long-term debt with a fixed and ascertainable life,
which are deferred and amortized over the remaining life of the debt.
-111-
<PAGE> 112
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998
Accumulated Net Book
Cost Depreciation Value
<S> <C> <C> <C>
Furniture and fixtures $ 48,694 $ 6,514 $ 42,180
Computer hardware 69,100 5,571 63,529
Computer software 19,540 1,374 18,166
--------------------------------------------
137,334 13,459 123,875
--------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
Accumulated Net Book
Cost Depreciation Value
--------------------------------------------
<S> <C> <C> <C>
$ 3,433 $ 687 $ 2,746
Furniture and fixtures
--------------------------------------------
</TABLE>
-112-
<PAGE> 113
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
4. SOFTWARE
The Company develops encryption software. The Company completed all coding and
testing activities by July 31, 1998. The carrying value of the software is
$1,166,667 net of amortization of $33,333.
5. SHARE CAPITAL
a) Authorized
Unlimited Class "A, B, C " common shares
Unlimited Class "D and E " non-voting common shares
Unlimited Class "F and G" preferred shares, voting, non-cumulative
redeemable and retractable
Unlimited Class "H" preferred shares, non-voting, non-cumulative, redeemable
and retractable
SHARES $
-113-
<PAGE> 114
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
b) Issued
CLASS A COMMON SHARES
<TABLE>
<S> <C> <C>
Founders shares 835 --
Shares issued in exchange for software 165 1,200,000
- ----------------------------------------------------------------------------------
Balance, December 31, 1997 and September 30, 1998 1,000 1,200,000
</TABLE>
- --------------------------------------------------------------------------------
On October 20, 1997 the Company purchased from Jaws Software Ltd. encryption
software and technology in consideration of the issuance of 165 Class A common
shares of the Company valued at $1,200,000.
-114-
<PAGE> 115
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
On February 10, 1998 "E-Biz" Solutions, Inc. issued common shares to the
shareholders of the Company in exchange for 100% of the outstanding common
shares of the Company.
6. RELATED PARTY TRANSACTIONS
At September 30, 1998 the Company had amounts due to related parties of $23,739
(1997 - $65,300). The amounts do not carry interest and have no set repayment
terms. The parties are shareholders of the Company's parent.
At September 30, 1998 the Company had amounts due to its parent, Jaws
Technologies Inc., a Nevada corporation, of $1,185,575 ($819,226 U.S.). The
amounts do not carry interest and have no set repayment terms.
All the above amounts represent advances received by the Company to fund its
operations.
7. COMMITMENTS
The Company is committed to the following minimum lease payments under operating
leases for premises and equipment:
<TABLE>
<CAPTION>
$
------
<S> <C>
Remainder of
1998 7,653
1999 30,612
2000 30,612
2001 4,183
2002 3,756
2003 939
</TABLE>
-115-
<PAGE> 116
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
-116-
<PAGE> 117
JAWS TECHNOLOGIES INC. (AN ALBERTA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(ALL AMOUNTS ARE IN CANADIAN DOLLARS)
September 30, 1998
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATING
ACTIVITIES
-117-
<PAGE> 118
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Accounts receivable $ (30,650) $ --
Prepaid expenses and deposits (39,467) (1,900)
Accounts payable and accrued liabilities 597,506 7,761
- -------------------------------------------------------------------------------
527,389 5,861
- -------------------------------------------------------------------------------
</TABLE>
9. UNITED STATES ACCOUNTING PRINCIPLES
The Company's financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP"). These
principles, as they pertain to the Company's financial statements, differ from
United States' generally accepted accounting principles ("U.S. GAAP") as
follows:
In accordance with U.S. GAAP, the amount of the purchase price allocated to
acquired software under development would be immediately expensed. For
Canadian GAAP, the value assigned to the software is based on the fair
market value of the acquired software.
For purposes of reconciliation to U.S. GAAP, the Company's potential deferred
tax asset resulting from tax losses that can be carried forward to future
years has been offset by a valuation allowance of an equal amount, as there
is uncertainty that offsetting taxable profits will be generated in those
future years. This does not result in differences between U.S. GAAP and
Canadian GAAP.
-118-
<PAGE> 119
If U.S. GAAP had been followed, balance sheet items would have been as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------------- ------------------------
CANADIAN US CANADIAN US
GAAP GAAP GAAP GAAP
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOFTWARE (a) 1,200,000 -- 1,200,000 --
SHAREHOLDERS' EQUITY
Share capital (a) 1,200,000 -- 1,200,000 --
</TABLE>
Net loss for the period, primary and fully diluted loss per share, and the cash
flow from operating, investing, and financing activities following U.S. GAAP do
not differ from the amounts using Canadian GAAP.
-119-
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
JAWS US
Indemnification of Directors and Officers
The registrant has the power to indemnify its directors and officers against
liability for certain acts pursuant to the laws of Nevada, being the
Registrant's state of incorporation. In addition, under the Articles of
Incorporation of the Registrant, no director, officer or agent is personally
liable to the corporation or its stockholders for monetary damages arising out
of a breach of such person's fiduciary duty to the Registrant, unless such
breach involves intentional misconduct, fraud or a knowing violation of law.
Liability of Directors and Officers. No director or officer shall be personally
liable to the corporation or stockholders for monetary damages for any breach of
fiduciary duty by such person as a director or officer. Notwithstanding the
foregoing sentence, the director or officer shall be liable to the extent
provided by the applicable laws for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
The provisions hereof shall not apply to or have any effect on the liability or
alleged liability of any officer or director of the corporation for or with
respect to any acts or omissions of such person occurring prior to this
amendment. Jaws US' Articles state that it may, in its sole discretion indemnify
and advance expenses to any person who incurs liability or expense by reason of
such person acting as a director, officer, employee or agent of Jaws US, to the
fullest extent allowed by the Nevada General Corporation Law.
Section 78.7502 of the Nevada General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, against
-120-
<PAGE> 121
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
To the extent that a director, officer, employee or agent of a corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
the corporation shall indemnify him against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
The articles of incorporation of Jaws US provide that Jaws US will exercise, to
the extent permitted by law, its power of indemnification, and that the
foregoing right of indemnification shall not be exclusive of other rights to
which a person shall be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
JAWS CANADA
Jaws Canada's Articles state that it may, in its sole discretion indemnify and
advance expenses to any person who incurs liability or expense by reason of such
person acting as a director, officer, employee or agent of the Corporation, to
the fullest extent allowed by the Business Corporations Act (Alberta).
The Business Corporations Act (Alberta) provides that a corporation may
indemnify its current and former officers and directors against reasonable
expenses which, in each case, were incurred in connection with actions, suits,
or proceedings in which such persons are parties by reason of the fact that they
are or were an officer or director of the corporation, if: (i) they acted
honestly and in good faith; (ii) in the case of a criminal or administrative
proceeding, they had no reasonable cause to believe the conduct was unlawful.
Unless limited by its articles of incorporation, a corporation shall be required
to indemnify an officer or who was wholly successful in defense of a proceeding,
against reasonable attorneys' fees.
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<PAGE> 122
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the sale
and distribution of the securities being registered, other than underwriting
discounts and commissions and non-accountable expense allowance. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration.
-122-
<PAGE> 123
<TABLE>
<CAPTION>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION REGISTRATION FEE......... $ 3,810.17
ACCOUNTING FEES AND EXPENSES................................ $ 10,000.00
PRINTING AND ENGRAVING EXPENSES............................. $ 5,000.00
TRANSFER AGENT AND REGISTRAR (FEES AND EXPENSES)............ $ 2,000.00
BLUE SKY FEES AND EXPENSES (INCLUDING COUNSEL FEES)......... $ 2,000.00
OTHER LEGAL FEES AND LEGAL EXPENSES......................... $ 30,000.00
MISCELLANEOUS EXPENSES...................................... $ 7,189.83
-------------
TOTAL....................................................... $ 60,000.00
=============
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following securities have been sold by Jaws US since the Company's
incorporation in 1997.
1. Offering Memorandum dated February 14, 1997 with a Sticker Update dated April
1, 1997 pursuant to which the Company sold 4,000,000 shares of Common Stock at
$.015 per share for an aggregate investment of $60,000. The Offering was made
pursuant to an exemption provided by Rule 504 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"). The sale of shares was to 14
investors in the state of Nevada and 27 additional investors, all of which
purchases took place outside the United States.
2. Share Exchange Agreement between the Company and shareholders of Jaws Canada
dated February 10, 1998 pursuant to which Jaws US issued 1,500,000 shares of
Common Stock and options to purchase 400,000 shares of
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<PAGE> 124
Common Stock at $0.50 per share to the shareholders of Jaws Canada in exchange
for all of the issued and outstanding shares of Jaws Canada.
3. Offering Memorandum dated February 18, 1998 (the "February O.M.") pursuant to
which the Company sold 600,000 shares of Common Stock at $0.50 per share for an
aggregate investment of $300,000. The Offering was made pursuant to an exemption
provided by Rule 504 of Regulation D promulgated under the Act. The sale of
shares was to 26 investors.
4. Sale pursuant to the February O.M. of 1,250,000 shares of Common Stock of the
Company at $0.40 per share for an aggregate investment of $500,000 to Bristol
Asset Management, LLC. The Offering was made pursuant to an exemption provided
by Rule 504 of Regulation D promulgated under the Act.
5. Sale consummated April 3, 1998, of 450,000 shares of Common Stock of the
Company at $0.20 per share for an aggregate investment of $90,000 to Linear
Strategies Ltd. The Offering was made pursuant to an exemption provided
by Rule 504 of Regulation D promulgated under the Act.
6. Sale consummated July 21, 1998 of 450,000 shares of Common Stock of the
Company at $0.20 per share for an aggregate investment of $90,000 to Hampton
Park Ltd. The Offering was made pursuant to an exemption provided by Rule 504 of
Regulation D promulgated under the Act.
7. 10% Convertible Debenture issued to Thomson Kernaghan & Co. ("TK") dated
September 25, 1998. The principal amount of the debenture is $2,000,000 which
can be converted into up to 12,000,000 shares of Common Stock. In addition, as
part of the compensation for the debenture, TK may receive warrants for the
purchaser of up to 1,428,572 shares. To date TK has converted $210,000 into
1,912,320 shares of Common Stock. The sale of shares pursuant to the Debenture
was made pursuant to an exemption provided by Regulation S promulgated under the
Act. TK warranted the Debenture that it is not a "US Person," as such term is
defined in Rule 902(o) of Regulation S; that the securities have not been
offered to it in the United States; that it is purchasing the securities for its
own account and that offers of securities of the Company shall not be made to
United States persons for a period of one year from the date of the closing of
all debentures offered pursuant to the agreement.
ITEM 27. EXHIBITS.
(a) Exhibits
The following exhibits pursuant to Rule 601 of Regulation SB are
included herein.
