Electronically transmitted to the Securities and Exchange Commission
February 14, 2000
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Registration No. 333-_________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JAWS Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
7371
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(Primary Standard Industrial Classification Code Number)
98-0167013
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(I.R.S. Employer Identification Number)
1013-17th Avenue S.W.
Calgary, Alberta CANADA T2T 0A7
(403) 508-5055
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(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Robert J. Kubbernus
Chairman of the Board, Chief Executive Officer and President
JAWS Technologies, Inc.
1013-17th Avenue S.W.
Calgary, Alberta CANADA T2T 0A7
(403) 508-5055
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Copy to:
Luke P. Iovine, III, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
(212) 856-6856
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
As soon as practicable following the effectiveness of this Registration
Statement
(Approximate date of commencement of proposed sale to the public)
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please 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 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 Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share(1) Offering Price(1) Registration Fee
<S> <C> <C> <C> <C>
Common Stock 6,683,067 shares $6.34375 per share $42,395,707 $11,193
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(1) Estimated solely for the purpose of calculating the amount of the
registration fee based on the average high and low trading prices for the common
stock as reported on the over-the-counter bulletin board on February 7, 2000
pursuant to Rule 457(c).
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 Commission, acting pursuant to
said Section 8(a), may determine.
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906592.9
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where such offer or sale is not permitted.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 14, 2000
6,683,067 Shares
JAWS TECHNOLOGIES, INC.
Common Stock
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All of the shares of common stock covered by this prospectus are owned
by the stockholders listed in the section of this prospectus called "Selling
Stockholders" or are issuable on exercise of warrants owned by the selling
stockholders. The selling stockholders may sell any or all of their shares from
time to time. See "Plan of Distribution."
We will not receive any of the proceeds of sales by the selling
stockholders. We have agreed to bear all expenses related to this offering,
other than underwriting discounts and commissions and any transfer taxes on the
shares of common stock that the selling stockholders are offering.
Our common stock is listed for trading on the over-the-counter bulletin
board under the symbol "JAWS".
Investing in this common stock involves a high degree of risk. See
"Risk Factors" beginning on page 4.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is February 14, 2000.
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906592.9
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You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of the common stock.
Unless the context otherwise indicates, references in this prospectus
to "we," "us," "our" or "JAWS" refer to JAWS Technologies, Inc. and its
subsidiaries, JAWS Technologies Inc., an Alberta corporation, Pace Systems Group
Inc., an Ontario corporation, JAWS Acquisition Corp., an Alberta corporation,
Offsite Data Services Ltd., an Alberta corporation, JAWS Technologies (Ontario)
Inc., an corporation, and JAWS Technologies (Delaware), Inc., a Delaware
corporation.
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TABLE OF CONTENTS
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Page Page
<S> <C> <C> <C>
Prospectus Summary..................................1 Management's Discussion and Analysis of
Company Summary.....................................1 Financial Condition and Results of
Special Note Regarding Forward-looking Operations.........................................37
Statements..........................................3 Management.........................................43
Currency References.................................3 Security Ownership of Certain Beneficial
Risk Factors........................................4 Owners and Management..............................50
Use of Proceeds....................................12 Certain Relationships and Related
Dividend Policy....................................12 Transactions.......................................52
Consolidated Capitalization........................13 Registration Rights................................55
Selected Historical and Pro Forma Legal Matters......................................55
Consolidated Financial Data........................14 Experts............................................55
Selling Stockholders...............................16 Available Information..............................56
Plan of Distribution...............................18 Index to Consolidated Financial Statements........F-1
Description of Capital Stock.......................20
Business...........................................22
Market for Common Equity and Related
Stockholder Matters................................36
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PROSPECTUS SUMMARY
This summary is not a substitute for the more detailed information,
financial statements and the notes to the financial statements appearing
elsewhere in this prospectus. This prospectus contains forward looking
statements that involve risks and uncertainties. JAWS' actual results could
differ materially from the results anticipated in these forward looking
statements as a result of the factors set forth under "Risk Factors" and
elsewhere in this prospectus.
Company Summary
JAWS is a provider of information security consulting services and
software solutions, a developer of proprietary information security encryption
software, a provider of financial information security technology solutions to
retailers and large financial organizations in North America and a provider of
internet based data storage management services. JAWS consulting services and
the software solutions developed by JAWS are designed to minimize the threats to
clients' information and communications. JAWS information security consulting
services, software solutions and proprietary encryption software are provided
through its wholly-owned subsidiary, JAWS Technologies Inc., an Alberta
corporation. JAWS financial information technology security solutions services
are directed through its wholly-owned subsidiary, Pace Systems Group Inc., and
include services in the area of payment systems, including point of sale,
automated banking machine and electronic funds transfer, switch implementation,
point of sale application and device integration, network architecture and
design, system integration and project management. JAWS data storage management
services are provided through its subsidiary, Offsite Data Services Ltd., an
Alberta corporation.
JAWS was incorporated in the State of Nevada on January 27, 1997 under
the name "e-biz" solutions, inc. On February 10, 1998, "e-biz" solutions, inc.
entered into an agreement to purchase all of the outstanding shares of common
stock of JAWS Technologies Inc., an Alberta corporation, incorporated on
September 18, 1997, in exchange for 1,500,000 shares of the restricted common
stock of "e-biz" solutions, inc. and options to purchase 400,000 shares of
restricted common stock at $0.50 per share. On March 27, 1998, "e-biz"
solutions, inc. changed its name to JAWS Technologies, Inc. Our executive
offices are located at 1013-17th Avenue S.W., Calgary, Alberta, Canada T2T 0A7.
Our telephone number at this location is (403) 508-5055. Our website is located
at www.jawstech.com.
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Summary Financial Data
(in thousands, except per share data)
The following table sets forth the summary pro forma and historical
financial data of JAWS as at September 30, 1999 as adjusted to give effect to
the private placement financing of approximately US$9.25 million consummated on
December 31, 1999, the acquisition of Pace, the acquisition of Offsite and the
acquisition of substantially all of the assets of Secure Data Technologies
Corporation, as if such events had been consummated at the beginning of the
period presented. The information set forth in the table should be read in
conjunction with the financial statements and notes thereto, the pro forma
financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this prospectus.
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The Company (Pro Forma) and (Historical)
Nine Months Ended Year Ended
September 30, December 31,
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Pro Historical Pro Historical
Forma Forma
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1999 1999 1998 1998 1998 1997
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<S> <C> <C> <C> <C> <C> <C>
Results of operations
Revenue 1,198 373 28 1,449 29 --
Net loss for the period (8,244) (3,839) (2,210) (8,733) (3,076) (137)
Net loss for the period per
share of common stock (0.29) (0.30) (0.31) 0.38 (0.42) (0.03)
Financial position
Total assets 26,097 1,697 131 -- 273 10
Long-term debt 67 1,158 16 -- 147 --
Stockholders equity
(deficiency) 24,734 (571) (347) -- (574) (101)
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. Some of the
forward-looking statements can be identified by the use of forward-looking words
such as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "estimates" or "anticipates" or the
negative of those words or other comparable terminology. Forward-looking
statements involve risks and uncertainties. A number of important factors could
cause actual results to differ materially from those in the forward-looking
statements. These factors include systems failures, technological changes,
volatility of securities markets, government regulations, and economic
conditions and competition in the geographic and the business areas where we
conduct our operations. For a discussion of the factors that could cause actual
results to differ from projected results, please see the discussion under "Risk
Factors" contained in this prospectus and in other information contained in our
publicly available SEC filings and press releases.
CURRENCY REFERENCES
Financial information herein is expressed in the United States dollars
("US$," "$" or "dollars"), unless stated in Canadian dollars ("Cdn$"). As of
February 4, 2000, the exchange rate was US $1.00 equal Cdn $1.4413.
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RISK FACTORS
Investors should carefully consider the risks and uncertainties
described below before making an investment decision. These risks and
uncertainties are not the only ones facing JAWS. Additional risks and
uncertainties not presently known to us or that we currently deem immaterial may
also impair JAWS' business operations.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially harmed. In such case, the
trading price of our common stock could decline and you may lose all or part of
your investment.
Risks relating to ownership of JAWS common stock
The market for JAWS securities is limited
There is currently only a limited trading market for JAWS common stock.
JAWS common stock trades on the OTC Bulletin Board under the symbol "JAWZ",
which is a limited market in comparison to the Nasdaq National Market or the
American Stock Exchange.
JAWS cannot assure investors that JAWS common stock will ever qualify
for inclusion on the Nasdaq National Market or that more than a limited market
will ever develop for JAWS common stock.
The volatility of the stock markets could adversely affect our stock
price
Stock markets are subject to significant price and volume fluctuations
which may be unrelated to the operating performance of particular companies and
the market price of JAWS common stock may frequently change. The market price of
JAWS common stock could also fluctuate substantially due to a variety of other
factors, including: quarterly fluctuations in JAWS results of operations, JAWS'
ability to meet analysts' expectations, adverse circumstances affecting the
introduction of market acceptance of new products and services offered by JAWS,
announcements of new products and services by competitors, changes in the
information technology environment, changes in earnings estimates by analysts,
changes in accounting principles, sales of JAWS common stock by existing holders
and loss of key personnel.
JAWS does not anticipate paying dividends on its common stock in the
foreseeable future
JAWS has generated minimal cash flow in the past and does not currently
anticipate generating significant cash flows from operations in the near future.
Therefore, JAWS has not paid any dividends on its common stock to date and plans
to retain earnings, if any, for the continued development and expansion of JAWS'
business operations. Accordingly, potential investors should not acquire shares
of JAWS common stock with the investment objective of receiving dividend income
from JAWS.
Penny stock rules limit the liquidity of JAWS common stock
JAWS common stock has recently traded on the OTC Bulletin Board at a
price greater than US$5.00 per share but may now and in the future be subject to
the penny stock rules under the Exchange Act. These rules regulate broker-dealer
practices for transactions in "penny stocks." Penny stocks
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generally are equity securities with a price of less than US$5.00. The penny
stock rules require broker- dealers to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer must also provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to completing the transaction and must be given to the customer in writing
before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction,
the broker and/or dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These additional penny stock
disclosure requirements are burdensome and may reduce purchases of this offering
and reduce the trading activity in the market for JAWS common stock. As long as
JAWS common stock is subject to the penny stock rules, holders of such JAWS
common stock may find it more difficult to sell their securities.
An investment in JAWS may be dilutive
JAWS may issue a substantial number of shares of JAWS common stock or
preferred stock without investor approval. Any such issuance of JAWS securities
in the future could reduce an investor's ownership percentage and voting rights
in JAWS and further dilute the value of his or her investment.
Risks relating to the business of JAWS
JAWS Auditors have issued an audit report making reference to
substantial doubts about JAWS' ability to continue as a going concern
The consolidated audited financial statements of JAWS include a
statement that the recurring losses of JAWS from operations and net capital
deficiency raise substantial doubts about the ability of JAWS to continue as a
going concern. While JAWS continues to pursue funding to continue its
operations, the financing terms may not be available or, if available, may not
be upon terms satisfactory to JAWS. Further, there is no guarantee that JAWS
will cease to have recurring losses from operations or cease to have a net
capital deficiency in the near future.
JAWS and its subsidiaries have limited operating histories and
continued operating losses
With the exception of the newly acquired Pace, JAWS has a short
operating history, a limited number of sales and operating revenues which are
not significant. For example, JAWS Alberta was incorporated on September 19,
1997, did not begin producing software until October 1997 and did not begin
marketing software until May 1998.
Because of JAWS' short operating history and limited sales, it faces
all the risks and problems associated with a new business, including the
existence of operating losses. For example, between the time of the
incorporation of JAWS and September 30, 1999, JAWS has, on a consolidated basis,
incurred a cumulative loss of $7,052,276. JAWS anticipates that losses with
respect to its operations will continue in the future.
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Pace began operations in 1986 and has only achieved profitability in
the year ended December 31, 1999. JAWS cannot be certain that the Pace business
can sustain profitability in 2000 or any future period under JAWS management.
Potential investors should be aware that Pace must respond to competitive
developments, continue to upgrade and expand the services it offers and continue
to attract, retain and motivate employees in order to maintain its
profitability.
JAWS cannot predict future revenues, operating results and/or operating
expenses based on previous results for a number of reasons including the factors
described below. Revenues associated with a particular sale may vary
significantly depending upon the number of products licensed by a client, the
number of devices used by the client and the client's relative need for
services. Large individual sales or even small delays in customer orders can
cause significant variation in licensing revenues and results of operations for
a particular period. In addition, JAWS expects to focus its efforts on the sale
of enterprise-wide security solutions, including JAWS' entire product suite and
consulting services, as opposed to the sale of component products. As a result,
JAWS anticipates that each sale made may require additional time and effort from
sales staff. Further, JAWS expects to expand upon the services it provides as
well as its sales and marketing operations and to improve its internal operating
and financial systems. Finally, to enhance market share and the services it
offers, JAWS intends to seek additional candidates for acquisition. As a result,
spending levels will be established by JAWS based, in large part, on expected
future revenues. If actual results in any future period fall below the
expectations of JAWS, the operating results of JAWS will be adversely affected.
Due to these factors, JAWS anticipates that its quarterly and annual revenues,
expenses and operating results will vary significantly in the future.
If we cannot protect our copyright, trademark and patents pending,
other companies could use our technology in competitive products. If we infringe
on the copyrights, trademarks or patents of others, other companies could
prevent us from developing or marketing our products.
JAWS' success depends upon, amongst other things, its proprietary
encryption technology. We rely on a combination of contractual rights,
copyright, trade secrets, know-how, trademarks, non-disclosure agreements and
technical measures to establish and protect these rights. We cannot assure
investors that we can protect our rights and prevent third parties from using or
copying our technology or intellectual property.
JAWS does not presently own any patents or copyright registrations but
it has filed a U.S. patent application for its data encryption algorithm L5,
which is pending. However, there is no guarantee JAWS will be successful and
receive a patent.
JAWS believes that its technologies have been independently developed
and that these technologies do not infringe on the proprietary rights or trade
secrets of others. However, we cannot assure investors that it has not infringed
on the technologies of third parties or that third parties will not make
infringement violation claims against us. Any infringement claims against JAWS
may negatively effect JAWS' ability to produce software.
International companies currently use all or a portion of the name
"JAWS" in connection with products or services in industries the same as and
different from that of JAWS. While JAWS is attempting to qualify under a
trademark its name throughout the U.S. and Canada, significant issues may be
present as to the ability to widely use the name in connection with the products
or services to be rendered by JAWS.
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JAWS' business is in an early stage of market development and its
success depends on market acceptance of its products and services
JAWS' success depends on whether or not our products and services are
accepted in the marketplace. Investors should be aware that companies
introducing new products into the market are subject to a high level of
uncertainty and risk. Because the market for its software and services is new
and evolving, JAWS cannot predict the size and future growth rate, if any, of
the market. JAWS cannot assure investors that the market for its various
products and services will develop or that demand for such products and services
will emerge or become economically sustainable. Market acceptance of its
products and services depends on its ability to establish brand images and
reputations for high quality and to differentiate their products and services
from competitors. There can be no assurance that the products and services will
be perceived as being of high quality or better than products and services of
others, or that JAWS will be successful in establishing their brand image.
Additionally, the management teams of JAWS has no experience manufacturing or
marketing software or providing services on a large scale. This lack of
experience could result in JAWS' failure to commercialize and sell its products
and services.
JAWS may not be able to continue to compete in its rapidly changing industry
Rapid changes in technology pose significant risks to JAWS that it
cannot either control or influence the forces behind such changes. In addition
to emerging competition, evolving requirements and needs of clients and the
extent to which hackers and others seek to compromise secure systems, JAWS must
adapt to changing computer hardware and software standards as well as to
frequent introductions of new products and enhancements to existing products.
The success of JAWS will depend on its ability to create, develop, adapt and
improve information technology solutions in response to these and other changes.
JAWS cannot assure investors that it will be able to successfully
identify new opportunities and develop and bring new products and services to
market in a timely manner, nor can JAWS guarantee investors that products and
services developed by its competitors will not make JAWS products and services
noncompetitive or obsolete. Further, the techniques used by hackers to
compromise the security of networks and intranets are constantly evolving and
are increasingly sophisticated. Because new hacking techniques are usually not
recognized until utilized against one or more targets, JAWS is not able to
anticipate such techniques. To the extent that new hacking techniques result in
the compromise of JAWS security systems, affected clients may believe that JAWS
products and services are ineffective and may affect JAWS business, operating
results and financial condition.
Because JAWS products and services involve complex technology, major
new products and product enhancements require a long time to develop and test
before going to market. JAWS cannot assure investors that it will have the
capital resources or the ability to implement any new technology or service. In
addition, because it is difficult to estimate the amount of time which is
required to develop new products and product enhancements, JAWS has had to delay
the scheduled introduction of new and enhanced products in the past and JAWS may
have to delay the introduction of new products, enhancements and services in the
future. Any failure by JAWS to timely develop and introduce new products and
services or enhance current products and services could adversely affect JAWS
business, operating results and financial condition.
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Potential liabilities could arise in JAWS' future based on product defects
Many organizations use JAWS products and services for critical
functions of monitoring and enhancing network security. As a result, JAWS risks
product liability and related claims for products and services if it does not
adequately perform this function. JAWS typically seeks to limit liability for
special, consequential or incidental damages in their licensing agreements but
these provisions may not in all cases be enforceable under applicable laws. A
product liability claim, to the extent not covered by insurance, could adversely
affect JAWS business, operating results and financial condition.
In addition, complex software products, such as those we develop, may
contain undetected "bugs" that, despite testing, are discovered only after
installation and use by clients. These bugs could result in adverse publicity,
loss of or delay in market acceptance or claims by clients against JAWS, any of
which could be very damaging to JAWS business, operating results and financial
condition. Clients who deploy or use products improperly or incompletely may
experience temporary disruptions to their computer networking systems, which
could damage the JAWS' reputation and its relationship with clients. Current
products may not be error-free and it is extremely doubtful that the future
products of JAWS will be error-free. Furthermore, computers are manufactured in
a variety of different configurations with different operating systems, such as
Windows, Unix, Macintosh and OS/2, and embedded software. As a result, it is
very difficult to comprehensively test software products for programming or
compatibility errors. Errors in the performance of JAWS products, whether due to
design or their compatibility with products of other companies, could hinder the
acceptance of these products, and thus JAWS' ability to implement those
products.
JAWS' marketing strategies may not be successful
JAWS expects to derive some of their sales revenue through independent
third parties who will either resell or use JAWS' products to enhance their own
products. JAWS is unable to determine how successful these providers will be in
selling JAWS' software. Furthermore, JAWS does not have any history or
experience in establishing or maintaining such third party support, and there
can be no assurance that we will be able to successfully support reseller
networks. If we are unable to provide such support, we may lose resellers and,
consequently, distribution of our products would be adversely affected.
Additionally, most resellers will offer competitive products manufactured by
third parties. There can be no assurance that resellers will give priority to
JAWS' products and services over competitors' products and services. Finally, if
JAWS is unable to support a reseller, we will need to attract additional or
replacement resellers to sell JAWS' products and services. There can be no
assurance that JAWS will be able to attract a sufficient number of additional or
replacement resellers in order to assure that our products and services will be
successfully marketed and distributed at a profit or that such additional or
replacement resellers will be successful in selling our products and services.