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<PAGE> 125
3.1.1 Articles of Incorporation of "E-Biz" Solutions, Inc. (now Jaws US), a
Nevada Corporation as amended on March 11, 1998.(1)
3.1.2 Articles of Incorporation of Jaws Canada dated September 17, 1997.(1)
3.2.1 Bylaws of E-Biz Solutions Inc. (now Jaws US) dated January 27, 1997.(1)
3.2.2 Bylaws No. 1 of Jaws Canada dated October 20, 1997 and Bylaw No. 2 of
Jaws Canada dated October 20, 1997.(1)
4.1.1. Debenture Acquisition Agreement by and between Jaws US and Thomson
Kernaghan & Co. Ltd. dated September 25, 1998.(1)
4.1.2 Investment Agreement by and between Jaws US and Bristol Asset Management
V, LLC dated August 27, 1998.(1)
5.1.1 Jeffer, Mangels, Butler & Marmaro LLP legal opinion (to be filed by
amendment).
10.1.1 Lease Agreement by and between Jaws US and The Manufacturer of Life
Insurance Company dated December 15, 1997.(1)
10.1.2 Director's Agreement between Jaws US and Arthur Wong dated July 1998.(1)
- ----------------
(1) Filed on October 13, 1998
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<PAGE> 126
10.1.3 Director's Agreement between Jaws US and Julia Johnson dated July 30,
1998.(1)
10.1.4 Incentive and Non-Qualified Stock Option Plan for Jaws US.(1)
10.1.5 Master Agreement by and between the Company and A.I. Axion Internet
Communications, Inc. dated November 24, 1998.
10.1.6 Master Agreement by and between the Company and Calgary On-Line dated
December 1998.
10.1.7 Master Agreement by and between the Company and ABC Internet Inc. dated
December 7, 1998.
10.1.8 Indemnity Agreements by and between the Company and each of Ms. Julia
Johnson and Mr. Arthur Wong.
21 Subsidiaries of Issuer include: Jaws Canada.
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP
23.2 Consent of Ernst & Young.
(1) Filed on October 13, 1998.
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
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<PAGE> 127
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement; notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum Offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (Section 230.424(b) of this
Chapter) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate Offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
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<PAGE> 128
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination of
the Offering.
Insofar as indemnification for liabilities arising from the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
-128-
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calgary,
Province of Alberta on the 11th day of January, 1999.
JAWS TECHNOLOGIES INC.
By: /s/ ROBERT KUBBERNUS
Robert Kubbernus, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Robert Kubbernus or Cameron Chell, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement for the same Offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers 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 attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
* CEO and Director January 11, 1999
- -------------------------
Robert Kubbernus
* Director/Vice President Finance January 11, 1999
- --------------------------
Cameron Chell
* Director January 11, 1999
- -------------------------
Julia Johnson
* Director January 11, 1999
- -------------------------
Arthur Wong
* Vice President Marketing January 11, 1999
- ------------------------- and Sales
Mitch Tarr
* Vice President Operations January 11, 1999
- -------------------------
Vera Gmitter
* Vice President Technology January 11, 1999
- -------------------------
Tej Minhas
* Vice President Channels January 11, 1999
- -------------------------
Garry Leitch
*By: /s/ Robert Kubbernus
- -------------------------
Robert Kubbernus
CEO and Director
</TABLE>
-129-
<PAGE> 1
EXHIBIT 10.1.5
MASTER AGREEMENT
(JAWS TECHNOLOGIES INC.)
This AGREEMENT (the "Agreement") is entered into as of NOVEMBER 24, 1998, (the
"Agreement Date"), between AI AXION INTERNET COMMUNICATIONS INC. ("Axion"), with
an address for purposes of this Agreement at Suite 201-1190 Hornby Street,
Vancouver, British Columbia, V6Z 2K5, and JAWS Technologies Inc. ("JAWS"), whose
principal place of business for purposes of this Agreement is Suite 380-603 7TH
Avenue S.W. Calgary, Alberta, Canada T2P 2T5.
BACKGROUND
A. JAWS and Axion desire to work together with the goal of furthering
the marketing of the professional services and products of JAWS.
B. JAWS desires to enhance its consulting service and product revenues
by offering services in connection with Axion's services.
C. Axion desires to enhance its capabilities to market and support
Axion's in connection with the use of JAWS services.
D. JAWS and Axion desire to formalize their relationship by entering
into this Agreement to undertake cooperative efforts in connection with the
products and services of JAWS.
NOW, THEREFORE, JAWS and Axion agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings
given to them below when used in this Agreement:
"AGREEMENT DATE" shall have the meaning given to it in the introductory
paragraph of this Agreement.
"PRODUCTS" refers to all products listed in Schedule "A" and Schedule
"B" of this Agreement.
"PROPRIETARY INFORMATION" means:
(i) with respect to JAWS, the Products and all
confidential information and trade secrets contained in the
Products, including benchmark results, and any other information
of JAWS or its licensors which by its nature is generally
understood to be of a confidential nature; and
(ii) with respect to Axion, any information of
Axion or of any customer of Axion which Axion indicates is
confidential or which, by its nature, is generally understood to
be confidential information and, without limiting the generality
of the
<PAGE> 2
foregoing, includes all customer lists and pricing information
of Axion.
Information is not Proprietary Information to the extent that it:
(A) is or becomes publicly available through no act
or failure of the receiving party; or
(B) is rightfully acquired from a third party
which, to the receiving party's knowledge, is not
obligated to keep that information confidential; or
(C) is independently developed by the receiving
party.
"SERVICES" refers to all services listed in Schedule "A" Key Management
Server Pricing and Schedule "B" Software & Services Pricing of this
agreement.
"SOFTWARE LICENSE AGREEMENT" means the encryption software license
agreement(s), as amended from time to time, to be executed by JAWS and
Axion in connection with the Products.
2. SERVICES AND RESPONSIBILITIES OF JAWS
(a) Employee Training. JAWS will provide to Axion product and
service training sessions at no additional charge to Axion. These
training sessions will pertain specifically to the products and services
contracted for by Axion. Refer to Schedule "C" of this agreement for
details regarding training sessions.
(b) Marketing Events. JAWS shall participate in and, if requested
by Axion, assist in the organization and implementation of, the jointly
sponsored marketing events to be agreed upon by the parties as part of
the business plan referred to in Section 4 below.
(c) JAWS Coordinator. JAWS shall designate a coordinator with
appropriate authority to coordinate JAWS's activities with Axion and act
on behalf of JAWS within the scope of this Agreement.
3. SERVICES AND RESPONSIBILITIES OF THE PARTIES. To the extent reasonable
under the circumstances and as permitted by each party's other
agreements, the parties shall undertake the following cooperative
activities with respect to identifying opportunities to promote the
Products and Services:
(a) Market Information. Each party shall regularly inform the
other party about general market developments and factors relating to
the Products in the marketplace and current projects and customer
implementations in which they are involved. This information shall be
designated and treated as Proprietary Information of the party providing
the information.
<PAGE> 3
(b) Business Plan. Each party shall furnish the other party with
appropriate information for support and planning purposes, provided that
the furnishing party may determine, in its sole discretion, the content
and availability of such information. The parties will work together to
develop a business plan for their marketing efforts in connection with
this Agreement. Each party shall use commercially reasonable efforts to
meet the goals in the business plan.
(c) Internal Notification. Each party shall inform the
appropriate personnel in its organization of the existence of this
Agreement.
(d) New Product Information. Each party shall endeavor to keep
the other party appraised about new products and services relating to
the Products.
(e) Other Information. The parties shall exchange such other
information and conduct such other activities as the parties agree will
carry out the intent of this Agreement.
(f) Periodic Review. The parties shall meet at least twice a year
to review the status of their arrangement under this Agreement.
4. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
(a) Representations and Warranties. Each party hereby represents
and warrants to the other party that:
(i) Authority. It has the right and power to enter into this
Agreement.
(ii) No Violation. Entering into this Agreement does not
violate the terms and conditions of any of its other agreements
providing for cooperative marketing of products of another entity, or
any other legal obligations.
(iii) No Infringement. The products, materials and information
it provides under this Agreement to the other party do not infringe
upon or constitute a misappropriation of any copyright, trademark,
patent, trade secret or other proprietary right of any third party in
the Territory.
(b) Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN
THIS SECTION 5, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY,
EITHER EXPRESS, IMPLIED OR STATUTORY, NOR SHALL ANY WARRANTY ARISE BY
COURSE OF CONDUCT OR BY PERFORMANCE, CUSTOM OR USAGE IN THE TRADE,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
<PAGE> 4
5. TERM AND TERMINATION
(a) Initial Term. This Agreement shall have an initial term
commencing on the Agreement Date and continuing on perpetually, unless
terminated by either party.
(b) Termination. Each party may terminate this Agreement:
(i) In the event the other party fails to cure a material
breach of this Agreement within 30 days after receiving written
notice of that breach; or
(ii) immediately upon written notice if: (A) there is a
consolidation, merger or reorganization of the other party with or
into another corporation or entity; (B) there is a creation of a new
majority interest in, or change in majority ownership or control of,
the other party; (C) there is a sale of all or substantially all of
the assets of the other party; or (D) the other party breaches the
confidentiality provisions set forth in Section 9, below; or
(iii) upon 90 days prior written notice to the other party,
with or without cause.
(c) Effect of Termination or Expiration. Upon termination or
expiration of this Agreement, each party shall cease acting in a manner
that would suggest any continuing relationship between the parties
regarding the Products, and shall cease all display and advertising
contemplated under this Agreement. Within 30 business days after the
termination or expiration, each party shall return to the other party or
dispose of (as mutually agreed) all advertising materials and other
property, including all Proprietary Information, furnished to it by the
other party pursuant to this Agreement. Each party shall certify in
writing to the other that it has done so. Termination or expiration of
this Agreement shall not affect any obligation either party has to its
customers. The following provisions of this Agreement shall in all
events survive its termination or expiration: Section 5
(Representations, Warranties and Disclaimers), 6 (Term and Termination),
7 (Relationship of the Parties), 8 (Intellectual Property Rights), 9
(Confidentiality of Proprietary Information), and 11 (General
Provisions).
6. RELATIONSHIP OF PARTIES. The following provisions shall apply to the
relationship of the parties, notwithstanding any other provision of this
Agreement:
(a) Independent Companies. JAWS and Axion are independent
companies acting for their own account, and neither party is authorized
to make any representation or commitment on behalf of the other party.
Neither party shall use the terms "joint venture", "partner",
"partnership" or similar terms to describe the relationship between the
parties under this Agreement. Any inadvertent use of such terms shall
refer to the spirit of cooperation between the parties and shall not
create a legal partnership or joint venture or any responsibility by one
party for the actions of the other, either expressly or by implication.
<PAGE> 5
7. INTELLECTUAL PROPERTY RIGHTS
(a) Trademarks, Etc. This Agreement does not authorize either party
to use or display any names, trademarks, logos or service marks of the
other party except to identify Products and Services to the extent
permitted by this Agreement. Either party may use the trademarks or
other proprietary words or symbols of the other party to properly
identify the Products or Services of the other party in correspondence
and proposals issued in the ordinary course of business to the extent
such use would be permitted by applicable law in the absence of this
Agreement. Except as described in the preceding sentence, each party
shall submit to the other party for written prepublication approval, any
materials which may use or display any name, trademark, logo or service
mark of the other party.
8. CONFIDENTIALITY OF PROPRIETARY INFORMATION. Each party acknowledges
that, during the term of this Agreement, it will receive Proprietary
Information from the other party. Each party shall protect the
Proprietary Information of the other party with at least the same
protection and care that it customarily uses in safeguarding its own
confidential information of a similar nature, but shall use no less than
a reasonable degree of care and will not use the Propriety Information
of the other party for any purpose other than in direct connection with
the relationship described under this Agreement. Each party will
disclose the other party's Proprietary Information to its personnel only
on a need-to-know basis. Each party shall take reasonable steps to
advise its employees of the confidential nature of the other party's
Proprietary Information and their obligation to comply with the
confidentiality requirements in this Agreement. Each party will promptly
notify the other if it believes that Proprietary Information has lost
its status as such.
9. EXCLUSIVITY Axion will have exclusivity in Vancouver, British Columbia
for a period of six (6) months beginning January 1, 1999. The following
provisions will apply:
(a) E-mail Encryption Service. JAWS will not sell or license or
provide or permit the use of any of its Products or Services, or allow
any subsidiary or affiliate or reseller or licensee to sell or license or
provide or permit the use of any of the Products or Services of JAWS, to
or by any customer or potential customer of such Products or Services
located in Vancouver, British Columbia.
(b) Business Inquiries. JAWS will refer to Axion, and cause its
subsidiaries, affiliates, resellers and licensees to refer to Axion all
inquiries from customers (residential and corporate) located in British
Columbia.
<PAGE> 6
10. FINANCIAL OBLIGATIONS.
(a) Royalties. JAWS agrees to provide Axion with the management and
maintenance of the Key Management Server. This server will adhere to the
specifications agreed to by both parties for E-mail encryption services.
This server will be located at 380, 603-7th Avenue S.W. Calgary,
Alberta, being JAWS's principal place of business. The parties may from
time to time by mutual agreement provide other services pursuant to this
agreement for such terms and at such costs as may be agreed by the
execution of additional schedules covering such items and such schedules
shall constitute part of this agreement for all purposes as if the
provisions there of were set forth herein.
(i) Axion will pay JAWS the royalties for the Key
Management Server, as per Schedule "A" of this agreement. These
royalties will be calculated in accordance with the table on Schedule
"A" attached. For clarity, Axion will be permitted to charge to any
recipient of an encrypted E-mail for the decryption of that E-mail
and there will no additional charge from JAWS to any customer of
Axion for the decryption of such encrypted E-mail.
(b) Reseller. JAWS hereby appoints Axion as a reseller of, and
grants to Axion the right to resell as per Schedule "B" of
this agreement. For clarity the software and services are: L5
E-mail Encryption Software
L5 Data Encryption Software
Security Audits
(i) Distribution. JAWS agrees to supply to Axion
master distributable images of Software Products. JAWS further agrees to
send new master distributable images of Products within fourteen (14)
days of release of revised versions of Products. JAWS also agrees to
notify Axion within fourteen (14) days of discontinuation of Product.
(ii) Downloads and Collection. Axion further agrees to
make the Software Products available for download and payment from
customers via the Internet. Axion shall make reasonable efforts to
maintain the availability of on-line delivery and payment. However, JAWS
acknowledges that periodic computer server and network failures are
unavoidable and thus will not hold Axion liable for damages or losses
incurred as a result of such failures.
(iii) Shipping. For L5 products that are not delivered
by download via the Internet, JAWS agrees to forward all necessary
customer and shipping information to Axion's fulfillment center after
the transaction has been approved by JAWS. Axion is responsible for
ensuring that Product is shipped to customer according to preference and
time frame selected by Customer. In the case that Products have not been
shipped to Customer within three business days, Axion will refund
payment to Customer.
<PAGE> 7
(iv) Force Majeure. Neither party shall be liable for
the failure to perform any of its obligations under this agreement,
except for payment obligations, if such failure is caused by the
occurrence of any event beyond the reasonable control of such party,
including without limitation, fire flood, strikes, and other industrial
disturbances, failure of raw materials, suppliers, failure of transport,
accidents, riots, insurrections, acts of God or orders of governmental
agencies.
(v) Audit. For all audit services JAWS agrees to
forward all necessary customer information to Axion, and to provide
sales support as required.
(vi) Direct Sales and Distribution Sales. For the
direct sales of Products described in Schedule "B", Axion will pay to
JAWS the price specified in Schedule "B". For services provided to
service customers, JAWS will pay Axion the amounts specified in Schedule
"B".
(vii) Payments and Reports. Payments shall be made on
the thirtieth (30th) day of each month, or the last day of February, for
sales of the previous month. Axion shall provide JAWS a monthly report
detailing the Products sold and amounts collected.
(viii) Returns. If under any circumstance a payment
transaction for a Product is reversed, the net amount of the reversal
will be deducted from the amount of the payment due to JAWS. If returns
exceed sales in any given month, JAWS agrees to make payment sufficient
to cover returns. JAWS will accept the return or exchange of any
normally stocked product purchased from JAWS which is unopened for up to
30 days after the date of purchase. All Hardware Items must be returned
within fourteen (14) days. A defective Product may be exchanged for the
same title only and, in this case, the entire package (box, contents,
and product-registration card) must be included. Axion will also refuse
payment for the distribution of Products to any Customer that is clearly
abusing the system by processing a large percentage of returns.
(ix) Charge Backs. If a payment transaction for a
Product is reversed due to a credit card chargeback, the net amount of
the reversal will be deducted from the amount due to JAWS. A credit card
chargeback will be allowed if Axion is bound to reverse or reimburse a
credit card payment made to Axion because the credit card provider
directs it to do so or, as it is otherwise required by law.
(x) Records and Audits. Axion shall keep records and
accounts in accordance with generally accepted accounting principles to
show the amount of proceeds payable to JAWS. Axion shall keep these
records at Axion's principal place of business. JAWS shall have the
right to conduct at its sole expense an audit of such records by an
independent auditor during regular business hours upon five (5) days
prior written notice once per calendar year to determine Electronic
Distributor's compliance with this Agreement.
<PAGE> 8
11. MOST FAVORED CUSTOMER PRICING. JAWS warrants that it has not, directly
or indirectly, entered into any agreement relating to the Products and
Services which provides pricing terms which are more favorable than the
pricing terms specified in this Agreement. If JAWS has entered into any
such agreement, or in the future enters into any such agreement, which
contains pricing terms which are more favorable than the pricing terms
specified in this Agreement, then JAWS will immediately notify Axion and
extend the same pricing terms to Axion.
12. GENERAL PROVISIONS
(a) Non-Solicitation. During the term of this Agreement and for a
period of 12 months thereafter, personnel of either party who have been
directly and substantially involved in the performance of such party's
obligations under this Agreement shall not knowingly directly or
indirectly solicit for employment any of the other party's personnel who
have been directly and substantively involved in the performance of this
Agreement, without the prior written consent of the other party.
(b) Notice. All notices required to be given under this Agreement
shall be in writing and will be deemed given when actually received. All
notices shall be sent to the receiving party's address as set forth
below, or to such other address that a party provides as required by
this Section 11(b).
For JAWS:
JAWS Technologies Inc.
380 603 - 7 Avenue S.W.
Calgary, Alberta, Canada T2P 2T5
Attn. Garry Leitch
Vice President Sales & Channel Development
And to:
For Axion:
AI Axion Internet Communications Inc.
Suite 201, 1190 Hornby Street
Vancouver, British Columbia, Canada, V6Z 2K5
Attn. Jim Fish
Chief Operating Officer
(c) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Province of Alberta, without
reference to its choice of law rules.
<PAGE> 9
(d) Amendments. This Agreement may not be modified except in writing
signed by both parties.
(e) Severability. If any provision of this Agreement is held invalid,
such provision shall be deemed severed and the remaining provisions
shall be interpreted so as best to reasonably effect the intent of the
parties.
(f) Non-Assignment. Neither party may assign, transfer or delegate
this Agreement, or any of its rights or obligations under this Agreement
to any third party, other than a party controlling, controlled by or
under control with the assigning party, without the prior written
agreement of the other party. Subject to the above, this Agreement shall
be binding upon and inure to the benefit of the parties of this
Agreement, as well as their respective permitted successors and assigns.
Any assignment permitted under this section will not release the
assignor from liability under this Agreement.
(g) Waiver. Failure by any party to enforce any of the terms or
conditions of this Agreement, in any one or more instances, shall not be
construed as a waiver of the future performance of any such terms or
conditions.
(h) Limitation on Damages. Neither party (nor any of its licensors)
shall have any liability to the other party or any third parties for any
loss of business, loss of profits, loss of data, or computer
malfunction, or any indirect, incidental, special, consequential or
punitive damages, even if such party has been appraised of the
possibility of that loss or damage.
(i) Press Release and Publicity. Neither party shall issue any
news release, public announcement, advertisement or publicity
concerning this Agreement or any matters arising under this
Agreement without the prior written approval of the other
party such approval not to be unreasonably withheld.
IN WITNESS WHEREOF, the parties have caused this Master Agreement to be signed
by the authorized representatives as of the date first shown above.
<TABLE>
<S> <C>
JAWS TECHNOLOGIES INC. AI AXION INTERNET COMMUNICATIONS INC.
By:_______________________________ By:___________________________
Date: Date:
Name: Garry Leitch Name: Jim Fish
Title: Vice President Sales & Channel Development Title: Chief Operating Officer
</TABLE>
<PAGE> 10
SCHEDULE "A"
KEY MANAGEMENT SERVER PRICING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SERVICE PROVIDED DETAIL OF SERVICE SUBSCRIPTION
RATE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
E-MAIL ENCRYPTION DIAL UP ACCESS USERS INCLUDES:
Residential (Home Market)
Small Home Office
- ---------------------------------------------------------------------------------------
=1,000 subscribers $1.00 /month
- ---------------------------------------------------------------------------------------
1,001 - 5,000 for a total of all $0.75/month
subscribers
- ---------------------------------------------------------------------------------------
5,001 - 10,000 for a total of all $0.50/month
subscribers
- ---------------------------------------------------------------------------------------
10,001 + for a total of all $0.35/month
subscribers
- ---------------------------------------------------------------------------------------
E-MAIL ENCRYPTION CORPORATE ACCOUNTS
By number of subscribers per
corporate account
- ---------------------------------------------------------------------------------------
15 to 50 users - 1st 20 users $20.00/month
20 + users $0.50/month per
additional user
- ---------------------------------------------------------------------------------------
51 to 200 users - 1st 65 users $40.00/month
65 + users $0.50/month per
additional user
- ---------------------------------------------------------------------------------------
200 + users = custom quote To be determined
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
SCHEDULE "B"
SOFTWARE & SERVICES PRICING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PRODUCT NAME SUGGESTED RETAIL PRICE PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION SOFTWARE $US14.95 $US12.95
- ---------------------------------------------------------------------------------------
L5 DATA ENCRYPTION SOFTWARE
- - PROFESSIONAL EDITION
- ---------------------------------------------------------------------------------------
- - electronic downloadable $US49.95 $US39.95
file.