JAWS' expansion of production and distribution capacities may not be
successful
JAWS must increase its software production capacity and expand its
marketing network to sell its software before it will have a chance to compete
in the marketplace. Increasing JAWS manufacturing, service and marketing
capacity will involve hiring additional personnel, purchasing additional
manufacturing equipment and spending significant funds on advertising. The
foregoing will require significant capital expenditures, which will most likely
increase JAWS' operating losses for an indefinite period of time. JAWS'
expansion plans will also place a great deal of strain on its management team,
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most of whom have not had experience managing large complex business operations.
JAWS cannot guarantee that it will be able to expand its software production,
service and marketing capabilities as planned. If any of these obstacles prevent
JAWS from expanding its software production, service and marketing business,
JAWS may be forced to terminate its operations.
Although direct sales have accounted for a majority of JAWS' revenues
in 1999, JAWS' future performance will depend, in part, upon its ability to
attract new partners and develop additional distribution channels to effectively
market and support its services and the products of JAWS. JAWS cannot guarantee
that it will be able to attract such partners or develop additional distribution
channels.
JAWS' proceeds from available financing may not be sufficient to pursue
its operating objectives
Developing, manufacturing and marketing software and information
security solutions and the plans of JAWS for expansion of its operations, as
mentioned above, will require significant amounts of capital. Since JAWS has no
significant internal revenues to finance its continuing operations and plans for
expansion, JAWS is dependent upon the proceeds from sales of JAWS' securities to
satisfy its capital and operating requirements. JAWS believes that it has
adequate financing to satisfy its capital and operating requirements through
February, 2001. Thereafter, JAWS will have to arrange for additional financing,
unless it can generate revenues from their products and services, to finance its
manufacturing and marketing operations at a sufficient level. Financing options
could include, but will not be limited to, additional sales of JAWS' securities
or an operating line of credit. If JAWS is unable to obtain additional financing
on satisfactory terms when needed, JAWS may have to suspend their operations or
terminate their operations altogether.
Due to the rapidly changing nature of the information security industry
and the size of our company, we depend on key personnel at all levels
JAWS depends on the efforts of its management team. Even though JAWS
has employment agreements with Messrs. Kubbernus, Mamdani and Minhas and with
Ms. Gmitter, it cannot guarantee that these persons will continue their
employment. Each such member of JAWS management team has entered into an
employment agreement with JAWS, pursuant to which, in each case, the term of
employment extends until the earlier of (i) the date specified by such executive
officer in a notice of voluntary termination delivered by such executive officer
to JAWS; provided that such notice shall not be effective until at least ten
(10) days after delivery thereof, (ii) the date such executive officer is
terminated by JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the date which is
determined by providing such executive officer with one month's notice for each
full year of completed service commencing on the date JAWS provides such
executive officer with a notice of termination. The loss of the services of one
or more of the key people may have a negative effect on JAWS' ability to conduct
its operations.
JAWS' success also depends on its ability to attract and retain highly
qualified engineers, managers, marketers and sales and service personnel. The
competition for employees at all levels of the information security industry,
especially those with experience in the relatively new discipline of security
software, is increasingly intense and JAWS cannot assure that it will be able to
hire or retain necessary personnel.
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Risks associated with the authorization of preferred stock and possible
takeover effects
The board of directors of JAWS is authorized to create and issue shares
of preferred stock without the approval of JAWS' shareholders. Any preferred
stock that the board of directors of JAWS creates and issues could negatively
affect the voting power or other rights of holders of shares of JAWS common
stock. Also, the board of directors of JAWS may create preferred stock which
could be used to prevent a third party from taking control of JAWS.
JAWS' directors have limited liability
As permitted by the Nevada General Corporation Law, JAWS' Articles of
Incorporation, as amended, eliminate, with certain exceptions, the personal
liability of its directors to JAWS 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 JAWS 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 JAWS; except in relation
to matters as to which any such director or officer is adjudged in such action,
proceeding or suit 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.
Internet networks may not become widely adopted, limiting the market
for JAWS' products
In order for us to be successful, internet networks must be widely
adopted as a means of trusted and secure communications and commerce within an
adequate time frame. Because trusted and secure communications and commerce over
internet networks is new and evolving, it is difficult to predict with any
assurance the size of this market and its growth rate, if any. To date, many
businesses and consumers have been deterred from utilizing internet networks for
a number of reasons, including, but not limited to, potentially inadequate
development of network infrastructure, security concerns, inconsistent quality
of service, lack of availability of cost-effective, high-speed service, limited
numbers of local access points for corporate users, inability to integrate
business applications on internet networks, the need to interoperate with
multiple and frequently incompatible products, inadequate protection of the
confidentiality of stored data and information moving across internet networks
and a lack of tools to simplify access to and use of internet networks. The
adoption of internet networks, for trusted and secure communications and
commerce, particularly by individuals and entities that historically have relied
upon traditional means of communications and commerce, will require a broad
acceptance of new methods of conducting business and exchanging information.
Companies and government agencies that already have invested substantial
resources in other methods of conducting business may be reluctant to adopt a
new strategy that may limit or compete with their existing efforts. Furthermore,
individuals with established patterns of purchasing goods and services and
effecting
906592.9
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<PAGE>
payments may be reluctant to alter those patterns. There can be no assurance
that internet networks will be widely adopted or adopted by enough people to
make our products successful.
The use of internet networks for trusted and secure communications and
commerce may not increase or may increase more slowly than expected because the
infrastructure required to support widespread trusted and secure communications
and commerce on such networks may not develop. For example, the internet has
experienced, and may continue to experience, significant growth in its number of
users and amount of traffic. There can be no assurance that the internet
infrastructure will continue to support the demands placed on it by this
continued growth or that the performance or reliability of the internet will not
be adversely affected by this continued growth. In addition, internet networks
could lose their viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity or due to
increased governmental regulation. Changes in or insufficient availability of
communications services to support internet networks could result in slower
response times and also adversely affect usage of internet networks. If the
market for trusted and secure communications and commerce over internet networks
fails to develop or develops more slowly than expected, or if the internet
infrastructure does not adequately support any continued growth, our business,
operating results and financial condition would be adversely affected.
Recent acquisitions include inherent risks
JAWS has recently acquired Pace and Offsite and substantially all of
the assets of Secure Data Technologies Corporation and JAWS may acquire or
invest in other businesses, technologies and product lines from time to time
that are complementary to our business. These recent acquisitions are
accompanied by the risks commonly encountered in such transactions, including,
among others, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential disruption of our ongoing business, the
diversion of our management from our day-to-day operations, our ability to
incorporate acquired technologies successfully into our products and services,
the additional expense associated with amortization of acquired intangible
assets, the potential impairment of our relationships with our employees,
customers and strategic partners, our ability to retain key technical and
managerial personnel of the acquired business and our ability to maintain
uniform standards, controls, procedures and policies. We would also encounter
these risks if we acquire or invest in the other businesses in the future.
Because of these and other factors, the recent acquisitions and any future
acquisitions, if consummated, could negatively impact our business, operating
results and financial condition.
Fluctuations in the exchange rate could adversely affect JAWS because
some of its operating subsidiaries are located in Canada
JAWS' operating currency is Canadian dollars, while its reporting
currency is in United States dollars. Any change in the value of the United
States dollar against the Canadian dollar will affect our Canadian dollar
revenues and earnings when translated into United States dollars. No assurance
can be given that a fluctuation in the value of the Canadian dollar against the
United States dollar will not negatively impact JAWS' reported revenue and
earnings.
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USE OF PROCEEDS
JAWS will not receive any proceeds from the sales of common stock by
the selling stockholders pursuant to this prospectus.
DIVIDEND POLICY
JAWS has never declared or paid cash dividends on our capital stock.
JAWS currently intends to retain all available funds for use in the operation
and expansion of our business and does not anticipate paying any cash dividends
in the foreseeable future. Any future determination to pay dividends will be at
the discretion of JAWS' board of directors and will depend on JAWS' results of
operations, financial condition, contractual and legal restrictions and other
factors the board of directors deems relevant.
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CONSOLIDATED CAPITALIZATION
The following table sets forth the historical consolidated
capitalization of JAWS and the pro forma consolidated capitalization of JAWS at
September 30, 1999 as adjusted to give effect to the private placement financing
of approximately US$9.25 million consummated on December 31, 1999 (the "Private
Placement Transaction"), the acquisition of Pace, the acquisition of Offsite and
the acquisition of substantially all of the assets of Secure Data Technologies
Corporation ("Secure Data"). The information set forth in the table should be
read in conjunction with the financial statements and notes thereto, the pro
forma financial information and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
September 30, 1999
---------------------------------------
Company
Actual Pro Forma
------------ -----------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued liabilities 897,947 968,826
Current portion of capital lease obligations 14,119 14,119
Current portion of long term debt 0 953
Due to related parties 196,258 304,108
Due to stockholders 2,044 2,044
- -------------------------------------------------------------------------- -----------------
Total Current Liabilities $ 1,110,368 $ 1,289,960
- -------------------------------------------------------------------------- -----------------
Long Term Debt:
Capital lease obligations payable 66,989 66,989
Convertible debentures 1,091,348 0
- -------------------------------------------------------------------------- -----------------
$ 1,158,337 $ 66,989
- -------------------------------------------------------------------------- -----------------
Stockholders' deficiency
Authorized
95,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
Common stock issued and paid-up 15,114 28,582
Capital in excess of par value 5,369,891 32,500,694
Contributed surplus 1,241,607 0
Cumulative translation adjustment (145,643) (113,081)
Deficit (7,052,276) (7,682,309)
Stockholders' deficiency $ (571,307) $ 24,733,886
- -------------------------------------------------------------------------- -----------------
Total Capitalization $ 1,697,398 $ 26,096,835
- -------------------------------------------------------------------------- -----------------
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SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table sets forth certain historical and pro forma
financial information that has been derived from the consolidated financial
statements of the Company, prepared on a pro forma basis to reflect the Pace
acquisition, the Offsite acquisition, the Secure Data acquisition and the
Private Placement Transaction, as if such acquisitions had been consummated at
the beginning of the period presented. The following information should be read
in conjunction with the Consolidated Financial Statements and notes thereto and
the section "Management Discussion and Analysis of Financial Condition and
Results of Operations" set forth in this prospectus.
The Company Pro Forma and Historical
Unaudited Unaudited
------------------------------------ --------------
Year Ended
Historical December 31,
------------------------ ----------------
Nine Months Ended Pro
September 30, Forma Historical Pro Forma
------------------------- ------------ ---------------------- --------------
1999 1998 1999 1998 1997 1998
----------- ---------- ------------ ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 373 $28 $1,198 $29 -- $1,449
Loss for the period (3,839) 2,210 (8,244) (3,076) (137) (8,733)
Loss for the period per
share common stock (0.30) (0.31) (0.29) (0.42) (0.03) (0.38)
Total assets 1,697 -- 26,097 273 10 --
Long-term debt 1,158 -- 67 147 -- --
Shareholder's equity (deficiency) (571) -- (24,734) (574) (101) --
</TABLE>
<TABLE>
<CAPTION>
Pace Systems Group Inc. (Historical)
Unaudited
------------------------
Nine Months Ended
September 30, Year Ended July 31,
------------------------ -----------------------------------------------------
1999 1999 1998 1997
------------------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Revenue $455 $1,262 $1,079 647
Net loss for the period (246) 57 (64) 7
Net loss for the period per
share common stock -- -- -- --
Total assets 55 248 291 212
Long-term debt -- -- -- --
Shareholder's equity (deficiency) (37) (12) (70) (7)
</TABLE>
906592.9
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<TABLE>
<CAPTION>
Offsite Data Systems Ltd. (Historical)
Three Months Ended Year Ended June 30,
September 30,
----------------------- -------------------------------------
1999 1999 1998 1997
------------------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue 63 157 98 80
Net loss for the period (219) (352) (184) (180)
Net loss for the period per share common
stock -- -- -- --
Total assets 401 370 146 101
Long-term debt -- -- 2 7
Shareholder's equity (deficiency) 315 (333) (97) 5
</TABLE>
906592.9
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount
of common stock held by each selling stockholder as of the date of this
prospectus and the shares being offered by the selling stockholders. The table
indicates the nature of any position, office or other material relationship that
the selling stockholder has had within the past three years with JAWS or any of
its predecessors or affiliates. This prospectus relates to the offer and sale of
the selling stockholders of up to 6,683,067 shares of common stock, including
3,306,649 shares of common stock issuable upon the exercise of outstanding
warrants issued by JAWS. The selling stockholders may offer all or part of the
shares of common stock covered by this prospectus. Information with respect to
shares owned beneficially after this offering assumes the sale of all of the
shares offered and no other purchases or sales of common stock. The common stock
offered by this prospectus may be offered from time to time by the selling
stockholders named below.
906592.9
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<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Total
Common Number Number of Number of Percentage
Stock, not of Shares Shares of Percentage Shares to be Number of to be
including Represented Common Beneficially Offered for Shares to Beneficially
Warrants, by Warrants Stock Owned the Account Be Owned Owned
Beneficially Beneficially Beneficially Before of the Selling after this after this
Name Owned Owned Owned + Offering Stockholder Offering Offering
---- ------ ------ ------ -------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BPI Canadian Small Companies Fund. 235,295 117,647.5 352,942.5 1.13% 352,942.5 0 *
956872 Ontario Ltd................ 36,000 18,000 54,000 .17% 54,000 0 *
Interward Capital Corporation..... 40,000 20,000 60,000 .19% 60,000 0 *
Rockhaven Holdings Ltd............ 20,000 10,000 30,000 .10% 30,000 0 *
YMG Capital Management Inc........ 47,058 23,529 70,587 .23% 70,587 0 *
Acuity Investment Management Inc.. 470,590** 235,295 705,885 2.28% 705,885 0 *
Beluga NV......................... 235,295 117,647.5 352,942.5 1.13% 352,942.5 0 *
Pinetree Capital Corp............. 40,000 20,000 60,000 .19% 60,000 0 *
Fallingbrook Investments Ltd...... 35,295 17,647.5 52,945.5 .17% 52,945.5 0 *
Glentel Inc***.................... 1,200,000 934,000 2,134,000 6.89% 2,134,000 0 6.89%
Scott Leckie...................... 25,000 12,500 37,500 .12% 37,500 0 *
Frank Fini........................ 25,000 12,500 37,500 .12% 37,500 0 *
Crothers Leasing Limited.......... 25,000 12,500 37,500 .12% 37,500 0 *
Moise Afriat...................... 25,000 12,500 37,500 .12% 37,500 0 *
Lionel K. Conacher................ 25,000 12,500 37,500 .12% 37,500 0 *
Kehler International
Equities (1990) Inc. ........... 23,530 11,765 35,295 .11% 35,295 0 *
Jean Gevaert...................... 47,060 23,530 70,590 .23% 70,590 0 *
Ron Kaulbach...................... 25,000 12,500 37,500 .12% 37,500 0 *
Andrew Parsons.................... 25,000 12,500 37,500 .12% 37,500 0 *
Eldon Guay........................ 25,000 12,500 37,500 .12% 37,500 0 *
David J. Grand.................... 36,000 18,000 54,000 .17% 54,000 0 *
Murdoch & Co...................... 275,000 137,500 412,500 1.33% 412,500 0 *
Royal Trust Corp. of Canada
ITF2363129003..................... 235,295 117,647.5 352,942.5 1.13% 352,942.5 0 *
Bristol Asset Management, LLC..... 0 1,000,000 1,000,000 3.23% 1,000,000 0 3.23%
Thomas E. Skidmore................ 69,000 57,546 126,546 .41% 125,546 0 *
A. Allan Skidmore................. 69,000 57,546 126,546 .41% 125,546 0 *
Arthur Skidmore................... 10,000 8,340 18,340 .06% 18,340 0 *
Brian Skidmore.................... 7,500 6,255 13,755 .06% 13,755 0 *
Cary Skidmore..................... 10,000 8,340 18,340 .06% 18,340 0 *
Garry Skidmore.................... 7,500 6,255 13,755 .04% 13,755 0 *
Beverly Droulis................... 500 417 917 .003% 917 0 *
Margrit Hartman................... 9,000 7,506 16,506 .05% 16,506 0 *
Margaret Alexis Kennedy........... 8,500 7,089 15,589 .05% 15,589 0 *
Suzanne Lowndes................... 9,000 7,506 16,506 .05% 16,506 0 *
Thomson Kernaghan & Co. Limited*** 5,278,099 217,642 217,642 20.01% 217,642 0 17.03%
</TABLE>
- ---------------
* Less than 1%.
** Acuity Investment Management Inc. is the record holder of all 470,590 shares.
Acuity Investment Management Inc. disclaims beneficial ownership for all
470,590 shares of common stock listed above. Acuity Investment Management
Inc. purchased such shares of common stock at the direction of the beneficial
owners listed below:
(a) 124,100 shares of common stock as agent for a/c #AUIF 381 7002;
(b) 25,690 shares of common stock as agent for Royal Trust a/c
#114 680 001;
(c) 61,000 shares of common stock as agent for a/c #AUIF 381 3002;
(d) 25,000 shares of common stock as agent for a/c AFN F00 23002;
(e) 75,000 shares of common stock as agent for Bank of Nova Scotia
Custodian for a/c #382 308;
(f) 42,500 shares of common stock as agent for a/c #AUIF 380 0002;
(g) 117,300 shares of common stock as agent for Royal Trust
a/c #24165008.
*** The relationship of Glentel Inc. and Thomson Kernaghan & Co. Limited, in
each case, with JAWS is described under the caption, "Certain
Relationships and Related Transactions" in this prospectus.
+ The information contained in this table reflects "beneficial" ownership of
common stock within the meaning of Rule 13d-3 under the Exchange Act. On
January 28, 2000, JAWS Technologies had 23,636,571 shares of common stock
outstanding. Beneficial ownership information reflected in the table
includes shares issuable upon the exercise of outstanding warrants issued
by JAWS.
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<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus are owned by the
selling stockholders. As used in the rest of this section of the prospectus, the
term "selling stockholders" includes the named selling stockholders and any of
their pledgees, donees, transferees or other successors in interest selling
shares received from a named selling stockholder after the date of this
prospectus. The selling stockholders may offer and sell, from time to time, some
or all of the shares of common stock registered hereby. We have registered the
shares for sale by the selling stockholders so that the shares will be freely
tradeable by them. Registration of the shares does not mean, however, that the
shares necessarily will be offered or sold. We will not receive any proceeds
from any offering or sale by the selling stockholders of the shares. We have
advised the selling stockholders that Regulation M under the Exchange Act may
apply to the activities of the selling stockholders or broker-dealers in
connection therewith. We will pay all costs, expenses and fees in connection
with the registration of the shares. The selling stockholders will pay all
brokerage commissions and similar selling expenses, if any, attributable to the
sale of the shares.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The shares
may be sold by or for the account of the selling stockholders from time to time
in transactions on the OTC Bulletin Board or otherwise. These sales may be at
fixed prices or prices that may be changed, at market prices prevailing at the
time of sale, at prices related to these prevailing market prices or at
negotiated prices. The shares may be sold by means of one or more of the
following methods:
-- in a block trade in which a broker-dealer will attempt to sell a
block of shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
-- on markets where our common stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
-- through broker-dealers, that may act as agents or principals;
-- directly to one or more purchasers;
-- through agents;
-- in connection with the loan or pledge of shares to a broker-dealer,
and the sale of the shares so loaned or the sale of the shares so
pledged upon a default;
-- in connection with put or call option transactions, in hedge
transactions, and in settlement of other transactions in standardized
or over-the-counter options;
-- through short sales of the shares by the selling stockholders or
counterparties to those transactions, in privately negotiated
transactions; or
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<PAGE>
-- in any combination of the above. In addition, any of the shares
that qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 promulgated under the Securities Act
rather than pursuant to this prospectus.