- ---------------------------------------------------------------------------------------
- - retail boxed product $US49.95 $US34.95
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
SERVICES PRICING - AUDITS
- ---------------------------------------------------------------------------------------
- - Snapshot Audit $CDN3,000.00 $CDN2,000.00
- ---------------------------------------------------------------------------------------
- - Full Security variable 10% finders fee
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
SCHEDULE "C"
PRODUCT AND SERVICE TRAINING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
TRAINING PROVIDED DETAIL OF TRAINING LENGTH
- ---------------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION Server Management N/A
Orientation - user
Key Management documentation
- online help
- ---------------------------------------------------------------------------------------
L5 DATA ENCRYPTION User documentation included N/A
with Software
- ---------------------------------------------------------------------------------------
SERVICES Sales & Marketing One (1) day
- E-mail - audit overview
Encryption - how to position and sell
- Audits audits
- how to position and sell
secure E-mail
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.1.6
MASTER AGREEMENT
(JAWS TECHNOLOGIES INC.)
This AGREEMENT (the "Agreement") is entered into as of, (the "Agreement Date"),
between CALGARY ON-LINE ("Calgary On-Line"), with an address for purposes of
this Agreement at 302,100-4th Avenue S.W., Calgary, Alberta, T2P 3N2 ("Calgary
On-Line"), and JAWS Technologies Inc. ("JAWS"), whose principal place of
business for purposes of this Agreement is Suite 380-603 7TH Avenue S.W.
Calgary, Alberta, Canada T2P 2T5.
BACKGROUND
A. JAWS and Calgary On-Line desire to work together with the goal of
furthering the marketing of the professional services and products of JAWS.
B. JAWS desires to enhance its consulting service and product revenues
by offering services in connection with Calgary On-Line's services.
C. Calgary On-Line desires to enhance its capabilities to market and
support Calgary On-Line's in connection with the use of JAWS services.
D. JAWS and Calgary On-Line desire to formalize their relationship by
entering into this Agreement to undertake cooperative efforts in connection with
the products and services of JAWS.
NOW, THEREFORE, JAWS and Calgary On-Line agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings
given to them below when used in this Agreement:
"AGREEMENT DATE" shall have the meaning given to it in the introductory
paragraph of this Agreement.
"PRODUCTS" refers to all products listed in Schedule "A" and Schedule
"B" of this Agreement.
"PROPRIETARY INFORMATION" means:
(i) with respect to JAWS, the Products and all
confidential information and trade secrets contained in the
Products, including benchmark results, and any other information
of JAWS or its licensors which by its nature is generally
understood to be of a confidential nature; and
(ii) with respect to Calgary On-Line, any
information of Calgary On-Line or of any customer of Calgary
On-Line which Calgary On-Line indicates is confidential or which,
by its nature, is generally understood to be confidential
information and,
<PAGE> 2
without limiting the generality of the foregoing, includes all
customer lists and pricing information of Calgary On-Line.
Information is not Proprietary Information to the extent that it:
(A) is or becomes publicly available through no act
or failure of the receiving party; or
(B) is rightfully acquired from a third party
which, to the receiving party's knowledge, is not
obligated to keep that information confidential; or
(C) is independently developed by the receiving
party.
"SERVICES" refers to all services listed in Schedule "A" Key Management
Server Pricing and Schedule "B" Software & Services Pricing of this
agreement.
"SOFTWARE LICENSE AGREEMENT" means the encryption software license
agreement(s), as amended from time to time, to be executed by JAWS and
Calgary On-Line in connection with the Products.
2. SERVICES AND RESPONSIBILITIES OF JAWS
(a) Employee Training. JAWS will provide to Calgary On-Line
product and service training sessions at no additional charge to Calgary
On-Line. These training sessions will pertain specifically to the
products and services contracted for by Calgary On-Line. Refer to
Schedule "C" of this agreement for details regarding training sessions.
(b) Marketing Events. JAWS shall participate in and, if requested
by Calgary On-Line, assist in the organization and implementation of, the
jointly sponsored marketing events to be agreed upon by the parties as
part of the business plan referred to in Section 4 below.
(c) JAWS Coordinator. JAWS shall designate a coordinator with
appropriate authority to coordinate JAWS's activities with Calgary
On-Line and act on behalf of JAWS within the scope of this Agreement.
3. SERVICES AND RESPONSIBILITIES OF THE PARTIES. To the extent reasonable
under the circumstances and as permitted by each party's other
agreements, the parties shall undertake the following cooperative
activities with respect to identifying opportunities to promote the
Products and Services:
(a) Market Information. Each party shall regularly inform the
other party about general market developments and factors relating to the
Products in the marketplace and current projects and customer
implementations in which they are involved. This information shall be
<PAGE> 3
designated and treated as Proprietary Information of the party providing
the information.
(b) Business Plan. Each party shall furnish the other party with
appropriate information for support and planning purposes, provided that
the furnishing party may determine, in its sole discretion, the content
and availability of such information. The parties will work together to
develop a business plan for their marketing efforts in connection with
this Agreement. Each party shall use commercially reasonable efforts to
meet the goals in the business plan.
(c) Internal Notification. Each party shall inform the appropriate
personnel in its organization of the existence of this Agreement.
(d) New Product Information. Each party shall endeavor to keep the
other party appraised about new products and services relating to the
Products.
(e) Other Information. The parties shall exchange such other
information and conduct such other activities as the parties agree will
carry out the intent of this Agreement.
(f) Periodic Review. The parties shall meet at least twice a year
to review the status of their arrangement under this Agreement.
4. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
(a) Representations and Warranties. Each party hereby represents
and warrants to the other party that:
(i) Authority. It has the right and power to enter into this
Agreement.
(ii) No Violation. Entering into this Agreement does not
violate the terms and conditions of any of its other agreements
providing for cooperative marketing of products of another entity, or
any other legal obligations.
(iii) No Infringement. The products, materials and information
it provides under this Agreement to the other party do not infringe
upon or constitute a misappropriation of any copyright, trademark,
patent, trade secret or other proprietary right of any third party in
the Territory.
(b) Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN
THIS SECTION 5, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY,
EITHER EXPRESS, IMPLIED OR STATUTORY, NOR SHALL ANY WARRANTY ARISE BY
COURSE OF CONDUCT OR BY PERFORMANCE, CUSTOM OR USAGE IN THE TRADE,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
<PAGE> 4
5. TERM AND TERMINATION
(a) Initial Term. This Agreement shall have an initial term
commencing on the Agreement Date and continuing on perpetually, unless
terminated by either party.
(b) Termination. Each party may terminate this Agreement:
(i) In the event the other party fails to cure a material
breach of this Agreement within 30 days after receiving written
notice of that breach; or
(ii) immediately upon written notice if: (A) there is a
consolidation, merger or reorganization of the other party with or
into another corporation or entity; (B) there is a creation of a new
majority interest in, or change in majority ownership or control of,
the other party; (C) there is a sale of all or substantially all of
the assets of the other party; or (D) the other party breaches the
confidentiality provisions set forth in Section 9, below; or
(iii) upon 90 days prior written notice to the other party,
with or without cause.
(c) Effect of Termination or Expiration. Upon termination or
expiration of this Agreement, each party shall cease acting in a manner
that would suggest any continuing relationship between the parties
regarding the Products, and shall cease all display and advertising
contemplated under this Agreement. Within 30 business days after the
termination or expiration, each party shall return to the other party or
dispose of (as mutually agreed) all advertising materials and other
property, including all Proprietary Information, furnished to it by the
other party pursuant to this Agreement. Each party shall certify in
writing to the other that it has done so. Termination or expiration of
this Agreement shall not affect any obligation either party has to its
customers. The following provisions of this Agreement shall in all events
survive its termination or expiration: Section 4 (Representations,
Warranties and Disclaimers), 5 (Term and Termination), 6 (Relationship of
the Parties), 7 (Intellectual Property Rights), 8 (Confidentiality of
Proprietary Information), and 11 (General Provisions).
6. RELATIONSHIP OF PARTIES. The following provisions shall apply to the
relationship of the parties, notwithstanding any other provision of this
Agreement:
(a) Independent Companies. JAWS and Calgary On-Line are
independent companies acting for their own account, and neither party is
authorized to make any representation or commitment on behalf of the
other party. Neither party shall use the terms "joint venture",
"partner", "partnership" or similar terms to describe the relationship
between the parties under this Agreement. Any inadvertent use of such
terms shall refer to the spirit of cooperation between the parties and
shall not create a legal partnership or joint venture or any
responsibility by one party for the actions of the other, either
expressly or by implication.
<PAGE> 5
7. INTELLECTUAL PROPERTY RIGHTS
(a) TRADEMARKS, ETC. This Agreement does not authorize either
party to use or display any names, trademarks, logos or service marks of
the other party except to identify Products and Services to the extent
permitted by this Agreement. Either party may use the trademarks or other
proprietary words or symbols of the other party to properly identify the
Products or Services of the other party in correspondence and proposals
issued in the ordinary course of business to the extent such use would be
permitted by applicable law in the absence of this Agreement. Except as
described in the preceding sentence, each party shall submit to the other
party for written prepublication approval, any materials which may use or
display any name, trademark, logo or service mark of the other party.
8. CONFIDENTIALITY OF PROPRIETARY INFORMATION. Each party acknowledges
that, during the term of this Agreement, it will receive Proprietary
Information from the other party. Each party shall protect the
Proprietary Information of the other party with at least the same
protection and care that it customarily uses in safeguarding its own
confidential information of a similar nature, but shall use no less than
a reasonable degree of care and will not use the Propriety Information of
the other party for any purpose other than in direct connection with the
relationship described under this Agreement. Each party will disclose the
other party's Proprietary Information to its personnel only on a
need-to-know basis. Each party shall take reasonable steps to advise its
employees of the confidential nature of the other party's Proprietary
Information and their obligation to comply with the confidentiality
requirements in this Agreement. Each party will promptly notify the other
if it believes that Proprietary Information has lost its status as such.
9. FINANCIAL OBLIGATIONS.
(a) Royalties. JAWS agrees to provide Calgary On-Line with the
management and maintenance of the Key Management Server. This server will
adhere to the specifications agreed to by both parties for E-mail
encryption services. This server will be located at 380, 603-7th Avenue
S.W. Calgary, Alberta, being JAWS's principal place of business. The
parties may from time to time by mutual agreement provide other services
pursuant to this agreement for such terms and at such costs as may be
agreed by the execution of additional schedules covering such items and
such schedules shall constitute part of this agreement for all purposes
as if the provisions there of were set forth herein.
(i) Calgary On-Line will pay JAWS the royalties for the Key
Management Server, as per Schedule "A" of this agreement. These
royalties will be calculated in accordance with the table on Schedule
"A" attached. For clarity, Calgary On-Line will not be permitted to
charge to any recipient of an encrypted E-mail for the decryption of
that E-mail and there will no additional charge from JAWS to any
customer of Calgary On-Line for the decryption of such encrypted
E-mail.
<PAGE> 6
(b) Reseller. JAWS hereby appoints Calgary On-Line as a reseller
of, and grants to Calgary On-Line the right to resell as per Schedule "B"
of this agreement. For clarity the software and services as of the
agreement date are:
L5 E-MAIL ENCRYPTION SOFTWARE
L5 DATA ENCRYPTION SOFTWARE
SECURITY AUDITS
(i) Distribution. JAWS agrees to supply to Calgary On-Line
master distributable images of Software Products. JAWS further agrees to send
new master distributable images of Products within fourteen (14) days of release
of revised versions of Products. JAWS also agrees to notify Calgary On-Line
within fourteen (14) days of discontinuation of Product.
(ii) Downloads and Collection. Calgary On-Line further agrees
to make the Software Products available for download and payment from customers
via the Internet. Calgary On-Line shall make reasonable efforts to maintain the
availability of on-line delivery and payment. However, JAWS acknowledges that
periodic computer server and network failures are unavoidable and thus will not
hold Calgary On-Line liable for damages or losses incurred as a result of such
failures.
(iii) Shipping. For L5 products that are not delivered by
download via the Internet, JAWS agrees to forward all necessary customer and
shipping information to Calgary On-Line's fulfillment center after the
transaction has been approved by JAWS. Calgary On-Line is responsible for
ensuring that Product is shipped to customer according to preference and time
frame selected by Customer. In the case that Products have not been shipped to
Customer within three business days, Calgary On-Line will refund payment to
Customer.
(iv) Force Majeure. Neither party shall be liable for the
failure to perform any of its obligations under this agreement, except for
payment obligations, if such failure is caused by the occurrence of any event
beyond the reasonable control of such party, including without limitation, fire
flood, strikes, and other industrial disturbances, failure of raw materials,
suppliers, failure of transport, accidents, riots, insurrections, acts of God or
orders of governmental agencies.
(v) Audit. For all audit services JAWS agrees to forward all
necessary customer information to Calgary On-Line, and to provide sales support
as required.
(vi) Direct Sales and Distribution Sales. For the direct sales
of Products described in Schedule "B", Calgary On-Line will pay to JAWS the
price specified in Schedule "B". For services provided to service customers,
JAWS will pay Calgary On-Line the amounts
<PAGE> 7
specified in Schedule "B".
(vii) Payments and Reports. Payments shall be made on the
thirtieth (30th) day of each month, or the last day of February, for
sales of the previous month. Calgary On-Line shall provide JAWS a
monthly report detailing the Products sold and amounts collected.
(viii) Returns. If under any circumstance a payment
transaction for a Product is reversed, the net amount of the reversal
will be deducted from the amount of the payment due to JAWS. If returns
exceed sales in any given month, JAWS agrees to make payment sufficient
to cover returns. JAWS will accept the return or exchange of any
normally stocked product purchased from JAWS which is unopened for up to
30 days after the date of purchase. All Hardware Items must be returned
within fourteen (14) days. A defective Product may be exchanged for the
same title only and, in this case, the entire package (box, contents,
and product-registration card) must be included. Calgary On-Line will
also refuse payment for the distribution of Products to any Customer
that is clearly abusing the system by processing a large percentage of
returns.
(ix) Charge Backs. If a payment transaction for a Product is
reversed due to a credit card chargeback, the net amount of the reversal
will be deducted from the amount due to JAWS. A credit card chargeback
will be allowed if Calgary On-Line is bound to reverse or reimburse a
credit card payment made to Calgary On-Line because the credit card
provider directs it to do so or, as it is otherwise required by law.
(x) Records and Audits. Calgary On-Line shall keep records and
accounts in accordance with generally accepted accounting principles to
show the amount of proceeds payable to JAWS. Calgary On-Line shall keep
these records at Calgary On-Line's principal place of business. JAWS
shall have the right to conduct at its sole expense an audit of such
records by an independent auditor during regular business hours upon
five (5) days prior written notice once per calendar year to determine
Electronic Distributor's compliance with this Agreement.
10. MOST FAVORED CUSTOMER PRICING. JAWS warrants that it has not, directly
or indirectly, entered into any agreement relating to the Products and
Services which provides pricing terms which are more favorable than the
pricing terms specified in this Agreement. If JAWS has entered into any
such agreement, or in the future enters into any such agreement, which
contains pricing terms which are more favorable than the pricing terms
specified in this Agreement, then JAWS will immediately notify Calgary
On-Line and extend the same pricing terms to Calgary On-Line.
<PAGE> 8
11. GENERAL PROVISIONS
(a) Non-Solicitation. During the term of this Agreement and for a
period of 12 months thereafter, personnel of either party who have been
directly and substantially involved in the performance of such party's
obligations under this Agreement shall not knowingly directly or
indirectly solicit for employment any of the other party's personnel who
have been directly and substantively involved in the performance of this
Agreement, without the prior written consent of the other party.
(b) Notice. All notices required to be given under this Agreement
shall be in writing and will be deemed given when actually received. All
notices shall be sent to the receiving party's address as set forth
below, or to such other address that a party provides as required by this
Section 11(b).
For JAWS:
JAWS Technologies Inc.
380 603 - 7 Avenue S.W.
Calgary, Alberta, Canada T2P 2T5
Attn: Garry Leitch, VP Sales & Channel Development
And to:
For Calgary On-Line:
Calgary On-Line
302-100-4th Avenue S.W.
Calgary, Alberta T2P3N2
Attn: Glenn Carbol, President
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Alberta, without
reference to its choice of law rules.
(d) Amendments. This Agreement may not be modified except in
writing signed by both parties.
(e) Severability. If any provision of this Agreement is held
invalid, such provision shall be deemed severed and the remaining
provisions shall be interpreted so as best to reasonably effect the
intent of the parties.
(f) Non-Assignment. Neither party may assign, transfer or delegate
this Agreement, or any of its rights or obligations under this Agreement
to any third party, other than a party
<PAGE> 9
controlling, controlled by or under control with the assigning party,
without the prior written agreement of the other party. Subject to the
above, this Agreement shall be binding upon and inure to the benefit of
the parties of this Agreement, as well as their respective permitted
successors and assigns. Any assignment permitted under this section will
not release the assignor from liability under this Agreement.
(g) Waiver. Failure by any party to enforce any of the terms or
conditions of this Agreement, in any one or more instances, shall not be
construed as a waiver of the future performance of any such terms or
conditions.
(h) Limitation on Damages. Neither party (nor any of its
licensors) shall have any liability to the other party or any third
parties for any loss of business, loss of profits, loss of data, or
computer malfunction, or any indirect, incidental, special, consequential
or punitive damages, even if such party has been appraised of the
possibility of that loss or damage.
(i) Press Release and Publicity. Neither party shall issue any
news release, public announcement, advertisement or
publicity concerning this Agreement or any matters arising
under this Agreement without the prior written approval of
the other party such approval not to be unreasonably
withheld.
IN WITNESS WHEREOF, the parties have caused this Master Agreement to be signed
by the authorized representatives as of the date first shown above.
JAWS TECHNOLOGIES INC. CALGARY ON-LINE
By: By:
---------------------------------- -----------------------------
Date: Date:
Name: Garry Leitch Name: Glenn Carbol
Title: VP Sales & Channel Development Title: President
<PAGE> 10
SCHEDULE "A"
KEY MANAGEMENT SERVER PRICING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
SERVICE PROVIDED DETAIL OF SERVICE SUBSCRIPTION
RATE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
E-MAIL ENCRYPTION DIAL UP ACCESS USERS INCLUDES:
Residential (Home Market)
Small Home Office
- ---------------------------------------------------------------------------------------
1,000 subscribers $1.00/month
- ---------------------------------------------------------------------------------------
1,001 - 5,000 for a total of all $0.75/month
subscribers
- ---------------------------------------------------------------------------------------
5,001 - 10,000 for a total of all $0.50/month
subscribers
- ---------------------------------------------------------------------------------------
10,001 + for a total of all $0.35/month
subscribers
- ---------------------------------------------------------------------------------------
E-MAIL ENCRYPTION CORPORATE ACCOUNTS
By number of subscribers per
corporate account
- ---------------------------------------------------------------------------------------
15 to 50 users - 1st 20 users $20.00/month
20 + users $0.50/month per
additional user
- ---------------------------------------------------------------------------------------
51 to 200 users - 1st 65 users $40.00/month
65 + users $0.50/month per
additional user
- ---------------------------------------------------------------------------------------
200 + users = custom quote To be determined
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
SCHEDULE "B"
SOFTWARE & SERVICES PRICING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
PRODUCT NAME SUGGESTED RETAIL PRICE PRICE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION SOFTWARE $US14.95 $US12.95
- ---------------------------------------------------------------------------------------
L5 DATA ENCRYPTION
SOFTWARE - PROFESSIONAL EDITION
- ---------------------------------------------------------------------------------------
- - electronic downloadable file. $US49.95 $US39.95
- ---------------------------------------------------------------------------------------
- - retail boxed product $US49.95 $US34.95
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
SERVICES PRICING - AUDITS
- ---------------------------------------------------------------------------------------
- - Snapshot Audit $CDN3,000.00 $CDN2,000.00
- ---------------------------------------------------------------------------------------
- - Full Security variable 10% finders fee
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
SCHEDULE "C"
PRODUCT AND SERVICE TRAINING
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
TRAINING PROVIDED DETAIL OF TRAINING LENGTH
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION Server Management N/A
Orientation - user documentation
Key Management - online help
- ----------------------------------------------------------------------------------------------------
L5 DATA ENCRYPTION User documentation included N/A
with Software
- ----------------------------------------------------------------------------------------------------
SERVICES Sales & Marketing One (1) day
- E-mail Encryption - audit overview
- Audits - how to position and sell audits
- how to position and sell secure E-mail
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.1.7
MASTER AGREEMENT
(JAWS TECHNOLOGIES INC.)
This AGREEMENT (the "Agreement") is entered into as of, December 7, 1998,
between ABC INTERNET INC. ("ABC INTERNET INC."), with an address for purposes of
this Agreement at COMPANY ADDRESS ("ABC INTERNET INC."), and JAWS Technologies
Inc. ("JAWS"), whose principal place of business for purposes of this Agreement
is Suite 380-603 7TH Avenue S.W. Calgary, Alberta, Canada T2P 2T5.
BACKGROUND
A. JAWS and ABC INTERNET INC. desire to work together with the goal
of furthering the marketing of the professional services and
products of JAWS.
B. JAWS desires to enhance its consulting service and product
revenues by offering services in connection with ABC INTERNET
INC.'s services.
C. ABC INTERNET INC. desires to enhance its capabilities to market
and support ABC INTERNET INC.'s in connection with the use of
JAWS services.