In effecting sales, brokers or dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. The
broker-dealer transactions may include:
-- purchases of the shares by a broker-dealer as principal and resales
of the shares by the broker-dealer for its account pursuant to this
prospectus;
-- ordinary brokerage transactions; or
-- transactions in which the broker-dealer solicits purchasers.
If a material arrangement with any broker-dealer or other agent is
entered into for the sale of any shares of common stock through a block trade,
special offering, exchange distribution, secondary distribution, or a purchase
by a broker or dealer, a prospectus supplement will be filed, if necessary,
pursuant to Rule 424(b) under the Securities Act disclosing the material terms
and conditions of these arrangements.
The selling stockholders and any broker-dealers or agents participating
in the distribution of the shares may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the shares of
common stock by the selling stockholders and any commissions received by a
broker-dealer or agents, acting in this capacity, may be deemed to be
underwriting commissions under the Securities Act. We have agreed to indemnify
the selling stockholders, each underwriter who participates in an offering of
the shares of common stock, each person, if any, who controls any of such
parties within the meaning of the Securities Act and the Exchange Act, and each
of their respective directors, officers, employees and agents against certain
liabilities, including liabilities arising under the Securities Act. The selling
stockholders may agree to indemnify any agent or broker-dealer that participates
in transactions involving sales of the shares of common stock against certain
liabilities, including liabilities arising under the Securities Act.
The selling stockholders are not restricted as to the price or prices
at which they may sell their shares of common stock. Sales of such shares may
have an adverse effect on the market price of the common stock. Moreover, the
selling stockholders are not restricted as to the number of shares that may be
sold at any time, and it is possible that a significant number of shares could
be sold at the same time, which may have an adverse effect on the market price
of the common stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of JAWS consists of 95,000,000 shares of
JAWS common stock and 5,000,000 shares of preferred stock. As of January 28,
2000, there were 23,636,571 shares of JAWS common stock and one share of special
series A preferred voting stock issued and outstanding.
Common Stock
The holders of JAWS common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding preferred stock, if
any, holders of JAWS common stock are entitled to receive ratably any dividends
declared by the JAWS board of directors out of legally available funds. In the
event of the liquidation, dissolution or winding up of JAWS, and subject to the
prior distribution rights of the holders of outstanding shares of preferred
stock, if any, the holders of shares of JAWS common stock are entitled to
receive, pro rata, all of the remaining assets of JAWS available for
distribution to its stockholders. Holders of JAWS common stock have no
preemptive rights and have no rights to convert their JAWS common stock into any
other securities and no redemption provisions apply to the JAWS common stock.
All of the outstanding shares of JAWS common stock are fully paid and
non-assessable.
Preferred Stock
The board of directors of JAWS is authorized, subject to any
limitations prescribed by the laws of the State of Nevada, 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 series,
to fix the designations, powers, preferences and rights of the shares of each
series and any qualifications, limitations or restrictions, and to increase or
decrease the number of shares of any series, but not below the number of shares
of series then outstanding without any further vote or action by the
stockholders. The board of directors of JAWS 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.
Special Series A Preferred Voting Stock
A series of preferred stock, consisting of one share, was designated as
special series A preferred voting stock (the "Special Series A Preferred Voting
Stock"), having a par value of $0.001 per share and a liquidation preference of
$0.001 per share. Except as otherwise required by law or the certificate of
incorporation of JAWS, the one share of Special Series A Preferred Voting Stock
possesses a number of votes on all matters submitted to a vote of JAWS
shareholders equal to the number of outstanding exchangeable shares of JAWS
Acquisition Corp., an Alberta corporation ("JAC"), from time to time not owned
by JAWS or any entity controlled by JAWS. The holders of shares of JAWS common
stock and the holder of the Special Series A Preferred Voting Stock are to vote
together as a single class on all matters. In the event of any liquidation,
dissolution or winding-up of JAWS, all outstanding JAC exchangeable shares will
automatically be exchanged for shares of JAWS common stock, and the holder of
the Special Series A Preferred Voting Stock will not be entitled to receive any
assets of JAWS available for distribution to its stockholders. The holder of the
Special Series A Preferred Voting Stock is not entitled to receive dividends.
Pursuant to the requirements of the Offsite pre-acquisition agreement, entered
into in connection with the acquisition of Offsite, the one share of Special
Series A Preferred Voting Stock was issued to a Trustee under a voting and
exchange trust agreement. At such
906592.9
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<PAGE>
time as the one share of the Special Series A Preferred Voting Stock has no
votes attached to it because there are no exchangeable shares outstanding not
owned by JAWS or an entity controlled by JAWS, the share of Special Series A
Preferred Voting Stock will be automatically redeemed and canceled. Pursuant to
the acquisition of Pace by JAWS, JAWS has agreed to create at the next annual
meeting of shareholders of JAWS another series of preferred stock which will
have attached thereto rights and privileges similar to the Special Series A
Preferred Voting Stock.
Warrants
JAWS issued 2,176,418 warrants, each warrant entitling each such
investor to purchase one-half of one share of common stock of the Company at an
exercise price of $6.50 per share to investors in the Private Placement
Transaction. Each warrant expires on the third anniversary date of the effective
date of the registration statement of which this Prospectus forms a part. In
addition, on December 31, 1999, the Company issued 217,642 warrants to Thomson
Kernaghan & Co. Limited, the Company's placement agent in connection with the
Private Placement Transaction, each warrant entitling Thomson Kernaghan to
purchase one share of the Company's common stock at an exercise price of $4.25
per share, which warrant shall expire on the third anniversary date of the
effective date of the registration statement of which this Prospectus forms a
part. The exercise price of all warrants issued in connection with the Private
Placement Transaction are subject to adjustment as set forth in the warrant
certificates.
JAWS issued 1,000,000 warrants to Bristol Asset Management, LLC., each
warrant entitling Bristol to purchase one share of common stock of the Company
at an exercise price of $0.70 per share, on April 20, 1999. Each warrant expires
on April 15, 2002. The exercise price of these warrants are subject to
adjustment as set forth in the respective warrant certificates.
JAWS issued 166,800 warrants on June 21, 1999 to a group of investors.
Each warrant entitles an investor to purchase one share of common stock of JAWS
at an exercise price of $2.25 per share. Each warrant expires on June 30, 2001.
The exercise price of all warrants issued in connection with this offering are
subject to adjustment as set forth in the respective warrant certificates.
JAWS issued 834,000 warrants to Glentel Inc. on June 21, 1999. Each
warrant entitles Glentel to purchase one share of common stock of the Company at
an exercise price of $2.25 per share. Each warrant expires on June 30, 2001. The
exercise price of all warrants issued in connection with this offering are
subject to adjustment as set forth in the respective warrant certificates.
Transfer Agent
JAWS transfer agent for its common stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Glendale, California 91204-2991.
906592.9
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<PAGE>
BUSINESS
Corporate Overview
JAWS was incorporated as a Nevada corporation on January 27, 1997 under
the name "e-biz" solutions, inc. ("e-biz"). On February 10, 1998, e-biz entered
into an agreement to purchase all the outstanding common shares of JAWS
Technologies Inc., an Alberta corporation ("JAWS Alberta"), in exchange for
1,500,000 shares of the restricted Common Stock of e-biz, and options to
purchase 400,000 shares of such restricted Common Stock at $0.50 per share. On
March 27, 1998, e-biz changed its name to JAWS Technologies, Inc.
The registered office of JAWS is located at Paracorp Incorporated, 208,
318 Carson Street, Carson City, Nevada 89701 and its head office is located on
the second floor at 1013-17th Avenue S.W., Calgary, Alberta T2T OA7.
The shares of JAWS Common Stock trade on the OTC Bulletin Board under
the symbol "JAWZ."
JAWS is currently the parent corporation of four operating
subsidiaries, JAWS Alberta, Offsite Data Services Ltd., an Alberta corporation
doing business as JAWS Secure Network Storage Division ("Offsite"), Pace Systems
Group, Inc., an Ontario corporation ("Pace"), and JAWS Technologies (Delaware),
Inc., a Delaware corporation ("JAWS Delaware"). The overall strategic goal for
JAWS is to consolidate the highly fragmented information security industry,
achieve increasing economies of scale through the acquisition of high growth,
emerging market firms and integrate such firms through centralized
administration and planning. Through industry and management expertise, JAWS
attempts to ensure that acquired firms receive the capital and corporate
planning necessary to maximize the growth potential within each information
security niche.
Business Overview
JAWS, through its wholly-owned subsidiary, JAWS Alberta, specializes in
the field of high-end information security, providing consulting services and
software solutions to minimize the threats to clients' information and
communications. At its offices in Calgary, Alberta, JAWS develops proprietary
encryption software using what is currently one of the strongest encryption
algorithms, L5, to secure binary data in various forms, including streamlining
or blocking data.
L5 was developed and refined over approximately 15 years by its
inventor Mr. Jim L. A. Morrison. Mr. Morrison was Chief Programmer at JAWS from
March 1, 1998 to April 20, 1999.
On October 20, 1997, JAWS Software Ltd. (a company controlled by Mr.
Morrison) assigned all of its right, title and interest in L5, and other
miscellaneous intellectual property, to JAWS. In October 1998, during JAWS
patent application process, there was a further assignment of L5, and other
miscellaneous intellectual property, to JAWS by Mr. Morrison personally in order
to fulfill the requirements of the patent application process. L5 itself is not
the software produced and marketed by JAWS but the mathematical process
outlining the detailed steps required to encrypt and decrypt data. L5 can be
incorporated into a variety of software programs requiring encryption of data.
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Since the acquisition of L5 by JAWS, a team of JAWS software engineers
has developed and continues to develop numerous applications for L5 on many
different platforms (such as JAWS Data Encryption(TM), JAWS Memo(TM), JAWS
Xmail(TM)). L5 software, prior to acquisition, had been developed using the
Borland Delphi computer programming language on a Windows 95/98 platform. The
software consisted primarily of L5 and a Windows user interface. Since that
time, L5 has been rewritten in the C language. An in-house JAWS cryptographer,
with the co-operation of two University of Calgary professors, has made several
refinements to L5 including some changes introduced to address speed and
security considerations. C language can be used in a variety of operating
systems (e.g. UNIX, OS/2, VMS, and Windows CE). As L5 is no longer limited to
Windows, it and can now be deployed interoperably on a variety of platforms.
JAWS business plan is to become a full service information security
solution provider. In accordance with this plan, JAWS currently markets both
information security products and professional information security services.
In an attempt to create and maintain a competitive advantage in the
information security industry, JAWS strives to continually differentiate itself
from other industry players and works towards establishing strong brand loyalty
for its products and services through multiple channels of distribution. The
distribution strategy used by JAWS addresses the requirements of small
organizations to large enterprises and matches the appropriate sales and
distribution channels to the software and services offered.
Products and Services
All of the products currently marketed by JAWS are based on L5. The
products described below have been completed and are currently being marketed.
JAWS Data Encryption(TM) is a software program, targeted towards both
corporate and private users, which allows such users to protect important data
on their workstations and network drives by encrypting such data with a
symmetric algorithm or an asymmetric algorithm. The software also allows the
exchange of secure data when using the public key mode. This software program
has taken approximately 18 man months of research and development effort. The
material features of this product are:
o the encryption and decryption of data files;
o the encryption and decryption of folders, including recursive folders
if desired;
o compatibility with Windows 95/98/NT and Citrix;
o symmetric algorithm mode;
o asymmetric algorithm mode;
o a simple easy-to-use interface developed in accordance with Microsoft
standards of user-interface design;
o a relatively fast speed of execution as compared to competitors'
algorithms;
o a relatively small size of executable, as the operational execution of
L5 requires minimal incremental disk space; and
o the strength of a 4096 bit key length.
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JAWS Memo(TM) is designed to secure valuable information created and
stored in the platform device of Palm Computing Inc. ("Palm"). This application
can completely replace the existing Memo Pad function in the Palm Pilot III, V
and VII. The material features of this product are:
o the encryption and decryption of memos;
o compatibility with Palm Pilot III, V and VII and other compatible
operating systems;
o symmetric algorithm mode;
o a relatively small size of executable as the operational execution of L5
requires minimal incremental disk space;
o the strength of a 4096 bit key length; and
o certified as a Palm Platinum Solution under Palm's Platinum Solution
certification program.
In order to obtain the Palm Platinum Solution certification, a product
must successfully undergo rigorous compatibility testing using standardized
testing products. JAWS Memo(TM) is the only Palm Platinum Solution certified
security related software available to Palm users as listed in the 1999
"Solutions for Your Enterprise" magazine of Palm.
JAWS Xmail(TM) allows the secure exchange of e-mail messages via a
POP3-compatible environment. JAWS Xmail(TM) sits between the user's e-mail
program (e.g. Microsoft Outlook) and the user's mail server and intercepts
incoming and outgoing messages. When receiving encrypted messages, the user is
prompted to enter his private key to decrypt the ciphertext. Conversely,
outgoing messages are automatically encrypted with the recipient's public key.
The JAWS certificate server is a central repository holding user certificates.
The material features of this product are:
o the ability to send and receive secure e-mail messages over the
internet;
o compatibility with Windows 95/98/NT;
o centralized key management;
o compatibility with most POP3-based e-mail servers including
Microsoft Outlook, Microsoft Outlook Express, Eudora, Pegasus,
and Netscape Communicator;
o the encryption and decryption of e-mail messages and attachments;
o public and private key mode;
o temporary caching of password phrase;
o transparency to the user during operation as the application works
in the background, on-line help;
o the strength of a 4096 bit key length; and
o the self-pollinating nature of the product, as described below.
JAWS Xmail(TM) is self-pollinating in that an intended recipient of an
e-mail that does not have JAWS Xmail(TM) is sent a notice that indicates that
the sender of the original message is trying to send a secure message but cannot
because the intended recipient is not currently using JAWS Xmail(TM). The
intended recipient is then invited to click on a button that will initiate the
download, through a web- browser, of a decrypt-only version of the product that
will allow the intended recipient to receive the message. The downloaded version
does not allow the sending of secure e-mail messages. To become fully enabled
and registered the user, or the user's organization, must compensate JAWS. Once
payment
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is received, a registration program is automatically sent to the user thus fully
enabling the downloaded version of the product.
With the rise in computer connectivity and the push to electronic
commerce, organizations are becoming increasingly more exposed to the outside
world via electronic means. Often these organizations lack the skills and time
requirements needed to protect and secure their information assets. Periodicals
and reference material such as Maximum Security, 2nd ed., have indicated that
servers are often set up by non-technical individuals who inadvertently create
numerous viable targets for hackers. As the number of servers supporting
websites increases on a daily basis the security risks increase as well.
In response to this need, JAWS has created its Information Systems
Security Group ("ISSG"). The services offered by ISSG to its clients include:
o network security assessments and audits;
o security policy review and development;
o security system architecture, review and development;
o intrusion detection and testing;
o system penetration testing to uncover areas of risk and weakness;
o mapping of security systems currently in place;
o client data valuation; and
o emergency response following an intrusion.
JAWS has developed its services around the premise of providing full
information security solutions. This means providing services and strong product
offerings to maintain the best possible solution for each client. JAWS
information security services are offered to government agencies, military
agencies, small corporations, large corporations, financial institutions and
industrial clientele.
Once JAWS collects the data during an assessment and fully analyzes the
potential security risks revealed, a client-specific proposal for information
systems security can be developed and presented to the client. At the option of
the client, JAWS can then integrate the appropriate software and products
proposed into a complete solution that meets the client's information security
needs. The proposal generally includes a cost analysis to ensure the client
understands the true cost of security in relationship to its risk and the value
of the information being protected. JAWS also provides training for the clients'
staff to ensure that its employees are able to adopt the technology, policies
and procedures provided by the information security solution.
As a client's business changes, information technology modifications
are inevitable. With these modifications, potential security risks are created.
JAWS offers clients the option of re-assessing their information systems as
needed or to have regularly scheduled re-assessments in order to maintain
adequate information systems security.
ISSG is product neutral and may therefore offer both JAWS' own suite of
products, competitor's products or a combination of both to meet a client's
specific needs. The goal of JAWS is to provide the best possible solution. It is
anticipated that competitor's products and services will be provided by JAWS
through standard licensing/reseller contracts with other security product
vendors (e.g. Network Associates).
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Client support services are currently available to JAWS' clients
through the following methods:
o a 1-800 help desk;
o onsite (as demand grows, it is intended that technicians will be
available through regional JAWS offices);
o frequently asked questions documents on the JAWS website;
o e-mail support; and
o online help built into JAWS products.
A sales and marketing team for L5 data encryption software has been
working since May 1998 towards creating the JAWS brand identity as well as
establishing relationships with public relations companies to provide market
awareness and industry interest in JAWS' products. The sales and marketing
department continues to pursue opportunities with application service providers
and in areas such as smart cards, biometrics and security tokens. Further, the
sales and marketing department has implemented e-mail campaigns to raise the
public's awareness of e-mail security, e-commerce and Public Key Infrastructure
to a higher level. JAWS strives to develop industry specific (health care,
financial services, legal, government, oil and gas, law enforcement and
education) marketing materials for its products and services, develop strategies
for the Personal Data Assistant marketplace (such as the Palm Pilot III, V and
VII) and to identify and implement alliances with complementary organizations.
In relation to product releases, the sales and marketing department has
also developed collateral sales materials including boxes, compact disc cases,
stationary, and brochures. JAWS Data Encryption(TM) first release was in July,
1998 and the second modified version was released in September, 1998. JAWS
Memo(TM) was released in December, 1998 and the second modified version was
released in June, 1999.
Although the print media coverage of L5 has been positive in at least
34 different articles and requests for information from investors, potential
clients and interested parties have been numerous (approximately 150 inquiries
per week), there has not been significant sales of JAWS' products. From the
client feedback that JAWS has received, it is the opinion of management that the
following factors are affecting the sales of L5 products:
o although potential purchasers are aware of security as an issue
surrounding information systems and may have been educating
themselves as to what products and services are available,
specific needs have not been identified; therefore purchasers may
not be ready to make specific buying decisions; and
o the selling cycle for security software with reseller and value
added resellers ("VAR") programs takes considerable time to
conclude.
Export restrictions which slow down the flow of trade and the selling
process as well as widespread 128 bit key length security product entrenchment
within existing security products are additional factors which may affect sales.
Distribution
JAWS software is currently distributed through the following channels:
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o direct sales to potential clients by employees;
o resellers and VARs;
o online stores;
o the JAWS website; and
o Original Software Manufacturers ("OSM").
The consulting services provided by ISSG are currently marketed through
a direct sales effort although reseller relationships with other organizations
are being explored. Initially the JAWS Data Encryption(TM) software was
distributed in compact disc form. Currently, except for demonstration disks, the
product's distribution is almost completely online either through third party
online stores or via the JAWS website. This approach has minimized the cost of
distribution of the product and provides faster turnaround on client requests.