D. JAWS and ABC INTERNET INC. desire to formalize their
relationship by entering into this Agreement to undertake
cooperative efforts in connection with the products and services
of JAWS.
NOW, THEREFORE, JAWS and ABC INTERNET INC. agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the meanings
given to them below when used in this Agreement:
"AGREEMENT DATE" shall have the meaning given to it in the introductory
paragraph of this Agreement.
"PRODUCTS" refers to all products listed in Schedule "A" and Schedule
"B" of this Agreement.
"PROPRIETARY INFORMATION" means:
(i) with respect to JAWS, the Products and all
confidential information and trade secrets contained in the
Products, including benchmark results, and any other information
of JAWS or its licensors which by its nature is generally
understood to be of a confidential nature; and
(ii) with respect to ABC INTERNET INC., any information
of ABC INTERNET INC. or of any customer of ABC INTERNET INC.
which ABC INTERNET INC. indicates is confidential or which, by
its nature, is generally understood to be
<PAGE> 2
confidential information and, without limiting the generality of
the foregoing, includes all customer lists and pricing
information of ABC INTERNET INC..
Information is not Proprietary Information to the extent that
it:
(A) is or becomes publicly available through no
act or failure of the receiving party; or
(B) is rightfully acquired from a third party
which, to the receiving party's knowledge, is not
obligated to keep that information confidential; or
(C) is independently developed by the receiving
party.
"SERVICES" refers to all services listed in Schedule "A" Key Management
Server Pricing and Schedule "B" Software & Services Pricing of this
agreement.
"SOFTWARE LICENSE AGREEMENT" means the encryption software license
agreement(s), as amended from time to time, to be executed by JAWS and
ABC INTERNET INC. in connection with the Products.
2. SERVICES AND RESPONSIBILITIES OF JAWS
(a) Employee Training. JAWS will provide to ABC INTERNET INC.
product and service training sessions at no additional charge to ABC
INTERNET INC.. These training sessions will pertain specifically to the
products and services contracted for by ABC INTERNET INC.. Refer to
Schedule "C" of this agreement for details regarding training sessions.
(b) Marketing Events. JAWS shall participate in and, if
requested by ABC INTERNET INC., assist in the organization and
implementation of, the jointly sponsored marketing events to be agreed
upon by the parties as part of the business plan referred to in Section
4 below.
(c) JAWS Coordinator. JAWS shall designate a coordinator with
appropriate authority to coordinate JAWS's activities with ABC INTERNET
INC. and act on behalf of JAWS within the scope of this Agreement.
3. SERVICES AND RESPONSIBILITIES OF THE PARTIES. To the extent reasonable
under the circumstances and as permitted by each party's other
agreements, the parties shall undertake the following cooperative
activities with respect to identifying opportunities to promote the
Products and Services:
(a) Market Information. Each party shall regularly inform the
other party about general market developments and factors relating to
the Products in the marketplace and current
<PAGE> 3
projects and customer implementations in which they are involved. This
information shall be designated and treated as Proprietary Information
of the party providing the information.
(b) Business Plan. Each party shall furnish the other party with
appropriate information for support and planning purposes, provided that
the furnishing party may determine, in its sole discretion, the content
and availability of such information. The parties will work together to
develop a business plan for their marketing efforts in connection with
this Agreement. Each party shall use commercially reasonable efforts to
meet the goals in the business plan.
(c) Internal Notification. Each party shall inform the
appropriate personnel in its organization of the existence of this
Agreement.
(d) New Product Information. Each party shall endeavor to keep
the other party appraised about new products and services relating to
the Products.
(e) Other Information. The parties shall exchange such other
information and conduct such other activities as the parties agree will
carry out the intent of this Agreement.
(f) Periodic Review. The parties shall meet at least twice a
year to review the status of their arrangement under this Agreement.
4. REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
(a) Representations and Warranties. Each party hereby represents
and warrants to the other party that:
(i) Authority. It has the right and power to enter into
this Agreement.
(ii) No Violation. Entering into this Agreement does not
violate the terms and conditions of any of its other agreements
providing for cooperative marketing of products of another
entity, or any other legal obligations.
(iii) No Infringement. The products, materials and
information it provides under this Agreement to the other party
do not infringe upon or constitute a misappropriation of any
copyright, trademark, patent, trade secret or other proprietary
right of any third party in the Territory.
(b) Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN
THIS SECTION 5, NEITHER PARTY MAKES ANY WARRANTY TO THE OTHER PARTY,
EITHER EXPRESS, IMPLIED OR STATUTORY, NOR SHALL ANY WARRANTY ARISE BY
COURSE OF CONDUCT OR BY PERFORMANCE, CUSTOM OR USAGE IN THE TRADE,
INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF
<PAGE> 4
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5. TERM AND TERMINATION
(a) Initial Term. This Agreement shall have an initial term
commencing on the Agreement Date and continuing on perpetually, unless
terminated by either party.
(b) Termination. Each party may terminate this Agreement:
(i) In the event the other party fails to cure a
material breach of this Agreement within 30 days after receiving
written notice of that breach; or
(ii) immediately upon written notice if: (A) there is a
consolidation, merger or reorganization of the other party with
or into another corporation or entity; (B) there is a creation
of a new majority interest in, or change in majority ownership
or control of, the other party; (C) there is a sale of all or
substantially all of the assets of the other party; or (D) the
other party breaches the confidentiality provisions set forth in
Section 9, below; or
(iii) upon 90 days prior written notice to the other
party, with or without cause.
(c) Effect of Termination or Expiration. Upon termination or
expiration of this Agreement, each party shall cease acting in a manner
that would suggest any continuing relationship between the parties
regarding the Products, and shall cease all display and advertising
contemplated under this Agreement. Within 30 business days after the
termination or expiration, each party shall return to the other party or
dispose of (as mutually agreed) all advertising materials and other
property, including all Proprietary Information, furnished to it by the
other party pursuant to this Agreement. Each party shall certify in
writing to the other that it has done so. Termination or expiration of
this Agreement shall not affect any obligation either party has to its
customers. The following provisions of this Agreement shall in all
events survive its termination or expiration: Section 5
(Representations, Warranties and Disclaimers), 6 (Term and Termination),
7 (Relationship of the Parties), 8 (Intellectual Property Rights), 9
(Confidentiality of Proprietary Information), and 11 (General
Provisions).
6. RELATIONSHIP OF PARTIES. The following provisions shall apply to the
relationship of the parties, notwithstanding any other provision of this
Agreement:
(a) Independent Companies. JAWS and ABC INTERNET INC. are
independent companies acting for their own account, and neither party is
authorized to make any representation or commitment on behalf of the
other party. Neither party shall use the terms "joint venture",
"partner", "partnership" or similar terms to describe the relationship
between the parties under this Agreement. Any inadvertent use of such
terms shall refer to the spirit of cooperation between the parties and
shall not create a legal partnership or joint venture or any
<PAGE> 5
responsibility by one party for the actions of the other, either
expressly or by implication.
7. INTELLECTUAL PROPERTY RIGHTS
(a) TRADEMARKS, ETC. This Agreement does not authorize either
party to use or display any names, trademarks, logos or service marks of
the other party except to identify Products and Services to the extent
permitted by this Agreement. Either party may use the trademarks or
other proprietary words or symbols of the other party to properly
identify the Products or Services of the other party in correspondence
and proposals issued in the ordinary course of business to the extent
such use would be permitted by applicable law in the absence of this
Agreement. Except as described in the preceding sentence, each party
shall submit to the other party for written prepublication approval, any
materials which may use or display any name, trademark, logo or service
mark of the other party.
8. CONFIDENTIALITY OF PROPRIETARY INFORMATION. Each party acknowledges
that, during the term of this Agreement, it will receive Proprietary
Information from the other party. Each party shall protect the
Proprietary Information of the other party with at least the same
protection and care that it customarily uses in safeguarding its own
confidential information of a similar nature, but shall use no less than
a reasonable degree of care and will not use the Propriety Information
of the other party for any purpose other than in direct connection with
the relationship described under this Agreement. Each party will
disclose the other party's Proprietary Information to its personnel only
on a need-to-know basis. Each party shall take reasonable steps to
advise its employees of the confidential nature of the other party's
Proprietary Information and their obligation to comply with the
confidentiality requirements in this Agreement. Each party will promptly
notify the other if it believes that Proprietary Information has lost
its status as such.
9. FINANCIAL OBLIGATIONS.
(a) Royalties. JAWS agrees to provide ABC INTERNET INC. with the
management and maintenance of the Key Management Server. This server
will adhere to the specifications agreed to by both parties for E-mail
encryption services. This server will be located at 380, 603-7th Avenue
S.W. Calgary, Alberta, being JAWS's principal place of business. The
parties may from time to time by mutual agreement provide other services
pursuant to this agreement for such terms and at such costs as may be
agreed by the execution of additional schedules covering such items and
such schedules shall constitute part of this agreement for all purposes
as if the provisions there of were set forth herein.
(i) ABC INTERNET INC. will pay JAWS the royalties for
the Key Management Server, as per Schedule "A" of this
agreement. These royalties will be calculated in accordance with
the table on Schedule "A" attached. For clarity, ABC INTERNET
INC. will be permitted to charge to any recipient of an
encrypted E-mail for the decryption of that E-mail and there
will no additional charge from JAWS to any customer of
<PAGE> 6
ABC INTERNET INC. for the decryption of such encrypted E-mail.
(b) Reseller. JAWS hereby appoints ABC INTERNET INC. as a
reseller of, and grants to ABC INTERNET INC. the right to resell as per
Schedule "B" of this agreement. For clarity the software and services
are:
L5 E-MAIL ENCRYPTION SOFTWARE
L5 DATA ENCRYPTION SOFTWARE
SECURITY AUDITS
(i) Distribution. JAWS agrees to supply to ABC INTERNET
INC. master distributable images of Software Products. JAWS
further agrees to send new master distributable images of
Products within fourteen (14) days of release of revised
versions of Products. JAWS also agrees to notify ABC INTERNET
INC. within fourteen (14) days of discontinuation of Product.
(ii) Downloads and Collection. ABC INTERNET INC. further
agrees to make the Software Products available for download and
payment from customers via the Internet. ABC INTERNET INC. shall
make reasonable efforts to maintain the availability of on-line
delivery and payment. However, JAWS acknowledges that periodic
computer server and network failures are unavoidable and thus
will not hold ABC INTERNET INC. liable for damages or losses
incurred as a result of such failures.
(iii) Shipping. For L5 products that are not delivered
by download via the Internet, JAWS agrees to forward all
necessary customer and shipping information to ABC INTERNET
INC.'s fulfillment center after the transaction has been
approved by JAWS. ABC INTERNET INC. is responsible for ensuring
that Product is shipped to customer according to preference and
time frame selected by Customer. In the case that Products have
not been shipped to Customer within three business days, ABC
INTERNET INC. will refund payment to Customer.