JAWS has distributed and agreed to distribute approximately 580,000
copies of L5. In order to develop a user base, the majority of these placements
have been at nominal or no cost. JAWS recently announced the signing of a
licensing agreement with Arrow Communications Systems Inc. doing business as
ApexMail.Net ("ApexMail.Net") to distribute JAWS Xmail(TM) to 500,000 of
ApexMail.Net's clients across North America. Additionally, approximately 200
copies of JAWS Data Encryption(TM) have been sold at $49.95 per copy and
approximately 245 copies of JAWS Memo(TM) have been sold at $19.95.
With respect to OSMs, external software developers can use L5 software
as a utility embedded in their products to augment or enhance their particular
products. Accounting software programs, database developments, e-mail programs
and communication software are all potential channels for JAWS' software.
Additional potential uses for L5 include use in smart cards, hand-held computing
devices, telecommunications devices and access control devices. Direct sales
channels include internet service providers, data warehouses, corporate networks
and personal computer users. The revenues generated in the normal course of
business by JAWS have come from these various markets. JAWS is not dependent
upon one or a few major clients.
Alliances
The licensing agreement described above with respect to ApexMail.Net is
material to JAWS in that this alliance provides for the distribution of 500,000
copies of JAWS Xmail(TM) to users of ApexMail.Net POP3-based e-mail accounts.
Users of ApexMail.Net will download JAWS Xmail(TM) electronically from the
ApexMail.Net website. There will be no physical distribution of the JAWS
Xmail(TM) product to ApexMail.Net clients. This distribution could produce
revenues equal to $0.333 per month per user or $33,333 per month for 100,000
users. The agreement also provides for the joint marketing of the alliance and
the development by JAWS of a long term strategy that would provide ApexMail.Net
with value-added services such as security audits, data protection systems and
messaging programs. JAWS and ApexMail.Net continue to work towards the
implementation of the terms of this agreement.
JAWS has announced alliances with various other parties in 1999
including the following: OA Group Inc. ("OA"), ServInt Internet Services
("ServInt"), Glentel Inc. ("Glentel"), Thomson Kernaghan & Co. Limited ("Thomson
Kernaghan"), Telus Advanced Communications ("TAC"), Proginet Corporation
("Proginet"), Wimsco, Inc. ("Wimsco") and CobraTech Industries, Inc.
("CobraTech").
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JAWS has entered into a sales and distribution agreement with OA
integrating JAWS products and services with the OA's client networks. OA has
agreed to install a hyperlink on its website that will provide OA's client base
direct access to JAWS Xmail(TM). Additionally, OA has agreed to serve as a VAR
for security assessments and product sales to its business clientele. Until the
hyperlink is installed, JAWS will not receive any sales revenue from this
agreement. JAWS does not know when this will occur or if this will occur. JAWS
may never generate sales revenue from this agreement.
JAWS has entered into a sales and distribution agreement with ServInt.
Pursuant to this agreement, ServInt will support the rollout of JAWS Xmail(TM)
to ServInt's existing base of clients. ServInt has agreed to install a hyperlink
on its website that will provide ServInt's client base direct access to JAWS
Xmail(TM). Additionally, ServInt will serve as a VAR for security assessments
and product sales to its business clientele. Until the hyperlink is installed,
JAWS will not receive any sales revenue from this agreement. JAWS does not know
when this will occur or if this will occur. JAWS may never generate sales
revenue from this agreement.
JAWS has entered into an alliance agreement with Glentel to explore and
develop secure wireless data products that will incorporate JAWS' products into
applications such as mobile two-way radio, satellite, paging, cellular and
personal cellular service. Product development is in the planning phase for
research and development and as such, JAWS has not received any sales revenues
from this agreement. Unless the planning phase is successful in generating a
plan for research and development, JAWS may never generate revenues from this
agreement.
JAWS has entered into an agreement with Thomson Kernaghan whereby JAWS'
products will be incorporated into Thomson Kernaghan's information security
systems. JAWS will also be involved in training Thomson Kernaghan employees in
the use of JAWS' products. Thomson Kernaghan is a principal shareholder of JAWS.
TAC has agreed to support the North American distribution of JAWS
Xmail(TM) by providing complete hosting services for the JAWS Xmail(TM)
certificate server. The nature of this hosting relationship is such that TAC
will provide power, back up facilities, firewall security and configuration,
physical security, access control and 24 hour monitoring of the servers. These
servers are used to provide access to the certificates of JAWS used by the
program to encrypt e-mail and attachments. TAC will provide its 200,000 plus
user base with the opportunity to install and use JAWS Xmail(TM). This will be
accomplished by e-mailing the TAC users directly. Additionally, TAC will serve
as a VAR for security assessments and product sales to its business clientele.
JAWS does not know when this will occur or if this will occur. JAWS may never
generate sales revenue from this agreement.
JAWS has entered into a development agreement with Proginet whereby
JAWS and Proginet have agreed to jointly develop, market and sell information
security products for the secure transmission of information across the
internet. Product development is in the planning phase for research and
development and, as such, JAWS has not received any sales revenues from this
agreement. Unless the planning phase is successful in generating a plan for
research and development, JAWS may never generate revenues from this agreement.
JAWS has entered into a development agreement with Wimsco whereby JAWS
and Wimsco will jointly develop plans to introduce products into the market
place and develop products for Wimsco's clients. Product development is in the
planning phase for research and development and, as such, JAWS has not
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received any sales revenues from this agreement. Unless the planning phase is
successful in generating a plan for research and development, JAWS may never
generate revenues from this agreement.
JAWS has entered into a memorandum of agreement, dated October 19,
1999, with CobraTech whereby JAWS grants exclusive marketing rights to CobraTech
in Asia with respect to a variety of software including JAWS Data
Encryption(TM), JAWS Xmail(TM) and JAWS Memo(TM). The grant is for a term of
four years provided CobraTech achieves certain revenue targets. In exchange for
these rights, JAWS is to obtain a 25% interest in CobraTech. Further, CobraTech
is to pay JAWS a royalty equal to 25% of the gross sales revenue generated by
CobraTech with respect to the sale of JAWS' products. At this stage, JAWS has
not generated any revenues from this agreement.
In addition to the alliances described above, JAWS has alliance
agreements with the following organizations: A1 Axion Communications, Inc.,
Bridge Technology Group LLC, Care Factor, Cheque Free Corporation, Citrix
Systems, Inc., DBCORP Information Systems Inc., Ernst & Young LLP, Eye Sciences,
i.com productions inc., Net Nanny Software International Inc., Network
Associates, Offsite, Palm, PSI Net Limited, United Projects, UUNET Internet
Access Services, Secure Computing Corporation, Strategic Profits Inc., Telecom
Wireless Corporation, and Westcor Mortgage Inc.
Competition
A number of companies have developed various information security
products such as encryption software, firewalls, intrusion detection software
and hardware solutions. A non-exhaustive list of generally available competitive
cryptographic algorithms includes: DES, TwoFish, Certicom ECC, RSA, MARS, and
PGP. No one particular product in the marketplace controls market share. Two
distinctive competitors, RSA Data Security Inc. ("RSA") and Network Associates,
have been leaders in the sale of encryption software.
L5 currently gives JAWS a competitive advantage over these competitors
because its 4096 bit key length is greater than its competitors. The ability to
make quick changes in L5 programming, in addition to the strength provided by
the 4096 bit key length, allows JAWS to be responsive to clients' demands for
products that require both customization and strength.
More specifically, the current advantages of L5 and the JAWS software
incorporating L5, in contrast to competitive products, are as follows:
<TABLE>
<CAPTION>
JAWS Competitors
- ----
<S> <C>
L5 has an easily varied key length that can be quickly Most competitive algorithms have a limit to the
adapted (greater and lesser) and executed to meet key size or a maximum length key where adding
specific client requests. bits to the key length does not improve security
(e.g. DES and TripleDES).
</TABLE>
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<TABLE>
<S> <C>
Software coding based on XOR type operations and Many algorithms include several levels of
SBOXs. complex operations which perform slowly on
most computers and results in slow and difficult
implementation (e.g. MARS).
The small footprint of the algorithm enables it to be Large key sizes and difficult/complex
incorporated into small devices such as smart cards. computations currently make incorporation of
some algorithms into smart cards unreasonable
(e.g. RSA).
The relatively large, 4096 bit, key size is greater than Currently the key size for DES is 56 bit,
for its competitors. Triple DES is 168 bit and for Certicom is 156 bit.
Speed of execution of JAWS' software is faster that Currently, DES is much slower because of the
its competitors. complexity of their products' operations.
</TABLE>
The 4,096 bit key length has, to date, been unbroken. In August, 1999,
RSA reported that a 512 bit security code was broken and recommended at least
768 bit keys as the minimum for achieving reliable security. Each bit of key
length is significant in that every time a bit gets added to a key length, the
expected number of guesses someone would have to make to decrypt an encrypted
message doubles. For someone to decrypt JAWS 4096 bit key length, it would
require a number of guesses equal to a number 1,233 digits long.
It is generally accepted ("Moore's Law") that computing power doubles
every two years. With the status of computer power today, and the anticipated
doubling of computing power, JAWS estimates it will be a number of years before
there is enough widespread standard computer power to break the JAWS' 4096 bit
key length software via a brute force attack. In the event that a JAWS 4096 bit
system was subjected to a brute force attack and L5 was broken, JAWS' software
can be modified to utilize a higher bit version of L5.
There has been some cryptographic industry criticism of proprietary
algorithms like L5. This criticism is based on the assertion that proprietary
algorithms are intrinsically less secure than public domain algorithms in that
they do not have the benefit of increased public scrutiny and cryptanalysis.
JAWS' competitors, who own a proprietary algorithm, are subject to this
criticism as well.
Information auditing services, security business planning, security
plan implementation and security management are relatively new industries. Very
few large size competitors exist and mainly small firms are providing the
services at this time. However, large accounting and information technology
firms represent potential competitive threats due to such firms' existing brand
loyalty and access to resources.
JAWS manufactures and produces all software products in JAWS' corporate
office in Calgary, Alberta. To manufacture and produce JAWS' software, the only
requirements are computer equipment, compact discs, compact disc burners, and
human resources. Packaging is produced by an external supplier. JAWS takes a
simple in-house approach to the production and packaging of its software. This
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approach allows JAWS to be very flexible and is not dependent on any one
supplier. All components of JAWS' products are readily available from a number
of suppliers. There is currently an inventory of packaging in JAWS' head office.
The demand for physical packaging has significantly decreased due to the
availability and convenience of online downloads.
Intellectual Property Matters
JAWS has applied for patent protection of L5 in the United States. The
United States patent office has confirmed receipt of the application and JAWS
has qualified to have its patent application reviewed and evaluated. To date,
JAWS has applied for but not successfully registered any of its trademarks,
trade names or service marks. However, JAWS has acquired the Xmail tradename
from British Telecom PLC. JAWS owns the copyright in all the software created by
its employees and the copyrights which it has contractually acquired. JAWS
maintains strict confidentiality practices with its employees including
contractual obligations by the employees. JAWS' business is not dependent on a
single license or group of licenses.
Government Regulation
Export restrictions on encryption technology above 64 bits are tightly
controlled through the provisions of the Wassenaar Arrangement. The Wassenaar
Arrangement is a 26 country agreement, including Canada and the United States,
controlling the export of encryption technology to any destination outside of
continental North America. This arrangement requires exporters of encryption
technology to make an application prior to exportation. Applications for export
under the agreement are evaluated on a case by case basis and considerable
evaluation is done by both countries involved in the export review. The
application process slows down the selling cycle and flow of trade of JAWS'
products by requiring compliance with the terms of the Wassenaar Arrangement.
Environmental Law
No specific environmental laws are applicable to JAWS' products or
business activity other than general environmental controls related to
non-hazardous waste disposal. JAWS does not have any specific environmental
costs and all costs related to waste disposal are accounted for under general
operating costs. Current environmental laws have no direct costs or effect on
JAWS' business activities. Environmental costs related to non-hazardous waste
disposal are incurred in the ordinary course of business.
Employees
As of February 8, 2000, JAWS employs approximately 85 full time staff.
None of JAWS' employees are represented by any type of labor organization and
JAWS is not aware of any activity by employees seeking organization. JAWS
considers its relationships with it employees to be satisfactory. JAWS has, in
its early stages, developed strong human resources practices with the belief
that the growth of JAWS is heavily reliant on its human resources.
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Insurance
JAWS maintains insurance coverage including key man life insurance,
policies, business interruption insurance, asset protection and public liability
insurance. Further, FutureLink Distribution Corporation ("FutureLink") secures
JAWS data through back-up procedures and data recovery procedures.
Description of Property
JAWS entered into an agreement to lease premises from Shelbourne Place
Holding Corp. ("Shelbourne"), pursuant to which JAWS is renting approximately
10,000 square feet of commercial space and is obligated to pay Shelbourne
$95,600 per annum, plus operating costs of approximately $42,000 per annum, for
a five-year term commencing November 1, 1998. Riaz Mamdani, director and Chief
Financial Officer of JAWS, owns a majority of the shares of Shelbourne. JAWS is
also the lessee in a lease for approximately 3,000 sq. ft. with Manufacturers
Life under a lease which JAWS entered into prior to entering into its lease with
Shelbourne. JAWS vacated these premises in 1998 when it moved into the
Shelbourne premises. JAWS pays approximately $31,000 per annum for these
premises and has sub-leased some of this space to offset approximately $13,000
per annum of the rental expense associated therewith for the remainder of the
lease term.
Legal Proceedings
JAWS is not a party to any material pending legal proceedings other
than ordinary routine litigation incidental to the business of JAWS.
Year 2000 Issues
By the end of 1999, JAWS completed a ten phase year 2000 plan which addressed
the year 2000 readiness of all of our internal and external systems, including
software, network equipment, bandwidth providers and suppliers. We have not, to
date, experienced any year 2000 disruptions in these systems. JAWS continues to
assess all of our internal systems for operational effectiveness and efficiency
beyond year 2000 concerns.
JAWS believes that our significant suppliers and customer are year 2000
compliant and have not, to date, been made aware that any significant suppliers
or customers have suffered year 2000 disruptions in their systems.
In the event JAWS discovers year 2000 problems in any of these systems,
we will endeavor to resolve these problems by making modifications to our
systems or purchasing new systems on a timely basis. Although we are not aware
of any material operational issues associated with preparing these systems for
the year 2000 we will not experience material, unanticipated, negative
consequences and/or material costs caused by undetected errors or defects in
such systems or by our failure to adequately prepare for the results of such
errors or defects, including costs of related litigation, if any. The impact of
such consequences could have a material and adverse effect on our business,
financial condition and results of operations. Our costs of year 2000
compliance, to date, are approximately $10,000 and we do not anticipate material
year 2000 compliance costs in the future.
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Recent Acquisitions
Pace Systems Group Inc.
-----------------------
Effective as of November 3, 1999, JAWS acquired 100% of the issued and
outstanding shares of common stock of Pace in exchange for a maximum issuance of
1,731,932 shares of JAWS common stock, valued at $1.70 per share. The purchase
price was paid by delivering 1,731,932 Pace exchangeable shares having the right
to exchange one Pace exchangeable share for one share of JAWS common stock.
According to the terms of the applicable share purchase agreements, 1,385,544
Pace exchangeable shares were to be delivered into escrow for release to the
selling shareholders over a period of two years, with the number of Pace
exchangeable shares to be released dependent upon certain performance and
revenue targets of four key Pace employees over that period.
In determining the value of all of the assets of Pace, JAWS considered
the physical assets reported on the audited financial statements of Pace, dated
July 31, 1999, historical revenues, customer lists, goodwill, leases, key
employees and other assets and determined the value of Pace to be approximately
$2,945,000. Such a valuation represents an amount equal to 2.29 times the gross
revenues of Pace for the fiscal year ended July 31, 1999.
Pursuant to the terms of the applicable share purchase agreements,
Peter Labrinos, James Wang, Aidan O'Brien and Joseph Iuso have entered into
employment agreements with JAWS Alberta for a period of 24 months. Prior to the
transaction, there were no material relationships between Pace's selling
shareholders or any officer or director of Pace and JAWS.
Pace is a private company incorporated in 1986 with a history of
providing financial information technology security solutions to retailers and
large financial organizations in North America. More specifically, Pace offers
services in the area of payment systems, including point of sale/automated
business machines, electronic funds transfer, switch implementation, point of
sale application and device integration, network architecture and design, system
integration and project management. With the acquisition of Pace, JAWS retained
several highly qualified financial information and technology specialists who
have developed relationships with clients.
Pace has worked with several financial institutions in Canada with
respect to the development of retail banking systems, including, without
limitation, with respect to the electronic payment technology currently in place
in Canada. Pace has specialized knowledge with respect to Interac, and Pace
currently offers implementation and business expertise to retailers, financial
institutions and third party processors with respect to the connection of such
companies to their banks or similar service providers or as a Direct Connector
to the Interac network.
Other services which Pace provides include pre-sales support to assist
with the customization of sales efforts for prospective clients, software
development, device certification (primarily with respect to the certification
of "Secure PIN Entry Devices," as defined in the regulations of Interac) and
testing, hardware and software vendor proposal evaluation, creation of requests
for information or proposals to be distributed by the client to prospective
hardware and software vendors, systems implementation, facilities management,
post implementation support, user and technical documentation, user training,
general consulting and year 2000 conversion and testing.
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JAWS is currently in the process of transferring the Pace business to
its operating subsidiary, JAWS Ontario.
Secure Data Technologies Corporation
------------------------------------
On December 31, 1999, JAWS, through JAWS Delaware, purchased
substantially all of the assets of Secure Data, which provides numerous
information security services, including consulting, policy development, risk
assessment, penetration testing, firewall management, certificate authority
services, incident response, high-tech crime investigations, computer forensics
and training. The purchase price included the payment of approximately $250,000
in cash at closing and a deferred payment of up to approximately 47,587 shares
of JAWS common stock (shares equivalent in value to $185,000 to be priced at the
five-day closing trading price of JAWS common stock on the OTC Bulletin Board
immediately prior to December 31, 1999 and shares equivalent in value to
$150,016, valued at $7.04 per share).
Offsite Data Services Ltd.
--------------------------
On December 9, 1999, JAWS, through JAC, made an offer to purchase all
of the shares of common stock and warrants of Offsite on the basis of 0.3524 of
an exchangeable share of JAC for each common share of Offsite and one
exchangeable share purchase B warrant of JAC for each common share purchase B
warrant of Offsite. Each JAC exchangeable share will be exchangeable for one
share of JAWS common stock following the effective date of an SEC registration
statement to be filed by JAWS under the Securities Act of 1933 to register its
shares of common stock issuable upon the exchange of the JAC exchangeable
shares. Each JAC warrant will have substantially the same terms and conditions
as the corresponding Offsite warrant exchanged therefor, except that instead of
receiving an Offsite share upon exercise, the holder will receive 0.3524 of an
exchangeable share. On January 28, 2000, the JAC offer expired and JAC acquired
approximately 96% of the outstanding shares of common stock of Offsite and
approximately 93% of the outstanding Offsite warrants. JAC intends to acquire
the remaining Offsite shares of common stock and warrants not tendered, pursuant
to the compulsory acquisition provisions under Alberta corporate law.
Offsite, a Calgary based company incorporated in 1995, provides
management services for automated Internet based back up, storage and recovery
of computer data. Using Offsite's software, a customer's selected computer files
are scanned for changed data. The client data is then compressed and transmitted
to a mainframe data centre in Calgary. Client data is transmitted to the data
centre over a variety of networks depending on the client's needs including the
public switched telephone network, the Internet, cable services and fibre optic
networks. Managed data centre facility services are provided by SHL Systemhouse
Inc. of Ottawa, Ontario.
Data back-up is facilitated through the use of HARBOR(TM) back-up and
protection for distributed data software from HARBOR Systems Management Ltd.
that is installed at the client site on each server and desktop computer that is
to be backed up or serviced. Pursuant to a software licensing agreement, dated
August 16, 1998, between Offsite and HARBOR, Offsite has exclusive rights for a
period of five years from the date thereof to install/sell the HARBOR(TM)
software to non-MVS based small businesses in Alberta using a MVS (mainframe)
host with a CPU and data storage facilities based in Calgary, Alberta. Thus,
Offsite has the exclusive right to provide back-up services to businesses that
are PC- based. Offsite does not provide back-up services to businesses that are
mainframe-based. Pursuant to the
906592.9
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software licensing agreement, Offsite also has the non-exclusive right to
distribute the HARBOR(TM)software in Canada and in the United States. The term
of the license is five years and began on August 16, 1998. During the term of
the licence, HARBOR(TM) has agreed not to appoint a competing distributor in
Alberta. Offsite is not a product or technology developer and has no proprietary
protection beyond its licensing arrangement with HARBOR.
Offsite currently markets its services to small to mid-size businesses
in Calgary, Alberta using a direct sales approach and a team of two full time
sales professionals. Offsite intends to expand its market to other Canadian and
North American centres by seeking distributors and value added re-sellers (VARs)
to sell its services.
Offsite competes with business which have existing storage systems such
as tape systems which have become more sophisticated, and new software that
allows for automated predetermined back-up and easier retrieval of individual
files as well as full system recovery. There are other enterprise storage
management software packages similar to HARBOR(TM) such as IBM Corporation's
ADSM, Computer Associates' Enterprise Storage Manager and Cheyenne's ARCserve,
which can be utilized by other service providers who wish to offer a competing
service to the Corporation. These software packages can be used by organizations
to back-up their networks to various storage media such as tape or disk. Both
Windows NT Server and Novell's NetWare have basic, built in, back up and restore
functions. There are also a number of new services emerging which offer desktop
back-up over the Internet, however, many of these support only disk to disk
transfer (i.e. not networks) in a Windows operating environment and are aimed at
single users with smaller data needs. Many of these also offer or are about to
offer dial up access and reduced introductory storage rates.
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of January 28, 2000, there were approximately 120 shareholders of
record of JAWS common stock. JAWS common stock is currently listed for trading
on the over-the-counter bulletin board under the symbol "JAWZ." The following
table sets forth the high and low bid prices for JAWS common stock as reported
by the OTC Bulletin Board since February 1, 1998. It should be noted that such
over-the- counter quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transaction
prices.
Price Range
-----------
High Low
---- ---
Third Quarter 1999 2.78 1.13
Second Quarter 1999 4.25 0.59
First Quarter 1999 1.19 0.38
Fourth Quarter 1998 0.66 0.13
Third Quarter 1998 0.84 0.28
Second Quarter 1998 1.50 0.50
First Quarter 1998 (beginning 1.06 0.48
February 1, 1998)
On February 10, 2000, the last reported sales price for shares of JAWS
common stock was $8.00 per share.
JAWS has not paid any dividends on its common stock to date. JAWS 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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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
JAWS is currently the parent corporation of four operating
subsidiaries, JAWS Alberta, Offsite, Pace and JAWS Delaware. The overall
strategic goal for JAWS is to consolidate the highly fragmented information
security industry, achieve increasing economies of scale through the acquisition
of high growth, emerging market firms and integrate such firms through
centralized administration and planning. Through industry and management
expertise, JAWS attempts to ensure that acquired firms receive the capital and
corporate planning necessary to maximize the growth potential within each
information system niche.
JAWS information security consulting services, software solutions and
proprietary encryption software are provided through its wholly-owned
subsidiary, JAWS Alberta.
JAWS financial information technology security solutions services are
directed through its wholly-owned subsidiary, Pace. These services include
services in the area of payment systems, including Automated Banking Machine and
Electronic Funds Transfer, switch implementation, point of sale application and
device integration, network architecture and design, system integration and
project management. JAWS forensic services are presently directed through JAWS
Delaware.
JAWS, through its wholly-owned subsidiary, JAC has acquired
approximately 96% of the outstanding shares of common stock of Offsite and
approximately 93% of the outstanding common share B purchase warrants of
Offsite. Offsite offers secure, fully automated on-line backup, retrieval and
storage services through the internet from its data centre in Calgary.
On December 31, 1999, JAWS completed the Private Placement Transaction,
which resulted in net proceeds to JAWS of approximately $8.2 million. Pursuant
to the terms of the Private Placement Transaction, JAWS issued approximately 2.2
million Units (as defined below) at a purchase price of US$4.25 per Unit. Each
"Unit" consisted of one share of JAWS common stock and one warrant to purchase
one-half of a share of JAWS common stock at an exercise price of $6.50 per
share. JAWS also issued approximately 218,000 warrants to Thomson Kernaghan, the
placement agent in connection with the Private Placement Transaction, each
warrant entitling the holder thereof to purchase one share of common stock at an
exercise price of US$4.25 per share. JAWS intends to use the proceeds from the
Private Placement Transaction for working capital, research and development and
for strategic acquisitions.
The shares of JAWS common stock trade on the over-the-counter bulletin
board under the symbol "JAWZ".
Results of Operations
Nine months ended September 30, 1999 compared with the nine months ended
------------------------------------------------------------------------
September 30, 1998
- ------------------
906592.9
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<PAGE>
JAWS revenue increased $344,190 (1,210%) for the nine months ending
September 30, 1999 from approximately $28,440 in the 1998 period. This increase
is primarily due to Pace's assignment to JAWS of its customer contracts as of
July 31, 1999 in connection with the Pace acquisition.
Total expenses increased 88% to $4,211,765 for the nine months ending
September 30, 1999 from $2,238,504 in the nine month period ended September 30,
1998. This increase was primarily due to the continued growth of JAWS'
operations, moving JAWS products toward and into the commercialization stage and
the expenses related to acquisitions including, without limitation, expenses
related to the preparation of various marketing and sales documents and
materials, wages and benefits, requirements for office space, supplies and other
office related expenses.
Depreciation and amortization expense increased to approximately
$67,462 for the nine months ending September 30, 1999 from approximately $8,877
for the nine month period ended September 30, 1998. This increase was primarily
due to the increase in fixed assets consistent with the expansion of JAWS'
operations. The 1998 depreciation and amortization number is exclusive of the
one-time write off of the software development costs of $909,003.
The Company's net loss for the period ending September 30, 1999 was
$3,839,135 as compared with $2,210,064 ending September 30, 1998. The increase
in the net loss is primarily due to the continued growth of JAWS' operations,
moving JAWS products toward and into the commercialization stage and the
expenses related to acquisitions including, without limitation, expenses related
to the preparation of various marketing and sales documents and materials, wages
and benefits, requirements for office space, supplies and other office related
expenses.
Year ended December 31, 1998 compared with inception (January 27, 1997)
-----------------------------------------------------------------------
to December 31, 1997
- --------------------
JAWS' revenue increased $29,068 for the year ended December 31,1998
from $0 in the 1997 period. This increase is primarily due to the transition
from product and corporate development stages to beginning the sales cycle of
all of JAWS' products.
Total expenses increased 2,169% to $3,105,355 for the year ended
December 31, 1998 from $136,854 in the period ended December 31, 1997. This
increase was primarily due to the continued growth of JAWS' operations, moving
JAWS products toward and into the commercialization stage and the expenses
related to acquisitions including, without limitation, expenses related to the
preparation of various marketing and sales documents and materials, wages and
benefits, requirements for office space, supplies and other office related
expenses. A one-time write-off of software development costs of $909,003 was
also a key factor for this increase.
Depreciation and amortization expense increased to $14,041 for the year
ended December 31, 1998 from $580 for the period ended December 31, 1997. This
increase was primarily due to a growing fixed asset base to support the growth
in JAWS' operations.
The Company's net loss for the year ended December 31, 1998 was
$3,076,287 as compared with $136,854 for the period ended December 31, 1997. The
increase in the net loss is primarily due to JAWS
906592.9
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<PAGE>
incurring significant development costs, including but not limited to a one-time
100% write-offs of software development costs to bring the product from
development to commercialization stage.
Pro Forma Operating Results
Nine Months Ended September 30, 1999 (Pro Forma) Compared to Nine
-----------------------------------------------------------------
Months Ended September 30, 1998 (Actual)
- ----------------------------------------
JAWS' revenue would have increased $1,169,816 (4,113%) for the nine
months ending September 30, 1999 from approximately $28,440 in the nine months
ending September 30, 1998. This increase is primarily due to nine month
assumption of the acquisition of Pace and Offsite.
Total expenses would have increased 416% to $9,308,927 for the nine
months ending September 30, 1999 from $2,238,504 in the nine month period ended
September 30, 1998. This increase was primarily due to the continued growth of
JAWS' operations, moving JAWS products toward and into the commercialization
stage and the expenses related to acquisitions including, without limitation,
expenses related to the preparation of various marketing and sales documents and
materials, wages and benefits, requirements for office space, supplies and other
office related expenses. Additionally, $3,890,028 (55%) of the increase
represented the amortization of goodwill associated with the acquisition of Pace
and Offsite.
Depreciation and amortization expense would have increased to
approximately $3,958,618 for the nine months ending September 30, 1999 from
approximately $8,877 for the nine month period ended September 30, 1998. This
increase was primarily due the amortization of goodwill associated with the
purchases of Pace and Offsite, as outlined above. The 1998 depreciation and
amortization number is exclusive of the one-time write off of the software
development costs of $909,003.
The Company's net loss for the period ending September 30, 1999 would
have been $8,243,917 as compared with $2,210,064 ending September 30, 1998. The
increase in the net loss is primarily due to the continued growth of JAWS'
operations, moving JAWS products toward and into the commercialization stage and
the expenses related to acquisitions including, without limitation, expenses
related to the preparation of various marketing and sales documents and
materials, wages and benefits, subcontracting fees, requirements for office
space, supplies and other office related expenses. Additionally, $3,890,028
(47%) of the loss is attributable to the amortization of goodwill associated
with the acquisitions of Pace and Offsite.
Year Ended December 31, 1998 (Pro Forma) Compared with Year Ended
------------------------------------------------------------------
December 31, 1997 (Actual)
- --------------------------
JAWS' revenue would have increased to $1,448,553 for the year ended
December 31, 1998 from $0 in the 1997 period. This increase is primarily due to
the full year assumption of revenue associated with Pace and Offsite and also
due to the transition from product and corporate development stages to beginning
the sales cycle of JAWS.
Total expenses would have increased to $10,038,099 for the year ended
December 31, 1998 from $136,854 in the period ended December 31, 1997.
Operationally this increase would have been driven
906592.9
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<PAGE>
by the continued growth of JAWS' operations, moving JAWS products toward and
into the commercialization stage and expenses related to acquisitions including,
without limitation, expenses related to the preparation of various marketing and
sales documents and materials, wages and benefits, requirements for office
space, supplies and other office related expenses. A one-time write-off of
software development costs of $909,003 was also a key factor for this increase.
The largest contributor to the increase was the amortization of goodwill related
to the purchases of Pace and Offsite of $5,167,002 (52% of total expenses).
Depreciation and amortization expense would have increased to
$5,182,250 for the year ended December 31, 1998 from $580 for the period ended
December 31, 1997. The largest contributor to the increase was the amortization
of goodwill related to the purchases of Pace and Offsite of $5,167,002. the 1998
depreciation and amortization number is exclusive of the one-time write-off of
the software development costs of $909,003.
JAWS' net loss for the year ended December 31, 1998 on a pro forma
basis would have been $8,732,532 as compared with $136,854 for the period ended
December 31, 1997. The increase in the net loss is primarily due to JAWS
incurring significant development costs, including but not limited to a one-time
100% write-off of software development costs to bring the product from
development to commercialization stage and the amortization of goodwill
associated with the purchase of Pace and Offsite.
Liquidity and Capital Resources
Net cash used in operations for the nine months ending September 30,
1999, was $2,741,616 as compared with $727,588 for the nine months ended
September 30, 1998. These increases are a result of the increased selling,
general and administrative expenses and depreciation expenses noted above.
Management raised approximately $8.2 million in the Private Placement
Transaction which was consummated on December 31, 1999 and management plans to
raise additional capital in 2000 pursuant to one or more private placement
transactions in the United States or Canada or a public offering of JAWS
securities in the United States. On December 31, 1999 JAWS raised approximately
$8.2 million in additional working capital for operations from the Private
Placement Transaction.
Cash on hand of approximately $664,000 at September 30, 1999, is an
increase from $0 at September 30, 1998. This increase is as a result of a series
of private placements of shares of JAWS common stock as well as funds received
by JAWS upon consummation of the transactions contemplated by that certain
debenture purchase agreement, dated September 25, 1998, between JAWS and Thomson
Kernaghan. A net amount of $3,941,641 was raised from financings during the nine
months ended September 30, 1999. These funds have been reserved for working
capital purposes.
Accounts payable and accrued liabilities have increased approximately
229% to $898,000 for the nine months ended September 30, 1999 from approximately
$273,000 for the nine months ended September 30, 1998. These increases are a
result increases in sales revenue and the expansion of JAWS' operations. JAWS
has budgeted for these increases to provide for the organization's shift from
research and development to a focus on sales and marketing. Management expects
accounts payable and accrued liabilities to continue to increase until cash flow
from operations increases significantly.
906592.9
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<PAGE>
JAWS has not established any lines of credit and will not be in a
position to negotiate any lines of credit until sales revenues increase
substantially. JAWS has not used any debt instruments to date due to its early
stage of operations, other than long-term capital leases and Thomson Kernaghan's
convertible debentures which have recently been converted to equity.
On September 25, 1998, JAWS entered into a $2,000,000, 10% convertible
debenture agreement with Thomson Kernaghan and 1,428,572 warrants to purchase
1,428,572 shares of common stock at $0.28 per share.
In September 1998, JAWS also entered into an agreement with Bristol
Asset Management LLC ("Bristol") pursuant to which Bristol, at JAWS' sole
discretion, would purchase up to 25,000,000 shares of common stock for a
purchase price of $7,000,000.
On April 20, 1999, JAWS signed a settlement agreement with Bristol,
pursuant to which (i) the previous financing arrangement was canceled and (ii)
JAWS granted warrants to Bristol to purchase 1,000,000 shares of the common
stock of JAWS at $0.70, expiring April 15, 2002. The cancellation of this
financing did not have an immediate impact on JAWS' plan of operation.
On April 27, 1999, JAWS and Thomson Kernaghan amended the debenture
agreement, increasing the amount available to $5,000,000. At that date,
$1,520,000 of the $5 million available under the amended debenture agreement had
been advanced in accordance with the terms of debentures issued by JAWS.
On November 17, 1999, JAWS executed a Debenture Acquisition Agreement
Amendment and Settlement Agreement with Thomson Kernaghan, (the "Settlement
Agreement") in order to settle the outstanding obligations of the parties
relating to the $5,000,000 Debenture Acquisition Agreement dated September 25,
1998, as amended on April 27, 1999. Pursuant to the terms of the Settlement
Agreement, JAWS and Thomson Kernaghan established the conversion terms for the
approximately $1,520,000 outstanding principal amount under the Debenture
Acquisition Agreement and the terms pursuant to which Thomson Kernaghan can
exercise warrants of JAWS issued to it under the Debenture Acquisition
Agreement. All further rights and obligations of JAWS and Thomson Kernaghan
under the Debenture Acquisition Agreement are terminated pursuant to the
Settlement Agreement. Debentures issued pursuant to the Debenture Acquisition
Agreement have been converted to 5,127,672 restricted shares of JAWS common
stock. Thomson Kernaghan has exercised all of the outstanding warrants issued
pursuant to the Debenture Agreement for the issuance of 2,180,220 shares of JAWS
common stock. The parties have signed a mutual release.
We believe that the proceeds from the Private Placement Transaction,
together with our current available cash balances and cash generated from our
operating activities should be adequate to fund our current level of operations
until February, 2001. If our plans or assumptions change, if our assumptions
prove to be inaccurate or if we experience unanticipated costs or competitive
pressures, we may seek to raise additional capital by pursuing strategic
partnerships, public or private equity and/or debt financing. If we fail to
generate such cash flow or obtain any such financing on terms favorable to us or
if other unforeseen circumstances occur, we may be unable to continue to
commercialize and market our products or complete the development of our
proposed products and/or market such products successfully, or to continue our
current operations as presently conducted, if at all, beyond the first quarter
2001. Our cash requirements may vary materially from those now planned because
of factors
906592.9
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<PAGE>
such as successful development of products, results of product testing,
commercial acceptance of our products, patent developments and the introduction
of competitive products.
906592.9
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MANAGEMENT
Directors and Executive Officers
Two of the four members of the board of directors are independent
directors. The following table sets forth certain information with respect to
the directors and executive officers of the Company.
Term
Name Age Position Expiration(1)
- ---- --- -------- -------------
Robert J. Kubbernus 40 Chairman of the Board (2)
Chief Executive Officer,
President and Director
Tej Minhas 39 (3) (2)
Riaz Mamdani 31 Chief Financial Officer and (2)
Director
Vera Gmitter 41 (3) (2)
Julia L. Johnson 37 Director 2000
Arthur Wong 30 Director 2000
- ----------
(1) Pursuant to JAWS' bylaws, all directors are elected at each annual
meeting of stockholders for a one-year term, or until their successors
are elected and qualified.
(2) This executive officer has entered into an employment agreement with
JAWS, the term of which will extend until the earlier of (i) the date
specified by such executive officer in a notice of voluntary
termination delivered by such executive officer to JAWS; provided that
such notice shall not be effective until at least ten (10) days after
delivery thereof, (ii) the date such executive officer is terminated by
JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the date
which is determined by providing such executive officer with one
month's notice for each full year of completed service commencing on
the date JAWS provides such executive officer with a notice of
termination.
(3) Mr. Minhas and Ms. Gmitter are neither directors nor officers of JAWS,
but are included in this table because, as senior officers of JAWS
Alberta, they have performed policy-making functions in respect of
JAWS. Mr. Minhas is the President and Chief Operating Officer of JAWS
Alberta and Ms. Gmitter is Vice President, Administration of JAWS
Alberta.
906592.9
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Directors and Executive Officers
The following is a biographical summary of each of the directors and
executive officers of the Company:
Robert J. Kubbernus. Mr. Kubbernus has served as Chairman of the Board,
Chief Executive Officer and President of JAWS Alberta since October 1997 and of
JAWS since February 1998. Mr. Kubbernus resigned as President of JAWS Alberta in
July 1999 upon Minhas' appointment to that position. Mr. Kubbernus' primary
responsibilities have been to oversee security product developers, provide
executive direction and develop key contacts with governmental authorities,
investors, clients, insurance underwriters and the investment community. From
October 1992 to September 1997, Mr. Kubbernus held the position of President and
Chief Executive Officer of Bankton Financial Corporation, a company which
provides business and lending advisory services, where he led a team of
corporate financial consultants who specialized in the placement of debt
instruments with institutional and private lenders.