(iv) Force Majeure. Neither party shall be liable for
the failure to perform any of its obligations under this
agreement, except for payment obligations, if such failure is
caused by the occurrence of any event beyond the reasonable
control of such party, including without limitation, fire flood,
strikes, and other industrial disturbances, failure of raw
materials, suppliers, failure of transport, accidents, riots,
insurrections, acts of God or orders of governmental agencies.
(v) Audit. For all audit services JAWS agrees to forward
all necessary customer information to ABC INTERNET INC., and to
provide sales support as required.
(vi) Direct Sales and Distribution Sales. For the direct
sales of Products
<PAGE> 7
described in Schedule "B", ABC INTERNET INC. will pay to JAWS
the price specified in Schedule "B". For services provided to
service customers, JAWS will pay ABC INTERNET INC. the amounts
specified in Schedule "B".
(vii) Payments and Reports. Payments shall be made on
the thirtieth (30th) day of each month, or the last day of
February, for sales of the previous month. ABC INTERNET INC.
shall provide JAWS a monthly report detailing the Products sold
and amounts collected.
(viii) Returns. If under any circumstance a payment
transaction for a Product is reversed, the net amount of the
reversal will be deducted from the amount of the payment due to
JAWS. If returns exceed sales in any given month, JAWS agrees to
make payment sufficient to cover returns. JAWS will accept the
return or exchange of any normally stocked product purchased
from JAWS which is unopened for up to 30 days after the date of
purchase. All Hardware Items must be returned within fourteen
(14) days. A defective Product may be exchanged for the same
title only and, in this case, the entire package (box, contents,
and product-registration card) must be included. ABC INTERNET
INC. will also refuse payment for the distribution of Products
to any Customer that is clearly abusing the system by processing
a large percentage of returns.
(ix) Charge Backs. If a payment transaction for a
Product is reversed due to a credit card chargeback, the net
amount of the reversal will be deducted from the amount due to
JAWS. A credit card chargeback will be allowed if ABC INTERNET
INC. is bound to reverse or reimburse a credit card payment made
to ABC INTERNET INC. because the credit card provider directs it
to do so or, as it is otherwise required by law.
(x) Records and Audits. ABC INTERNET INC. shall keep
records and accounts in accordance with generally accepted
accounting principles to show the amount of proceeds payable to
JAWS. ABC INTERNET INC. shall keep these records at ABC INTERNET
INC.'s principal place of business. JAWS shall have the right to
conduct at its sole expense an audit of such records by an
independent auditor during regular business hours upon five (5)
days prior written notice once per calendar year to determine
Electronic Distributor's compliance with this Agreement.
10. EXCLUSIVITY ABC INTERNET INC. will have exclusivity in Northern British
Columbia for a period of sixty (60) days beginning December 7, 1998. The
following provisions will apply:
(a) E-mail Encryption Service. JAWS will not sell or license or
provide or permit the use of any of its Products or Services, or allow
any subsidiary or affiliate or reseller or licensee to sell or license
or provide or permit the use of any of the Products or Services of JAWS,
to or by any customer or potential customer of such Products or Services
located in Northern British Columbia.
(b) Business Inquiries. JAWS will refer to ABC INTERNET INC.,
and cause its subsidiaries,
<PAGE> 8
affiliates, resellers and licensees to refer to ABC INTERNET INC. all
inquiries from customers (residential and corporate) located in Northern
British Columbia.
11. MOST FAVORED CUSTOMER PRICING. JAWS warrants that it has not, directly
or indirectly, entered into any agreement relating to the Products and
Services which provides pricing terms which are more favorable than the
pricing terms specified in this Agreement. If JAWS has entered into any
such agreement, or in the future enters into any such agreement, which
contains pricing terms which are more favorable than the pricing terms
specified in this Agreement, then JAWS will immediately notify ABC
INTERNET INC. and extend the same pricing terms to ABC INTERNET INC..
12. GENERAL PROVISIONS
(a) Non-Solicitation. During the term of this Agreement and for
a period of 12 months thereafter, personnel of either party who have
been directly and substantially involved in the performance of such
party's obligations under this Agreement shall not knowingly directly or
indirectly solicit for employment any of the other party's personnel who
have been directly and substantively involved in the performance of this
Agreement, without the prior written consent of the other party.
(b) Notice. All notices required to be given under this
Agreement shall be in writing and will be deemed given when actually
received. All notices shall be sent to the receiving party's address as
set forth below, or to such other address that a party provides as
required by this Section 11(b).
For JAWS:
JAWS Technologies Inc.
380 603 - 7 Avenue S.W.
Calgary, Alberta, Canada T2P 2T5
Attn: Garry Leitch
And to:
For ABC INTERNET INC.:
#102, 1270 2nd Avenue
Prince George, British Columbia V2L 3B3
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Alberta,
without reference to its choice of law rules.
(d) Amendments. This Agreement may not be modified except in
writing signed by both
<PAGE> 9
parties.
(e) Severability. If any provision of this Agreement is held
invalid, such provision shall be deemed severed and the remaining
provisions shall be interpreted so as best to reasonably effect the
intent of the parties.
(f) Non-Assignment. Neither party may assign, transfer or
delegate this Agreement, or any of its rights or obligations under this
Agreement to any third party, other than a party controlling, controlled
by or under control with the assigning party, without the prior written
agreement of the other party. Subject to the above, this Agreement shall
be binding upon and inure to the benefit of the parties of this
Agreement, as well as their respective permitted successors and assigns.
Any assignment permitted under this section will not release the
assignor from liability under this Agreement.
(g) Waiver. Failure by any party to enforce any of the terms or
conditions of this Agreement, in any one or more instances, shall not be
construed as a waiver of the future performance of any such terms or
conditions.
(h) Limitation on Damages. Neither party (nor any of its
licensors) shall have any liability to the other party or any third
parties for any loss of business, loss of profits, loss of data, or
computer malfunction, or any indirect, incidental, special,
consequential or punitive damages, even if such party has been appraised
of the possibility of that loss or damage.
(i) Press Release and Publicity. Neither party shall issue any
news release, public announcement, advertisement or publicity concerning
this Agreement or any matters arising under this Agreement without the
prior written approval of the other party such approval not to be
unreasonably withheld.
IN WITNESS WHEREOF, the parties have caused this Master Agreement to be signed
by the authorized representatives as of the date first shown above.
<TABLE>
<S> <C>
JAWS TECHNOLOGIES INC. ABC INTERNET INC.
By:___________________________ By:___________________________
Date: December 7, 1998 Date: December 7, 1998
Name: Garry Leitch Name: Peter de Fauw
Title: VP Sales & Channel Development Title: General Manager
</TABLE>
<PAGE> 10
SCHEDULE "A"
KEY MANAGEMENT SERVER PRICING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SERVICE PROVIDED DETAIL OF SERVICE SUBSCRIPTION
RATE
- --------------------------------------------------------------------------------------
<S> <C> <C>
E-MAIL ENCRYPTION DIAL UP ACCESS USERS INCLUDES:
Residential (Home Market)
Small Home Office
- --------------------------------------------------------------------------------------
=1,000 subscribers $1.00 /month
- --------------------------------------------------------------------------------------
1,001 - 5,000 for a total of all $0.75/month
subscribers
- --------------------------------------------------------------------------------------
5,001 - 10,000 for a total of all $0.50/month
subscribers
- --------------------------------------------------------------------------------------
10,001 + for a total of all $0.35/month
subscribers
- --------------------------------------------------------------------------------------
E-MAIL ENCRYPTION CORPORATE ACCOUNTS
By number of subscribers per
corporate account
- --------------------------------------------------------------------------------------
15 to 50 users - 1st 20 users $20.00/month
20 + users $0.50/month per
additional user
- --------------------------------------------------------------------------------------
51 to 200 users - 1st 65 users $40.00/month
65 + users $0.50/month per
additional user
- --------------------------------------------------------------------------------------
200 + users = custom quote To be determined
- --------------------------------------------------------------------------------------
</TABLE>
<PAGE> 11
SCHEDULE "B"
SOFTWARE & SERVICES PRICING
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRODUCT NAME SUGGESTED RETAIL PRICE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION
SOFTWARE $US14.95 $US12.95
- --------------------------------------------------------------------------------
L5 DATA ENCRYPTION
SOFTWARE - PROFESSIONAL
EDITION
- --------------------------------------------------------------------------------
- - electronic downloadable $US49.95 $US39.95
file.
- --------------------------------------------------------------------------------
- - retail boxed product $US49.95 $US34.95
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SERVICES PRICING - AUDITS
- --------------------------------------------------------------------------------
- - Snapshot Audit $CDN3,000.00 $CDN2,000.00
- --------------------------------------------------------------------------------
- - Full Security variable 10% finders fee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
SCHEDULE "C"
PRODUCT AND SERVICE TRAINING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
TRAINING PROVIDED DETAIL OF TRAINING LENGTH
- ---------------------------------------------------------------------------------------
<S> <C> <C>
L5 E-MAIL ENCRYPTION Server Management N/A
Orientation - user documentation
Key Management - online help
- ---------------------------------------------------------------------------------------
5 DATA ENCRYPTION User documentation included N/A
with Software
- ---------------------------------------------------------------------------------------
SERVICES Sales & Marketing One (1) day
- E-mail Encryption - audit overview
- Audits - how to position and sell audits
- how to position and sell
secure E-mail
- ---------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
INDEMNITY AGREEMENT
This Indemnity Agreement (the "Agreement") is made as of the ______ day
of _____________________, 1998, by and between JAWS Technologies Inc., a Nevada
corporation (the "Corporation"), and ________________________ (the
"Indemnitee"), a director and/or officer of the Corporation.
R E C I T A L S
A. The Corporation and the Indemnitee recognize that the interpretation of
statutes, regulations, court opinions and the Corporation's Articles of
Incorporation and bylaws may be too uncertain to provide the Corporation's
officers and directors with adequate guidance with respect to the legal risks
and potential liabilities to which they may become personally exposed as a
result of performing their duties in good faith for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial
increase in the number of lawsuits filed against corporate officers and
directors.
C. The Corporation and the Indemnitee recognize that the cost of defending
against such lawsuits, whether or not meritorious, may impose substantial
economic hardship upon the Corporation's officers and directors.
D. The Corporation and the Indemnitee recognize that the legal risks,
potential liabilities and expenses of defense associated with litigation against
officers and directors arising or alleged to arise from the conduct of the
affairs of the Corporation are frequently excessive in view of the amount of
compensation received by the Corporation's officers and directors, and thus may
act as a significant deterrent to the ability of the Corporation to obtain
experienced and capable officers and directors.
E. Article 109 of the Colorado Business Corporation Act, which sets forth
certain provisions relating to the indemnification of officers and directors, as
defined therein, of a Colorado corporation by such corporation, is specifically
not exclusive of other rights to which those indemnified thereunder may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.