Tej Minhas. Mr. Minhas has served as President and Chief Operating
Officer of JAWS Alberta since July 1999. Mr. Minhas is responsible for
developing and implementing strategic and tactical plans for each department,
key alliance development, managing marketing projects, implementing the
corporate vision and maintaining and improving corporate culture. From August
1998 to June 1999, he was the Vice President of Technology for JAWS Alberta
where his primary responsibilities were to oversee all aspects of the Technology
Department including strategic planning, software engineering, business systems
infrastructure management, technology vendor relations, security consulting and
technical support. From April 1996 to July 1998, Mr. Minhas was the Vice
President of Technology for AgriTech International Corporation, a creator of
global information systems for the agricultural sector, where he was involved
with strategic IT planning, human resource planning, marketing support
management, executive reporting, vendor relations, industry alliances and IS
Business development. From April 1992 to March 1996, he was the Canadian
District Manager, Professional Services for Sybase Canada, an international
database and tools company, where his responsibilities included the
profitability of Canadian operations. The Canadian District was comprised of
offices in Toronto, Ottawa, and Calgary. In this role, Mr. Minhas duties
included marketing strategy development and execution, sales force management,
staff & consultant recruiting, and the operation of a certification and training
centre. Mr. Minhas graduated with a Bachelor of Science, Computer Science
Specialty, from the University of Toronto in 1985.
Riaz Mamdani. Mr. Mamdani has been Chief Financial Officer of JAWS
since July 1999. Previous to this appointment, he was Director of Corporate
Finance from March 1999 to July 1999. Mr. Mamdani is responsible for the
development of operational financing including securities issuances, the
documentation needed to close these issuances, establishing and implementing
professional relationships and assisting in matters of corporate compliance as
well as company structure. From May 1996 to August 1998, Mr. Mamdani was a
Barrister and Solicitor with Beaumont Church, a Calgary-based law firm, where
his practice focused in the areas of Corporate, Commercial and Securities law.
From May 1992 to April 1996, he was a Pharmacist at the Foothills Hospital in
Calgary while attending law school at the University of Calgary, from September
1993 to May 1996. Since 1992, Mr. Mamdani graduated with a Bachelor of Law
degree from the University of Calgary in 1996. He also graduated from the
University of Manitoba with a Bachelor of Science degree in Pharmacy in 1992.
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Vera Gmitter. Ms. Gmitter has served as Vice President, Administration
of JAWS Alberta since February 1998. Her current responsibilities at JAWS
include developing policies and procedures, government regulation, export,
trademark, finance, accounting, legal, public compliance and human resources as
well as managing over the day to day operations of JAWS Alberta. From July 1997
to June 1998, Ms. Gmitter held the position of General Manager for Bankton
Financial Corporation. In this position she directed daily operations for the
corporation, which specialized in custom finance solutions. From September 1987
to July 1997 Ms. Gmitter was the owner of 396406 Alberta Ltd., a holding company
for a restaurant, concession contracts, retail store and a sign and graphics
business, for which she was President. Ms. Gmitter graduated with a Bachelor of
Arts degree in Political Science and Economics from Augustana University in
1995.
Julia L. Johnson. Ms. Johnson serves as the Chairman of the Information
Service Technolgoy Task Force (Internet Task Force), having been appointed by
Governor Jeb Bush in August 1999. Ms. Johnson has served as (i) a member of the
Florida Public Service Commission, a state agency which regulates utility
companies, from December 1992 to December 1999, (ii) state Chairperson of the
Federal/State Joint Board on Universal Service, a task force within the Federal
Communications Commission from 1996 to 1999, and (iii) a board member for the
Markle Foundation, a project that encourages the use of new communications
technologies for socially beneficial purposes, since 1996. Before being
appointed to the Florida Public Service Commission, Ms. Johnson served as the
Director of Legislative Affairs and senior land use attorney for the Department
of Community Affairs from November 1990 to December 1992, where she was the
chief lobbyist representing the agency before the Florida Legislature on land
use issues. Ms. Johnson graduated with a Juris Doctorate, with a concentration
in corporate and real estate transactions, from the University of Florida School
of Law in 1988, as well as a Bachelor of Science in Business Administration from
the University of Florida in 1985.
Arthur Wong. Mr. Wong provides strategic direction to JAWS in the area
of channel development. Since 1992, Mr. Wong has founded three technology
companies. He has been [CEO] of Security-Focus.com, a database of security
knowledge and resources, since August of 1999 where he is responsible for the
management and direction of an internet security portal. From May 1998 to July
1999, Mr. Wong was the Director of Channel Development for Active Security at
Network Associates Inc. of Santa Clara, California, the world's largest
independent network security and management software company, where he was
responsible for the development and adoption of worldwide integrated security
initiatives and where he also developed standards for new security
infrastructures and worked on its integration and adaption. From July 1996 to
April 1998, he was [CEO] of Secure Networks Inc. of Calgary, Alberta, a company
he founded. Secure Networks developed internet security tools and offered
security consulting before it was acquired by Network Associates Inc. From April
1993 to June 1996, Mr. Wong was President of Millennium Systems Canada Inc., a
company he founded and managed, which was a computer hardware distributor and
integrator. Since June 1994 he has been the managing director and founder of H20
Entertainment Corp., a Calgary based organization that develops products for
Nintendo and its N64 game platform. Mr. Wong graduated with a Bachelor of
Science in Communications from the University of Calgary in 1991.
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Committees of the Board of Directors
Audit Committee. The board of directors has established an audit
committee consisting of Julia L. Johnson and Arthur Wong, each of whom is an
independent director on the board of directors. The audit committee makes
recommendations to the board of directors concerning the engagement of
independent public accountants, review with the independent public accountants
the scope and results of the audit engagement, approve professional services
provided by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit fees,
and review the adequacy of the Company's internal accounting controls. The audit
committee met four times during 1999.
Compensation Committee. The board of directors has established a
compensation committee consisting of Julia L. Johnson and Arthur Wong, each of
whom is an independent director on the board of directors. The compensation
committee determines and establishes compensation levels on an annual basis for
the Company's executive officers and administers the Company's Stock Option
Plan. The compensation committee met four times in 1999.
Compensation of Directors
Out-of-pocket expenses of JAWS directors, related to their attendance
at meetings of the board of directors, are paid by JAWS. Pursuant to the terms
of a directors' agreement by and between JAWS and each of Ms. Johnson and Mr.
Wong, JAWS is obligated to compensate such directors for services rendered as
directors in cash or in shares of common stock in an amount per term equal to US
$60,000. In addition, all directors are eligible to receive stock options under
the JAWS 1998 Stock Option Plan. We do not currently provide additional
compensation for committee participation or special assignments of the board of
directors. No other payments have been made to any member of the board of
directors.
Executive Compensation
The following table sets forth the annual base salary rates and other
compensation expected to be paid during the Company's three most-recent fiscal
years ending December 31, 1999 to the Company's Chief Executive Officer (the
"Named Executive Officer"). No other executive officers of the Company were paid
in excess of $100,000 during any of such fiscal years. Information for fiscal
year 1997 is for the period commencing January 27, 1997 (date of inception) and
ending December 31, 1997.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
------------------------------------------- ----------------------------- --------
Other Securities
Annual Restricted Underlying All Other
Compen- Stock Options/ Compen-
Name and Salary Bonus sation Award(s) SARs LTIP sation
Principal Position(1) Year (US$) (US$) (US$) (US$) (#) Payouts (US$)
- -------------------------- --------- --------------- ---------- ---------- ------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert J. Kubbernus 1999 180,000 0 0 0 600,000 0 0
Chairman of the Board, 1998 180,000 0 0 0 350,000 0 0
Chief Executive Officer 200,000(3)
and President 1997 45,000 0 0 0 0 0 0
</TABLE>
(1) These options were to be granted to Mr. Kubbernus in connection with
the acquisition of JAWS Alberta by JAWS on February 10, 1998. Such
options have not yet been granted.
906592.9
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<PAGE>
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money
Options/SARs at Options/SARs at
FY-End(#) FY-End (US$)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (US$) Unexercisable Unexercisable
- --------------------------- ------------------------ --------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Robert J. Kubbernus 0 0 350,000 Exercisable 2,478,000
0 0 350,000 Exercisable 2,121,000
0 0 250,000 Exercisable 1,420,000
0 0 200,000 Unexercisable 1,412,000
Tej Minhas 0 0 29,333 Exercisable 210,904
0 0 29,333 Unexercisable 210,904
0 0 29,333 Unexercisable 210,904
0 0 25,000 Unexercisable 128,750
Riaz Mamdani 0 0 100,000 Exercisable 1,672,500
0 0 250,000 Exercisable 1,420,000
0 0 250,000 Exercisable 1,212,000
0 0 200,000 Exercisable 210,904
Vera Gmitter 0 0 49,500 Exercisable 374,220
0 0 33,000 Unexercisable 249,480
</TABLE>
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1999
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term
- --------------------------------------------------------------------------------------- ----------------------------
Number of
Securities % of Total
Underlying Options
Options Granted to Exercise or
Granted Employees in Base Price Expiration 5%
Name (#) Fiscal Year (US$/Sh) Date (US$) 10% (US$) 0%
- -------------------- -------------- ------------- ------------ ----------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Robert J. Kubbernus 600,000 600,000 (1) (1) $1,151,837 $1,324,345 (3 )
Tej Minhas 25,000 25,000 $2.41 5/17/02 $69,747 $80,193 ----
Riaz Mamdani 700,000 700,000 (2) (2) $1,149,156 $1,314,363 (4)
Vera Gmitter 33,000 33,000 $0.62 2/01/03 $24,869 $29,955 ----
</TABLE>
906592.9
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<PAGE>
(1) Of the 600,000 options granted, 350,000 shares of common stock
are exercisable at $1.50 per share for a period which expires
on September 25, 2002 and 250,000 shares of common stock are
exercisable at $1.88 per share for a period which expires on
November 10, 2002.
(2) Of the 700,000 options granted, (i) 250,000 shares of common
stock are exercisable at $.87 per share for a period which
expires on January 2002, (ii) 250,000 shares of common stock
are exercisable at $1.88 per share for a period which expires
on November 10, 2002, and (iii) 200,000 shares of common stock
are exercisable at $1.50 per share for a period which expires
on September 27, 2002.
(3) Of the 600,000 options received by Mr. Kubbernus, 250,000 options
were issued at an exercise price below the then current market
price of shares of JAWS common stock. The value at grant date
market price for 250,000 of the options is $875,000.
(4) Of the 700,000 options received by Mr. Mamdani, 250,000 options
were issued at an exercise price below the then current market
price of shares of JAWS common stock. The value at grant date
market price for 250,000 of the options is $875,000.
Employment Agreements
JAWS has entered into employment agreements with each of Messrs.
Kubbernus, Minhas and Mamdani and with Ms. Gmitter. Pursuant to such employment
agreements, in addition to base salary, each such executive officer will be
entitled to receive annual performance-based compensation as determined by the
Compensation Committee. In addition, the term of each such employment agreement
will extend until the earlier of (i) the date specified by such executive
officer in a notice of voluntary termination delivered by such executive officer
to JAWS; provided that such notice shall not be effective until at least ten
(10) days after delivery thereof, (ii) the date such executive officer is
terminated by JAWS for "just cause" (as defined in the employment agreement), or
(iii) with respect to termination other than for "just cause," the date which is
determined by providing such executive officer with one month's notice for each
full year of completed service commencing on the date JAWS provides such
executive officer with a notice of termination.
1998 Stock Option Plan
In July 1998, JAWS adopted the 1998 Stock Option Plan (the "Plan")
which provides for the grant of incentive and restricted stock options to
purchase up to 20% of the shares of common stock issued and outstanding from
time to time.
The purpose of the stock option plan is to further the growth and
development of JAWS, by providing, through ownership of stock of JAWS, as
incentive to officers, other key employees and directors who are in a position
to contribute materially to the prosperity of JAWS, to increase such persons'
interests in JAWS' welfare, to encourage them to continue their services to
JAWS, and to attract individuals of outstanding ability to enter the employment
of JAWS, to remain or become directors of JAWS and to provide valuable services
to JAWS. Options granted under the Plan may be either Incentive Stock Options
qualifying for special tax treatment under Section 422 of the U.S. Internal
Revenue Code of 1984, as amended ("Code") or non-qualified stock options.
The Plan is administered by a committee of the Board which is
authorized to determine the persons entitled to receive options under the Plan.
Each member of the Committee is an "outside director" for purposes of Section
162(m) of the Code and a "non-employee director" for purposes of Section 16 of
the Securities Exchange Act of 1934, as amended.
Stock available for issuance pursuant to options granted under the Plan
shall not exceed 20% of all outstanding shares of common stock. The maximum
number of shares with respect to which options may be granted to any employee or
director in any one calendar year is 500,000 shares. The purchase price for the
906592.9
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<PAGE>
shares of common stock subject to an option granted under the Plan is determined
by the committee at the time of the grant, but shall not be less than the par
value per share of common stock. 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 JAWS 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 JAWS or its subsidiaries, the exercise price shall not be less than
110% of the fair market value per share of the common stock JAWS on the date the
option is granted.
In the event that the number of shares of JAWS common stock is
increased or decreased as a result of a stock dividend, stock split, reverse
stock split, recapitalization, reorganization, merger, consolidation, separation
or other similar change, appropriate adjustments shall be made in the number and
class of shares subject to the Plan, to the Options granted under the Plan,
including the exercise price thereof.
As of January 28, 2000 JAWS had granted options under the stock option
plan to purchase a total of 3,557,500 shares of common stock at exercise prices
ranging from $.15 to $7.56 per share. Of the options, 2,195,500 options were
granted to officers and directors and expire three years after the vesting date
and 400,000 options expire December 31, 2003. The balance of options outstanding
have been issued to other employees.
906592.9
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table describes the information regarding the individuals
who beneficially owned common stock as of January 28, 2000 after exercise of all
outstanding options and warrants and conversion of debentures held by Thomson
Kernaghan. The individuals included in the following table are:
(1) each person (or group of affiliated persons) who we know beneficially
owns 5% or more of JAWS common stock;
(2) each of our directors; and
(3) the Named Executive Officer listed in the Summary Compensation Table.
As of January 28, 2000, JAWS had 23,636,571 shares of common stock
issued and outstanding.
<TABLE>
<CAPTION>
Name and Address of Number of Shares
Beneficial Owner(1) Title of Class Beneficially Owned Percent of Class(8)
------------------- -------------- ------------------ ----------------
<S> <C> <C> <C>
Robert J. Kubbernus (2) common stock 1,587,000 6.17%
Julia Johnson (3) common stock 306,408 1.30%
Arthur Wong (4) common stock 315,208 1.33%
Riaz Mamdani (5) common stock 1,306,000 5.53%
All directors and executive officers as a common stock 3,773,283 15.96%
group (4 persons)
Thomson Kernaghan & Co. Limited (6) common stock 5,495,741 17.74%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Canada
Glentel Inc. (7) common stock 2,134,000 9.03%
Suite 2700, 4710 Kingsway
Burnaby, British Columbia V5H 4M2
Canada
</TABLE>
- ---------------------------
(1) Unless otherwise stated, the business address of each of the
stockholders named in the table is C/O JAWS Technologies, Inc.
1013-17th Avenue S.W., Calgary, Alberta, Canada, T2T 0A7. Except as
otherwise indicated, to our knowledge, the persons named in the table
have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.
(2) Includes 350,000 shares issuable upon the exercise of options
exercisable at $0.48 until June 30, 2008. Includes 350,000 shares
issuable upon the exercise of options exercisable at $1.50 per share
until June 30, 2008. Includes 250,000 shares issuable upon the exercise
of options exercisable at $1.88 per share until June 30, 2008.
(3) Includes 150,000 shares of common stock at $0.48 per share until
December 31, 2003.
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<PAGE>
(4) Includes 200,000 shares of common stock issuable upon the exercise of
options at $0.48 per share until December 31, 2003 and 113,208 shares
of common stock issuable to Mr. Wong for Mr. Wong's 1999 director's fee
of $60,000.
(5) Includes 100,000 options to purchase common shares at $0.15 per share
until June 30, 2008. Also includes (i) 250,000 options to purchase
shares of common stock at $.87 per share until June 30, 2008, (ii)
250,000 options to purchase shares of common stock at $1.88 per share
until June 30, 2008, and (iii) 200,000 options to purchase shares of
common stock at $1.50 per share until June 30, 2008.
(6) Includes 217,642 shares of common stock issuable upon exercise of
warrants issued to Thomson Kernaghan, as placement agent, in connection
with the Private Placement Transaction.
(7) Includes 834,000 shares of common stock issuable upon the exercise of
warrants. 65.2% of the outstanding shares of Glentel are controlled by
TCG International, Inc. The natural person, with sole or shared voting
and investment power over the shares held of record by Glentel, through
TCG International, Inc. is Arthur Skidmore.
(8) Percentage ownership is calculated in accordance with the Securities
and Exchange Commission's Rule 13d-3(d)(1).
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following paragraphs describe the relationships and transactions of
JAWS in the last two years with a director, executive officer, promoter of JAWS
or a person who JAWS knows beneficially own or exercise voting or control over
5% or more of JAWS common stock.
Promoters
Robert J. Kubbernus, the Chairman of the Board, Chief Executive Officer
and President of JAWS and Bankton Financial Corporation, a company which
provides business and lending advisory services controlled by Robert Kubbernus,
are the promoters of JAWS and JAWS Alberta. Bankton Financial Corporation was a
founding shareholder in JAWS and beneficial ownership of any JAWS shares owned
by Bankton Financial Corporation are attributed to Mr. Kubbernus. Until January
1, 2000 JAWS did not pay Mr. Kubbernus directly for his services, but rather
paid directly to Bankton Financial Corporation $180,000 per year for Mr.
Kubbernus' services. Bankton and Robert Kubbernus were also founding
shareholders of JAWS Alberta and received shares in the common stock of e-biz,
in consideration for their shares of JAWS Alberta. Robert Kubbernus and Bankton
each subscribed for shares of the common stock of JAWS Alberta and paid
consideration equal to $0.01 per share for these shares. As described below, on
February 10, 1998, Mr. Kubbernus received 315,000 shares in the common stock of
e-biz (now named JAWS Technologies, Inc., a Nevada corporation) worth $315,000
and Bankton Financial Corporation received 322,000 shares in the common stock of
e-biz worth $322,000, in each case in connection with the acquisition of JAWS
Alberta.
Purchase of JAWS Alberta
On February 10, 1998, when JAWS was still known as e-biz entered into
an agreement with the shareholders of JAWS Alberta to purchase all of the 1,000
issued and outstanding shares of JAWS Alberta for 1,500,000 restricted shares of
e-biz. Pursuant to this agreement, the following people received common stock of
e-biz, in consideration for their shares of JAWS Alberta, as follows:
JAWS Alberta Shareholder Number of E-Biz Shares Received
Robert Kubbernus 315,000
Bankton Financial Corporation (1) 322,000
Chell McNeill, Inc.(2) 637,000
(1) Robert Kubbernus is the controlling shareholder of Bankton Financial
Corporation. Robert Kubbernus is to be granted 200,000 options to purchase
shares of the common stock at $0.50 per share.
(2) Cameron Chell, who resigned as a director of JAWS on November 30, 1999, is
the controlling shareholder of Chell McNeill, Inc. Cameron Chell was also to be
granted 200,000 options to purchase shares of the common stock of "e-biz" at
$0.50 per share.
906592.9
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<PAGE>
Transactions with Thomson Kernaghan
As of January 28, 2000 Thomson Kernaghan is the holder of 5,278,099
shares of JAWS common stock, representing 22.33% of the issued and outstanding
shares of common stock of JAWS (17.03% on a fully diluted basis). Pursuant to
the terms of a placement agency agreement between JAWS and Thomson Kernaghan,
dated December 31, 1999, in connection with the private placement of 2,176,418
Units of JAWS, each Unit consisting of one share of common stock and one warrant
to purchase one-half share of common stock for $6.50 per share, at $4.25 per
Unit (the "Canadian Agency Agreement"), Thomson Kernaghan received a sales
commission of 7% of the offering and a 3% financial advisory fee (an aggregate
of $924,977). Also pursuant to the Canadian Agency Agreement, Thomson Kernaghan
also received 217,642 warrants, each warrant exercisable for one share of common
stock at an exercise price of $4.25 per share.
In addition, Thomson Kernaghan and the Company have entered into a
consulting agreement effective July 1, 1999 pursuant to which Thomson Kernaghan
provides advisory services to the Company, including without limitation,
advising on business and financial matters. The consulting agreement terminates
on June 30, 2000 unless it is extended by mutual agreement thereafter. Under the
terms of the consulting agreement, the Company has agreed to pay Thomson
Kernaghan the lesser of (i) 7,500 shares of JAWS common stock; and (ii) that
number of shares of JAWS common stock equal to $25,000 divided by 95% of the
average price of the JAWS common stock for each calendar month over the year of
the agreement. Payments under the consulting agreement are to be made
semi-annually, with the final payment being on June 30, 2000. In addition, the
Company has agreed to pay Thomson Kernaghan a fee of 2% of the gross value of
any merger and acquisition transaction in which Thomson Kernaghan advises JAWS.
On September 25, 1998, JAWS entered into a $2,000,000, 10% Convertible
Debenture Agreement with Thomson Kernaghan that included 1,428,572 warrants to
purchase 1,428,572 common shares at $0.28 per common share. On April 27, 1999,
JAWS and Thomson Kernaghan amended the debenture agreement, increasing the
principal amount of the convertible debentures to $5,000,000. Subsequently, a
total of $1,520,000 was advanced pursuant to the amended debenture agreement.
On November 17, 1999, JAWS and Thomson Kernaghan executed a Debenture
Acquisition Agreement Amendment and Settlement Agreement (the "Settlement
Agreement") in order to settle the outstanding obligations of the parties. The
Settlement Agreement settles the conversion terms of the $1,520,000 advanced
under the amended debenture agreement and the exercise of outstanding warrants
issued under the amended debenture agreement and terminates all further
obligations related to the amended debenture agreement.
Debentures issued pursuant to the amended debenture agreement were
converted to 5,127,672 shares of JAWS common stock and warrants were exercised
for the issuance of 2,180,220 shares in JAWS' common stock on November 23, 1999.
Consulting Fees
As of September 25, 1999, Robert J. Kubbernus has been employed
directly by JAWS pursuant to the terms of an employment agreement which provides
for an annual base salary of $300,000 per annum effective January 1, 2000. Prior
to entering into the employment agreement JAWS paid Bankton Financial
Corporation, a company controlled by Mr. Kubbernus, a consulting fee of $180,000
for services rendered to JAWS by Mr. Kubbernus. Mr. Kubbernus and Bankton
Financial Corporation are shareholders and promoters of JAWS and continue to
direct and promote the company's future development.
906592.9
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<PAGE>
Lease of Premises
JAWS entered into an agreement to lease premises from Shelbourne Place
Holding Corp. ("Shelbourne"), pursuant to which JAWS is renting approximately
10,000 square feet of commercial space and is obligated to pay Shelbourne
$95,600 per annum, plus operating costs of approximately $42,000 per annum, for
a five-year term commencing November 1, 1998. Riaz Mamdani, a director and Chief
Financial Officer of JAWS owns a majority of the shares of Shelbourne. JAWS is
also the lessee in a lease for approximately 3,000 sq. ft. with Manufacturers
Life under a lease which JAWS entered into prior to entering into its lease with
Shelbourne. JAWS vacated these premises in 1998 when it moved into the
Shelbourne premises. JAWS pays approximately $31,000 per annum for these
premises and has sub-leased some of this space to offset approximately $13,000
per annum of the rental expense associated therewith for the remainder of the
lease term.
Transactions with FutureLink
Mr. Chell has resigned as Chief Executive Officer and director of
FutureLink. Robert Kubbernus was a director of FutureLink until he resigned in
November 1999. FutureLink is an application service provider and supplies
network and software services to JAWS. These services are provided to JAWS on
normal commercial terms consistent with the terms FutureLink has with other
clients. In 1998 the value of the services provided to JAWS by FutureLink was
$76,612. JAWS estimates that its 1999 revenues derived from services provided to
FutureLink will be approximately $2,000 and JAWS expects to incur expenses
related to FutureLink services equal to or greater than $76,612 in 1999.
Transactions with Glentel Inc.
JAWS has an alliance with Glentel to explore and develop secure
wireless data products that will incorporate JAWS security products into
applications such as mobile two-way radio, satellite, paging, cellular and PCS.
Because product development is in the planning phase for research and
development, JAWS and Glentel have not yet derived any material business from
this alliance and neither JAWS nor Glentel presently know what interest each
party will have in any products or services they may jointly develop. Unless the
planning phase is successful in generating a plan for research and development,
JAWS may never generate revenues from this agreement. Glentel is a principle
stockholder of JAWS.
Provision of Stationery and Office Supplies
Mr. Mamdani was a director of Willsons Stationers, a stationery and
office supplies company, from November 1998 to August 13, 1999. Until recently,
JAWS purchased all of its stationery and office supplies from Willsons at prices
paid by non-related parties in arm's-length transactions.
906592.9
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<PAGE>
REGISTRATION RIGHTS
In connection with the Private Placement Transaction, we have agreed to
use our best efforts to cause a registration statement to be filed and declared
effective by the SEC within 90 days after December 31, 1999, to register the
resale of 2,176,418 shares of common stock issued to investors in the Private
Placement Transaction and the resale of the shares of common stock issuable upon
conversion of the warrants issued to investors in the Private Placement
Transaction, which such shares are included in this prospectus. We have further
agreed to cause such registration statement to remain effective until 30 days
after all of the Warrants have either (i) been exercised, (ii) expire in
accordance with their terms (on the earlier of (a) the three-year anniversary
date of the effectiveness of the Registration Statement (as defined therein), or
(b) December 31, 2009) or (iii) been called or repurchased by JAWS. Subject to
the terms of the Warrants, if such registration statement is not effective
within 90 days following the Private Placement Transaction, but prior to 180
days, the exercise price of the Warrants sold to such investors shall be reduced
by $0.25 per month, or a pro rated amount thereof for partial months, until a
registration statement covering such shares is declared effective. If a
registration statement covering such shares of common stock is not declared
effective within 180 days following the final closing date, the exercise price
of the Warrants sold to shall be reduced by $0.50 per month, or a pro rated
amount thereof for partial months, until a registration statement covering such
shares of common stock is declared effective. Notwithstanding the foregoing, in
no event shall the exercise price of the Warrants sold to be reduced to a price
lower than $3.75 per share.
Pursuant to a certain Investors' Rights Agreement, dated June 21, 1999
by and between JAWS and each investor which participated in a separate private
placement transaction of JAWS common stock and warrants (the "Glentel
Agreements"), JAWS has granted such investors with certain demand and
"piggyback" registration rights. Pursuant to the Glentel Agreements, JAWS is
required to file a registration statement in January 2000 with the SEC to
register in January 2000 all of the 834,000 shares of common stock issued in
connection with such private placement. Furthermore, in the event JAWS proposes
to file a registration statement to effect the sale of common stock, the
investors have the right, subject to certain restrictions, to have the common
stock of such investors included in the registration statement related thereto.
In connection with the issuance of 1,000,000 warrants to Bristol Asset
Management LLC on April 20, 1999, JAWS must register such warrants, and the
shares underlying such warrants, with the SEC upon the request of Bristol Asset
Management LLC.
LEGAL MATTERS
Lionel Sawyer & Collins LLP will give its opinion as to the validity of
the shares of common stock offered hereby.
EXPERTS
The financial statements and schedules audited by Ernst & Young, LLP
have been included in reliance on their report given on their authority as
experts in accounting and auditing.
PricewaterhouseCoopers LLP, independent accountants, have audited
Offsite's financial statements at and for the periods ended June 30, 1999 and
1998, as set forth in their report included herein. We have included
906592.9
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<PAGE>
these financial statements and notes thereto in this prospectus and elsewhere in
the registration statement in reliance on PricewaterhouseCoopers LLP's report
given on the authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form S-1 (including the exhibits, schedules and
amendments) under the Securities Act, with respect to the common stock to be
sold in this offering. This prospectus, which is part of the registration
statement, does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement. For
further information regarding JAWS and our common stock, please refer to the
registration statement and the contracts, agreements and other documents filed
as exhibits and schedules to the registration statement.
You may read and copy all or any portion of the registration statement
or any other information that we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, and at regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500-West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you on the SEC's Web
site at http://www.sec.gov.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, accordingly, will file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission.
906592.9
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<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
JAWS Technologies, Inc. Page
<S> <C> <C>
Pro Forma Consolidated Balance Sheet as at September 30, 1999 (unaudited)...............................F-3
Pro Forma Consolidated Statement of Income for the nine months
ended September 30, 1999 (unaudited)...............................................................F-4
Notes to Pro Forma Consolidated Financial Statements....................................................F-5
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1998 (unaudited)......................................................................F-8
Notes to Pro Forma Consolidated Financial Statements....................................................F-9
Independent Auditors' Report...........................................................................F-12
Consolidated Balance Sheets as at December 31, 1998 and 1997 and (unaudited)
as at September 30, 1999..........................................................................F-13
Consolidated Statements of Loss and Deficit and Comprehensive Loss for the
year ended December 31, 1998 and for the period from the date of
inception (January, 27, 1997) to December 31, 1997 and
(unaudited) for the nine months
ended September 30, 1999..........................................................................F-14
Consolidated Statements of Changes in Stockholders' [Deficit] for the year ended
December 31, 1998 and for the period from the date of inception (January, 27, 1997)
to December 31, 1997 and (unaudited) for the nine months ended September 30, 1999.................F-15
Consolidated Statements of Cash Flows for the year ended December 31, 1998 and
for the period from the date of inception (January, 27, 1997) to December 31, 1997
and (unaudited) for the nine months ended September 30, 1999......................................F-16
Notes to Consolidated Financial Statements.............................................................F-17
Pace Systems Group Inc.
Independent Auditors' Report...........................................................................F-31
Balance Sheets as at July 31, 1999 and 1998............................................................F-32
Statements of Income (Loss) and Comprehensive Income (Loss) and Deficit for the
years ended July 31, 1999 and 1998................................................................F-33
Statements of Cash Flows for the years ended July 31, 1999 and 1998....................................F-34
Notes to Financial Statements..........................................................................F-35
Balance Sheets as of September 30, 1999 (unaudited)....................................................F-42
Statement of Income (Loss) and Retained Earnings (Deficit) for the two-month
period ended September 30, 1999 (unaudited).......................................................F-43
Statement of Cash Flows for the two-month period ended September 30, 1999
(unaudited).......................................................................................F-44
Notes to Financial Statements..........................................................................F-45
Offsite Data Services Ltd.
Independent Auditors' Report...........................................................................F-50
Balance Sheets as at June 30, 1999 and 1998............................................................F-51
Statements of Loss and Deficit for the years ended June 30, 1999 and 1998..............................F-52
Statements of Cash Flows for the years ended June 30, 1999 and 1998....................................F-53
Notes to Financial Statements..........................................................................F-54
Balance Sheets (unaudited) as at September 30, 1999 and 1998...........................................F-61
906592.9
F-1
<PAGE>
Statement of Operations and Deficit (unaudited) for the three-month period ended June 30, 1999 and
1998...................................................................................................F-63
Statement of Cash Flows (unaudited) for the three-month period ended September 30, 1999 and
1998...................................................................................................F-64
906592.9
F-2
</TABLE>
<PAGE>
JAWS Technologies, Inc.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
As at September 30, 1999
JAWS Pace Systems Offsite Data Note Pro Forma
Technologies, Inc. Group Inc. Services Ltd. Reference Adjustments
ASSETS
Current Assets
<S> <C> <C> <C> <C> <C>
Cash and short term deposits 664,428 79,848 211,080 2.1 (100,000)
2.2 (250,000)
4.1 400,000
5.0 8,261,320
Term deposits 27,000 -- -- --
Accounts receivable 421,138 41,249 64,578 --
Employee loan -- -- 68,027 --
License inventory -- -- 19,306 --
Prepaid expenses 86,828 -- 1,954 --
------------------ ------------- -------------- ----------- -------------
1,199,394 121,097 364,945 8,311,320
Goodwill -- -- -- 2.1 2,509,880
-- -- -- 2.2 13,050,230
Capital assets 498,004 6,320 35,645 --
------------------ ------------- -------------- ----------- -------------
Total Assets 1,697,398 127,417 400,590 23,871,430
================== ============= ============== =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 897,947 74,109 84,970 4.1 (82,200)
Current portion of capital leases 14,119 -- -- --
Current portion of long-term debt -- -- 953 --
Due to related parties 196,258 107,760 -- --
Due to stockholders 2,044 -- -- --
------------------ ------------- -------------- ----------- -------------
1,110,368 181,869 85,923 (82,200)
Obligations under capital leases 66,989 -- -- --
Convertible debentures 1,091,348 -- -- 4.1 (1,091,348)
------------------ ------------- -------------- ----------- -------------
Total Liabilities 2,268,705 181,869 85,923 (1,173,548)
Stockholders' Equity (deficiency)
Share capital 6,626,612 68 1,259,204 2.1 2,355,428
2.1 (68)
2.2 (1,241,795)
2.2 13,113,271
4.1 2,155,233
5.0 8,261,320
Cumulative translation adjustment (145,643) -- 32,562 --
Deficit (7,052,276) (54,520) (977,099) 2.2 983,274
4.1 (581,685)
------------------ ------------- -------------- ----------- -------------
(571,307) (54,452) 314,667 25,044,978
------------------ ------------- -------------- ----------- -------------
Total Liabilities & Stockholders' Equity 1,697,398 127,417 400,590 23,871,430
================== ============= ============== =========== =============
</TABLE>
As at September 30, 1999
JAWS
Technologies, Inc.
Pro Forma
Consolidated
ASSETS
Current Assets
Cash and short term deposits 9,266,676
Term deposits 27,000
Accounts receivable 526,965
Employee loan 68,027
License inventory 19,306
Prepaid expenses 88,782
----------------
9,996,756
Goodwill 15,560,110
Capital assets 539,969
----------------
Total Assets 26,096,835
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued liabilities 974,826
Current portion of capital leases 14,119
Current portion of long-term debt 953
Due to related parties 304,018
Due to stockholders 2,044
----------------
1,295,960
Obligations under capital leases 66,989
Convertible debentures 0
----------------
Total Liabilities 1,362,949
Shareholders' Equity (deficiency)
Share capital 32,529,276
Cumulative translation adjustment (113,081)
Deficit (7,682,309)
----------------
24,733,886
----------------
Total Liabilities & Shareholders Equity 26,096,835
================
See accompanying notes to the unaudited pro forma consolidated financial
statements
906592.5
F-3
<PAGE>
JAWS Technologies Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
Nine Month Period ending September 30, 1999
JAWS Pace Systems Offsite Data Note Pro Forma
Technologies, Inc. Group Inc. Services Ltd. Reference Adjustments
<S> <C> <C> <C> <C> <C>
Revenue 372,630 667,469 158,151 --
Cost of sales 0 0 133,240 --
Expenses
Salaries and employee benefits 752,135 -- -- --
Sub-contracting costs 337,712 897,704 -- --
Consulting 438,655 -- -- --
Travel 281,643 -- -- --
Accounting and legal fees 246,909 -- -- --
Directors' fees 97,501 -- -- --
Advertising and promotion 234,398 -- -- --
Depreciation and amortization 67,462 1,128 -- 3.0 3,890,028
Office and administration 110,638 -- 30,025 --
Rent 180,840 -- -- --
Sales and marketing -- -- 79,371 --
Technical services -- -- 65,067 --
Management fees 147,036 -- -- --
Foreign exchange loss 10,248 -- -- --
Other 291,420 -- -- --
Investor relations 100,255 -- -- --
General and administration -- 129,569 331,301 --
Amortization of deferred financing fees 75,601 -- -- 4.2 (75,601)
Non cash interest expense 833,115 -- -- 4.2 (833,115)
-- -- -- 4.1 581,685
Interest expense and bank charges 6,197 -- -- -- 0
----------------- ------------- -------------- ----------- -------------
4,211,765 1,028,401 505,764 3,562,997
----------------- ------------- -------------- ----------- -------------
Net loss for the period (3,839,135) (360,932) (480,853) (3,562,997)
================= ============= ============== =========== =============
Net loss per common share (0.30) -- -- --
Weighted average number of shares outstanding 12,837,302 -- -- 2.1 1,385,546
2.2 4,874,822
4.1 7,307,892
5.0 2,176,418
</TABLE>
Nine Month Period ending September 30, 1999
JAWS
Technologies, Inc.
Pro Forma
Consolidated
Revenue 1,198,256
Cost of sales 133,240
Expenses
Salaries and employee benefits 752,135
Sub-contracting costs 1,235,416
Consulting 438,655
Travel 281,643
Accounting and legal fees 246,909
Directors' fees 97,501
Advertising and promotion 234,398
Depreciation and amortization 3,958,618
Office and administration 140,663
Rent 180,840
Sales and marketing 79,371
Technical services 65,067
Management fees 147,036
Foreign exchange loss 10,248
Other 291,420
Investor relations 100,255
General and administration 460,870
Amortization of deferred financing fees 0
Non cash interest expense 581,685
0
Interest expense and bank charges 6,197
------------------
9,308,927
------------------
Net loss for the period (8,243,917)
==================
Net loss per common share (0.29)
Weighted average number of shares outstanding 28,581,980
See accompanying notes to the unaudited pro forma consolidated financial
statements
906592.5
F-4
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
September 30, 1999
1. The accompanying unaudited pro forma consolidated financial statements have
been prepared by management from the unaudited financial statements as at
September 30, 1999 and for the nine month period then ended of JAWS
Technologies Inc. (a Nevada corporation) ("JAWS") and Pace Systems Group
Inc ("Pace"), and Offsite Data Services Ltd. ("Offsite"), together with
other information available to the companies. In the opinion of the
management of JAWS, these unaudited pro forma consolidated financial
statements include all adjustments necessary for fair presentation in
accordance with generally accepted accounting principles in the United
States. These pro forma consolidated financial statements may not be
indicative of the financial position or the results of operations that
actually would have occurred if the events reflected therein had been in
effect on the dates indicated nor of the financial position or the results
of operations which may be obtained in the future.
These unaudited pro forma consolidated financial statements should be read
in conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this S-1 Registration Statement.