F. In order to induce capable persons such as the Indemnitee to serve or
continue to serve as officers or directors of the Corporation and to enable them
to perform their duties to the Corporation secure in the knowledge that certain
expenses and liabilities that may be incurred by them will be borne by the
Corporation, the Board of Directors of the Corporation has determined, after due
consideration and investigation of the terms and provisions of this Agreement
and the various other
<PAGE> 2
options available to the Corporation and the Indemnitee in lieu of this
Agreement, that the following Agreement is in the best interests of the
Corporation and its shareholders.
G. The Corporation desires to have the Indemnitee serve or continue to
serve as an officer and/or director of the Corporation, and the Indemnitee
desires to serve or continue to serve as an officer and/or director of the
Corporation provided, and on the express condition, that he is furnished with
the indemnity set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreement
set forth below, the Corporation and the indemnitee agree as follows:
1. Continued Service. The Indemnitee agrees to serve or continue to serve
as a director and/or officer of the Corporation for so long as he is duly
elected and appointed or until such time as he resigns in writing. The terms of
any existing employment agreement and confidentiality agreement between the
Indemnitee and the Corporation shall continue in effect but shall be deemed to
be modified or supplemented by the terms of this Agreement.
2. Definitions.
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought in the name of the
Corporation or otherwise and whether of a civil, criminal or administrative or
investigative nature whether formal or informal, including, but not limited to,
actions, suits or proceedings brought under or predicated upon the Securities
Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, their
respective state counterparts or any rule or regulation promulgated thereunder,
in which the Indemnitee may be or may have been involved as a party or otherwise
by reason of the fact that the Indemnitee may be or may have been involved as a
party or otherwise by reason of the fact that the Indemnitee is or was a
director and/or officer of the Corporation, or any subsidiary, by reason of any
action taken by him or of any inaction on his part while acting as such director
and/or officer, or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, whether or
not he is serving in such capacity at the time any indemnified liability or
reimbursable expense is incurred.
(b) The term "Expenses" shall include, but shall not be limited to,
damages, judgment, fines, settlement and charges, costs, expenses of
investigation, legal fees and other expenses of defense of legal actions, suits,
proceedings or claims and appeals therefrom, and expenses of appeal, attachment
or similar bonds. "Expenses" shall not include any judgment, fines or penalties
actually levied against the Indemnitee which the Company is prohibited by
applicable law from paying.
<PAGE> 3
3. Indemnity in Third-Party Proceedings. Subject to Paragraph 8, the
Corporation shall indemnify the Indemnitee in accordance with the provisions of
this Paragraph 3 if the Indemnitee is a party to, threatened to be made a party
to or otherwise involved in any Proceeding (other than a Proceeding by the
Corporation itself to procure a judgment in its favor), by reason of the fact
that the Indemnitee is or was a director and/or officer of the Corporation or a
subsidiary, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all Expenses actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of such
Proceeding, provided it is determined, pursuant to Paragraph 7 or by the court
before which such action was brought, that the Indemnitee in case of conduct in
an official capacity with the Corporation, conduct himself in good faith and in
a manner that he reasonably believed to be in the best interests of the
Corporation or, in all other cases; that his conduct was at least not opposed to
the Corporation's best interests, and, in the case of a criminal proceeding, had
no reasonable cause to believe that his conduct was unlawful. The termination of
any such Proceeding by judgment, order of court, settlement, conviction or upon
a plea of nolo contendre or its equivalent shall not be determinative that the
Indemnitee did not meet the standard of care in this Paragraph 3.
4. Indemnity in Proceeding by or in the Name of the Corporation. Subject
to Paragraph 8, the Corporation shall indemnify the Indemnitee against all
Expenses actually and reasonably incurred by the Indemnitee in connection with
the defense or settlement of any Proceeding by or in the name of the Corporation
or a subsidiary to procure a judgment in its favor by reason of the fact that
the Indemnitee was or is a director and/or officer of the Corporation or a
subsidiary and is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, but only if he acted in good faith and in a
manner that he reasonably believed to be in the best interests of the
Corporation and its shareholders; provided, however, that no indemnification for
Expenses shall be made under this Paragraph 4 with respect to any claim, issue
or matter as to which the Indemnitee shall have been adjudged to be liable to
the Corporation, unless and only to the extent that any court in which such
Proceeding is brought shall determine upon application that despite the
adjudication of liability, but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper.
5. Indemnification of Expenses of Successful Party. Notwithstanding any
other provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including the dismissal of an action
without prejudice, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.
6. Advances of Expenses. Expenses incurred by the Indemnitee pursuant to
Paragraph 3 and 4 in any Proceeding shall be paid by the Corporation in advance
of
<PAGE> 4
the determination of such Proceeding at the written request of the Indemnitee,
if the Indemnitee shall (a) undertake in writing to repay such amount to the
extent that it is ultimately determined that the Indemnitee is not entitled to
indemnification in such amount, and (b) deliver to the Corporation a certificate
affirming in good faith that the Indemnitee has met the relevant standards for
indemnification set forth in Paragraphs 3 and 4.
7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon
Application. Any indemnification or advance under Paragraph 3, 4 or 6 shall be
made no later than 30 days after receipt of the written request of the
Indemnitee therefor, unless, in the case of an indemnification, a determination
is made within said 30-day period by (a) the Board of Directors of the
Corporation by a majority vote of a quorum thereof consisting of directors who
were not parties to such Proceedings, or if a quorum cannot be obtained, by a
majority vote of a committee designated by the board of directors, which
committee shall consist of two or more directors not parties to the Proceedings,
except that directors who are parties to the Proceedings may participate in
designation of the committee or (b) independent legal counsel in a written
opinion (which counsel shall be appointed by the majority vote of the full board
of directors including parties to the Proceedings) that the Indemnitee has not
met the relevant standards for indemnification set forth in Paragraphs 3 and 4.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by the Indemnitee in any court of competent jurisdiction.
The Corporation shall bear the burden of proving that indemnification or
advances are not appropriate. The failure of the Corporation to have made a
determination that indemnification or advances are proper in the circumstances
shall not be a defense to the action or create a presumption that the Indemnitee
has not met the applicable standard of conduct. The Indemnitee's Expenses
incurred in connection with successfully establishing his right to
indemnification or advances, in whole or in part, in any such Proceeding shall
also be indemnified by the Corporation.
8. Indemnification Hereunder Not Exclusive.
(a) Notwithstanding any other provision of this Agreement, the
Company shall not indemnify the Indemnitee for any act or omission or
transactions for which indemnification is expressly prohibited by the Nevada
Business Corporation Act.
(b) The right to indemnification provided by this Agreement shall
not be exclusive of any other rights to which the Indemnitee may be entitled
under the Corporation's Articles of Incorporation, bylaws, any agreement, any
vote of shareholders or disinterested directors, the Nevada Business Corporation
Act or otherwise, both as to action in his official capacity and as to action in
another capacity while he holds such office. The indemnification under this
Agreement shall continue as to the Indemnitee even though he may have ceased to
be a director or officer, and shall inure to the benefit of the heirs and
personal representative of the Indemnitee.
<PAGE> 5
9. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Corporation for a portion
of his Expenses actually and reasonably incurred by him in any Proceeding but
not, however, for the total amount thereof, the Corporation shall nevertheless
indemnify the Indemnitee for the portion of such Expenses to which the
Indemnitee is entitled.
10. Merger or Consolidation. In the event that the Corporation shall be a
constituent corporation in a consolidation, merger or other reorganization, the
Corporation, if it shall not be the surviving, resulting or acquiring
corporation therein, shall require as a condition thereto that the surviving,
resulting or acquiring corporation agrees to indemnify the Indemnitee to the
full extent provided herein. Whether or not the Corporation is the resulting,
surviving or acquiring corporation in any such transaction, the Indemnitee shall
also stand in the same position under this Agreement with respect to the
resulting, surviving or acquiring corporation as he would have with respect to
the Corporation if its separate existence had continued.
11. Severability. If any provision of this Agreement or the application of
any provision hereof to any person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to other persons or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be revised to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Nevada.
13. Insurance. The Corporation may purchase and maintain insurance on
behalf of the Indemnitee against any liability asserted against him or incurred
by him in any such capacity as a director, officer or other employee or agent of
the Corporation or an affiliate of the Corporation, or arising out of his status
as such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Agreement. The purchase and
maintenance of such insurance shall not in any way limit or affect the rights
and obligations of the Corporation and/or the Indemnitee under this Agreement,
and the execution and delivery of this Agreement by the Corporation and the
Indemnitee shall not in any way be construed to limit or affect the rights and
obligations of the Corporation and of the other party or parties thereto under
any such policy or agreement of insurance.
In the event the Indemnitee shall receive payment from any insurance
carrier or from the plaintiff in any action against the Indemnitee with respect
to indemnified amounts after payment on account of all or part of such
indemnified amounts having been made by the Corporation pursuant to this
Agreement, the Indemnitee shall reimburse the Corporation for the amount, if
any, by which the sum of such payments by such insurance carrier or such
plaintiff and payments by the Corporation to the Indemnitee exceeds such
indemnified amounts; provided, however, that such portions, if any, of such
insurance proceeds that are required to be reimbursed to the
<PAGE> 6
insurance carrier under the terms of its insurance policy shall not be deemed to
be payments to the Indemnitee hereunder. in addition, upon payments of
indemnified amounts under the terms and conditions of this Agreement, the
Corporation shall be subrogated to the Indemnitee's rights against any insurance
carrier with respect to such indemnified amounts (to the extent permitted under
such insurance policies). Such right of subrogation shall be terminated upon
receipt by the Corporation of the amount to be reimbursed by the Indemnitee
pursuant to the first sentence of this paragraph.
14. Notices. The Indemnitee shall, as a condition precedent to his right to
be indemnified under this Agreement, give to the Corporation written notice as
soon as practicable of any claim made against him for which indemnity will or
could be sought under this Agreement. Notice to the Corporation shall be
directed to JAWS Technologies Inc. 380-603-7 Avenue SW, Calgary, Alberta, Canada
T2P 2T5 (or at such other address or to the attention of such other person as
the Corporation shall designate in writing to the Indemnitee).
JAWS TECHNOLOGIES INC.
By:_____________________________________
INDEMNITEE
________________________________________
________________________________________
________________________________________
________________________________________
________________________________________
<PAGE> 1
EXHIBIT 23.1
CONSENT OF JEFFER, MANGELS, BUTLER & MARMARO LLP
We consent to the reference to our firm under the caption "Legal
Opinion" and to the inclusion of our opinion as an Exhibit to Amendment No. 1 of
the Form SB-2 Registration Statement of Jaws Technologies, Inc. as filed with
the Securities and Exchange Commission on January 11, 1999.
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
<PAGE> 1
EXHIBIT 23.2
[ERNST & YOUNG LLP LETTERHEAD]
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated August 26, 1998 and July 9, 1998 in Amendment No. 1
(dated January 11, 1999) of the Registration Statement (Form SB-2) of Jaws
Technologies, Inc. for the registration of 41,428,572 shares of its common
stock.
/s/ ERNST & YOUNG LLP
----------------------
Calgary, Canada Chartered Accountants
January 11, 1999