2. The pro forma consolidated balance sheet as at September 30, 1999 gives
effect to the following assumptions and transactions outlined in the S-1
Registration Statement as if the effective dates of those transactions were
September 30, 1999:
2.1 The acquisition of all of the outstanding common shares of Pace in
exchange for 1,385,546 common shares of JAWS valued at $2,355,428.
Additional contingent consideration payable on the acquisition of Pace
has not been reflected in the pro forma consolidated capitalization as
the outcome of the contingency cannot be reasonably determined at this
time. The additional consideration, which will be recorded as
additional common share capital if and when it becomes payable, is
based upon the achievement of certain performance and revenue targets
over the twenty-four months following the close date. The maximum
additional consideration related to the Pace acquisition, assuming all
the performance and revenue targets established in the applicable share
purchase agreement are met would result in the issuance of an
additional 346,386 common shares of JAWS.
The acquisition has been accounted for in these pro forma financial
statements using the purchase method. The aggregate purchase price of
$2,455,428 has been allocated to the net assets acquired based on their
estimated fair values, as follows:
Purchase Price
Allocation
$
------------------
Net liabilities acquired (54,452)
Goodwill 2,509,880
------------------
Purchase price 2,455,428
==================
Consideration:
Common shares of JAWS 2,355,428
Acquisition costs 100,000
------------------
Total 2,455,428
==================
2.2 The acquisition of all of the outstanding common shares of Offsite
(including common shares of Offsite issuable on the exercise of all of
the outstanding Offsite A warrants) for 4,874,822 exchangeable shares
of JAWS with an ascribed value of $13,113,271.
906592.5
F-5
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS
(All amountsstated in $U.S.)
September 30, 1999
Pursuant to this Offer, JAWS issued 2,318,550 warrants in exchange for
the outstanding Offsite warrants. 1,818,550 of these warrants entitle
the holder thereof to acquire .3524 of a JAWS common share upon payment
of Cdn $0.40 up to March 15, 2000; the remaining 500,000 warrants
entitle the holder to acquire .3524 of a JAWS common share for prices
ranging from Cdn $0.50 to Cdn $0.55 up to September 29, 2001.
Pursuant to this Offer, 910,584 stock options of Offsite or exchanged
for stock options of JAWS, which entitle the holder of each to purchase
.3524 of an exchangeable share of JAWS, at a price of Cdn $0.25 which
expire on March 15, 2004.
The acquisition has been accounted for in these pro forma consolidated
financial statements using the purchase method. The aggregate purchase
price of $13,363,271 has been allocated to the net assets acquired
based on their estimated fair values, as follows:
Purchase Price
Allocation
$
-------------------
Net assets acquired 313,041
Goodwill 13,050,230
-------------------
Purchase price 13,363,271
===================
Consideration:
Common shares of JAWS 13,113,271
Acquisition costs 250,000
-------------------
Total consideration 13,363,271
===================
3. The pro forma consolidated statement of income for the nine month period
ended September 30, 1999 gives effect to the acquisitions by JAWS as
described in 2.1 and 2.2, above as if the transactions had occurred January
1, 1999. The following adjustments are reflected:
3.1 The amortization of goodwill attributable to the allocation of the
purchase price of Pace in excess of the carrying value of the net
assets acquired (see 2.1 above) calculated on a straight-line basis
over a period of three years.
3.2 The amortization of goodwill attributable to the allocation of the
purchase price of Offsite in excess of the carrying value of the net
assets acquired, (see 2.2 above) calculated on a straight-line basis
over a period of three years.
4. Effective on November 1, 1999 JAWS entered into a debenture amendment and
settlement agreement (the "Agreement") with Thomson Kernaghan & Co. Limited
("Thomson Kernaghan"), which resulted in the settlement of all outstanding
obligations of the convertible debentures and related warrants (issuable
pursuant to the Debenture Acquisition Agreement dated September 25, 1998 as
amended on April 27, 1999), and the issuance by JAWS of common shares to
Thomson Kernaghan on November 23, 1999.
The pro forma consolidated balance sheet as at September 30, 1999 gives
effect to the following assumptions and transactions as if the effective
date of the Agreement was September 30, 1999:
906592.5
F-6
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
September 30, 1999
4.1 Issuance of 7,307,892 common shares rel ating to the conversion of all
the outstanding debentures, the exchange of certain warrants for
shares, and the exercise of certain warrants for cash, resulting in a
reduction on convertible debenture of $1,091,348, an increase to share
capital in the amount of $2,155,233, an increase to cash in the amount
of $400,000, and an increase to the deficit in the amount of $581,685,
representing the reduction of unamortized financing fees and related
interest and penalty amounts and a reduction to accounts payable of
$82,200 for penalties accrued.
4.2 The pro forma consolidated income statement for the nine month period
ended September 30, 1999 gives effect to the following assumptions and
transactions as if the effective date of the Agreement was January 1,
1999:
Interest expense of $833,115 and amortization of deferred financing
fees of $75,601 relating to the convertible debentures would not have
been incurred.
5. On December 31,1999, JAWS issued 2,176,418 shares under a private placement
to a group of investors for net cash of $8,261,300. This cash will be used
to fund operational commitments in the year 2000.
6. The amounts shown in these pro forma consolidated financial statements for
Pace and for Offsite have been translated into United States dollars from
Canadian dollars at the period end rate for the balance sheet and the
period average rate for the income statement.
906592.5
F-7
<PAGE>
JAWS Technologies Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
For the Year Ended
Dec 31, 1998 Jul 31, 1999 Jun 30, 1999
JAWS Pace Systems Offsite Data Note Pro Forma
Technologies, Inc. Group Inc. Services Ltd. Reference Adjustments
<S> <C> <C> <C> <C> <C>
Revenue 29,068 1,261,989 157,496 --
Cost of sales 0 0 142,986 --
Expenses
Salaries and employee benefits 283,728 -- -- --
Sub-contracting costs -- -- -- --
Consulting 514,894 -- -- --
Travel 132,646 -- -- --
Accounting and legal fees 186,128 -- -- --
Directors' fees 33,333 1,049,342 -- --
Advertising and promotion 218,574 -- -- --
Depreciation and amortization 14,041 1,207 -- 3.0 5,167,002
Office and administration 83,143 -- -- --
Rent 29,637 -- -- --
Sales and marketing -- -- 12,173 --
Technical services -- -- 78,138 --
Management fees -- -- -- --
Foreign exchange loss (431) -- -- --
Other 52,928 -- 19,155 --
Investor relations 258,016 -- -- --
General and administration -- 154,131 206,757 --
Amortization of deferred financing fees 5,158 -- -- 4.2 (5,158)
Non cash interest expense 381,688 -- -- 4.2 (381,688)
4.1 581,685
Interest expense and bank charges 2,869 -- -- --
Software Development Costs 909,003 -- --
----------------- ------------- -------------- ------------- -----------
3,105,355 1,204,680 366,223 5,361,841
----------------- ------------- -------------- ------------- -----------
Net loss for the period (3,076,287) 57,309 (351,713) (5,361,841)
================= ============= ============== ============= ===========
Net loss per common share (0.42) -- -- --
Weighted average number of shares outstanding 7,405,421 -- -- 2.1 1,385,546
2.2 4,874,822
4.1 7,307,892
5.0 2,176,418
</TABLE>
For the Year Ended
Dec 31, 1998
JAWS
Technologies, Inc.
Pro Forma
Consolidated
USD $
Revenue 1,448,553
Cost of sales 142,986
Expenses
Salaries and employee benefits 283,728
Sub-contracting costs 0
Consulting 514,894
Travel 132,646
Accounting and legal fees 186,128
Directors' fees 1,082,675
Advertising and promotion 218,574
Depreciation and amortization 5,182,250
Office and administration 83,143
Rent 29,637
Sales and marketing 62,173
Technical services 78,138
Management fees 0
Foreign exchange loss (431)
Other 72,083
Investor relations 258,016
General and administration 360,888
Amortization of deferred financing fees 0
Non cash interest expense 0
581,685
Interest expense and bank charges 2,869
Software Development Costs 909,003
------------------
10,038,099
------------------
Net loss for the period (8,732,532)
==================
Net loss per common share (0.38)
Weighted average number of shares outstanding 23,150,099
See accompanying notes to the unaudited pro forma consolidated financial
statements
906592.5
F-8
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1998
1. The accompanying unaudited pro forma consolidated statement of income has
been prepared by management from the audited financial statements as at and
for the year ended December 31, 1998 of JAWS Technologies Inc. (a Nevada
corporation) ("JAWS") and as at and for the year ended July 31, 1999 of
Pace Systems Group Inc. ("Pace"), and as at and for the year ended June 30,
1999 of Offsite Data Services Ltd. ("Offsite"), together with other
information available to the companies. In the opinion of the management of
JAWS, this unaudited pro forma consolidated statement of income includes
all adjustments necessary for fair presentation in accordance with
generally accepted accounting principles in the United States. This pro
forma consolidated statement of income may not be indicative of the results
of operations that actually would have occurred in the events reflected
therein had been in effect on the dates indicated nor of the results of
operations which may be obtained in the future.
This unaudited pro forma consolidated statement of income should be read
in conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this Form S-1 Registration Statement.
2. The pro forma consolidated statement of income as at December 31, 1998
gives effect to the following assumptions and transactions outlined in the
S-1 Registration Statement as if the effective dates of those transactions
were January 1, 1998:
2.1 The acquisition of all of the outstanding common shares of Pace in
exchange for 1,385,546 common shares of JAWS valued at $2,355,428.
Additional contingent consideration payable on the acquisition of Pace
has not been reflected in the pro forma consolidated capitalization as
the outcome of the contingency cannot be reasonably determined at this
time. The additional consideration, which will be recorded as
additional common share capital if and when it becomes payable, is
based upon the achievement of certain performance and revenue targets
over the twenty-four months following the close date. The maximum
additional consideration related to the Pace acquisition, assuming all
the performance and revenue targets established in the applicable share
purchase agreement are met would result in the issuance of an
additional 346,386 common shares of JAWS.
The acquisition has been accounted for in this pro forma statement of
income using the purchase method. The aggregate purchase price of
$2,455,428 has been allocated to the net assets acquired based on their
estimated fair values, as follows:
906592.5
F-9
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1998
Purchase Price
Allocation
$
------------------
Net liabilities acquired (12,257)
Goodwill 2,467,685
------------------
Purchase price 2,455,428
==================
Consideration:
Common shares of JAWS 2,355,428
Acquisition costs 100,000
------------------
Total consideration 2,455,428
==================
2.2 The acquisition of all of the outstanding common shares of Offsite
(including common shares of Offsite issuable on the exercise of all of
the outstanding Offsite A warrants) for 4,874,822 exchangeable shares
of JAWS with an ascribed value of $13,113,271.
Pursuant to this Offer, JAWS issued 2,318,550 warrants in exchange for
the outstanding Offsite warrants. 1,818,550 of these warrants entitle
the holder thereof to acquire .3524 of a JAWS common share upon payment
of Cdn $0.40 up to March 15, 2000; the remaining 500,000 warrants
entitle the holder to acquire .3524 of a JAWS common share for prices
ranging from Cdn $0.50 to Cdn $0.55 up to September 29, 2001.
Pursuant to this Offer, 910,584 stock options of Offsite for stock
options of JAWS, which entitle the holder of each to purchase .3524 of
an exchangeable share of JAWS, at a price of Cdn$0.25 which expire on
March 15, 2004.
The acquisition has been accounted for in this pro forma consolidated
financial statement using the purchase method. The aggregate purchase
price of $13,363,271 has been allocated to the net assets acquired
based on their estimated fair values, as follows:
Purchase Price
Allocation
$
-----------------
Net assets acquired 329,951
Goodwill 13,033,320
-----------------
Purchase price 13,363,271
=================
Consideration:
Common shares of JAWS 13,113,271
Acquisition costs 250,000
-----------------
Total consideration 13,363,271
=================
3. The pro forma consolidated statement of income for the twelve months ended
December 31, 1998 gives effect to the acquisitions by JAWS as described in
2.1 and 2.2, above as if the transactions had occurred January 1, 1998. The
following adjustments are reflected:
906592.5
F-10
<PAGE>
JAWS Technologies Inc.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in $U.S.)
December 31, 1998
3.1 The amortization of goodwill attributable to the allocation of the
purchase price of Pace in excess of the carrying value of the net
assets acquired (see 2.1 above) calculated on a straight-line basis
over a period of three years.
3.2 The amortization of goodwill attributable to the allocation of the
purchase price of Offsite in excess of the carrying value of the net
assets acquired, (see 2.2 above) calculated on a straight-line basis
over a period of three years.
4. Effective on November 1, 1999 JAWS entered into a debenture amendment and
settlement agreement (the "Agreement") with Thomson Kernaghan & Co. Limited
("Thomson Kernaghan"), which resulted in the settlement of all outstanding
obligations of the convertible debentures and related warrants (issuable
pursuant to the Debenture Acquisition Agreement dated September 25, 1998 as
amended on April 27, 1999), and the issuance by JAWS of common shares to
Thomson Kernaghan on November 23, 1999.
The pro forma consolidated income statement for the year ended December 31,
1998 gives effect to the following assumptions and transactions as if the
effective date of the Agreement was January 1, 1998:
4.1 An increase to non cash interest expense of $581,685 representing the
unamortized fees and related interest and penalty amounts.
4.2 Interest expense of $381,688 and amortization of deferred financing
fees of $5,158 relating to the convertible debentures have been
eliminated.
5. The amounts shown in this pro forma consolidated statement of income for
Pace and for Offsite have been translated into United States dollars from
Canadian dollars at the period average rate for the income statement.
906592.5
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT1
To the Board of Directors
JAWS Technologies, Inc.
We have audited the accompanying consolidated balance sheets of JAWS
Technologies, Inc. as at December 31, 1998 and 1997 and the related consolidated
statements of loss and deficit and comprehensive loss, changes in stockholders'
equity and cash flows for the year ended December 31, 1998, and for the period
from the date of incorporation on January 27, 1997 to December 31, 1997. 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 United States 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. as at December 31, 1998 and December 31, 1997 and the
consolidated results of its operations and its consolidated cash flows for the
year ended December 31, 1998, and for the period from the date of incorporation
on January 27, 1997 to December 31, 1997, 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 working 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
March 22, 1999 Chartered Accountants
except for Note 17 which is at December 2, 1999
906592.5
F-12
<PAGE>
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
(see basis of presentation - note 1)
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1999 1998 1997
$ $ $
- ------------------------------------------------- ---------------- ---------------- ---------------
(unaudited)
ASSETS
Current
<S> <C> <C> <C>
Cash 664,428 33,732 111
Term deposits [note 4] 27,000 -- --
Accounts receivable 421,138 7,243 --
Due from related parties [note 7] -- 13,118 --
Prepaid expenses and deposits 86,828 140,456 7,500
- ------------------------------------------------- ---------------- ---------------- ---------------
1,199,394 194,549 7,611
Fixed assets, net of $82,292 (December 31, 1998 -
$13,461; December 31, 1997 - $1,160) accumulated
depreciation [note 5] 498,004 78,830 2,320
- ------------------------------------------------- ---------------- ---------------- ---------------
1,697,398 273,379 9,931
================================================= ================ ================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 897,947 428,600 32,976
Current portion of capital lease obligations payable 14,119 -- --
[note 12]
Due to related parties [note 7] 196,258 197,115 --
Due to stockholders [note 7] 2,044 74,717 78,159
- ------------------------------------------------- ---------------- ---------------- ---------------
1,110,368 700,432 111,135
- ------------------------------------------------- ---------------- ---------------- ---------------
Capital lease obligations payable [note 12] 66,989 -- --
Convertible debentures [note 8] 1,091,348 146,606 --
- ------------------------------------------------- ---------------- ---------------- ---------------
1,158,337 146,606 78,159
- ------------------------------------------------- ---------------- ---------------- ---------------
Commitments and contingencies [notes 1 and 11)
Stockholders' deficiency
Authorized
95,000,000 common shares at $0.001 par value
5,000,000 preferred shares at $0.001 par value
Common stock issued and paid-up [note 6] 15,114 10,612 4,000
Capital in excess of par value [note 6] 5,369,891 2,212,153 31,650
Contributed surplus 1,241,607 425,559 --
Cumulative translation adjustment (145,643) (8,842) --
Deficit (7,052,276) (3,213,141) (136,854)
- ------------------------------------------------- ---------------- ---------------- ---------------
(571,307) (573,659) (101,204)
- ------------------------------------------------- ---------------- ---------------- ---------------
1,697,398 273,379 9,931
- ------------------------------------------------- ---------------- ---------------- ---------------
</TABLE>
See accompanying notes
On behalf of the Board: (signed) Arthur Wong (signed) Riaz Mamdani
Director Director
906592.5
F-13
<PAGE>
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND
COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Period from
incorporation
Nine months ended Year ended January 27, to
September 30, December 31, December 31,
---------------------------- ---------------- ----------------
1999 1998 1998 1997
$ $ $ $
- ------------------------------------- -------------- -------------- --------------- -----------------
(unaudited)
<S> <C> <C> <C> <C>
REVENUE [note 7] 372,630 28,440 29,068 --
- ------------------------------------- -------------- -------------- --------------- -----------------
EXPENSES [note 7]
Accounting and legal 246,909 105,372 186,128 69,952
Advertising and promotion 234,398 194,764 218,574 35,000
Consulting 438,655 685,375 514,894 30,731
Depreciation and amortization 67,462 8,877 14,041 580
Directors' fees 97,501 -- 33,333 --
Management fees 147,036 -- -- --
Amortization of deferred financing
fees [note 8] 75,601 -- 5,158 --
Foreign exchange loss 10,248 -- (431) --
Non cash interest expense [note 8] 833,115 -- 381,688 --
Interest expense and bank charges 6,197 -- 2,869 --
Investor relations 100,255 -- 258,016 --
Office and administration 110,638 -- 83,143 --
Other 291,420 76,649 52,928 591
Rent 180,840 13,523 29,637 --
Sub-contracting costs 337,712 -- -- --
Travel 281,643 120,342 132,646 --
Wages and employee benefits 752,135 124,599 283,728 --
Software development costs
[note 3] -- 909,003 909,003 --
- ------------------------------------- -------------- -------------- --------------- -----------------
4,211,765 2,238,504 3,105,355 136,854
- ------------------------------------- -------------- -------------- --------------- -----------------
Loss for the period [note 10] (3,839,135) (2,210,064) (3,076,287) (136,854)
Other comprehensive loss
Foreign currency translation
adjustment (136,801) (29,847) (8,842) --
- ------------------------------------- -------------- -------------- --------------- -----------------
Comprehensive loss (3,975,936) (2,239,911) (3,085,129) (136,854)
===================================== ============== ============== =============== =================
Deficit, beginning of period (3,213,141) (136,854) (136,854) --
Loss for the period (3,839,135) (2,210,064) (3,076,287) (136,854)
- ------------------------------------- -------------- -------------- --------------- -----------------
Deficit, end of period (7,052,276) (2,346,918) (3,213,141) (136,854)
- ------------------------------------- -------------- -------------- --------------- -----------------
Loss per common share [note 9] (0.30) (0.31) (0.42) (0.03)
Weighted average number of shares
outstanding 12,837,302 7,101,869 7,405,421 4,000,000
===================================== ============== ============== =============== =================
</TABLE>
See accompanying notes
906592.5
F-14
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Capital in
Shares Par Value Excess of Contributed
Par Value Surplus
$ $ $
- ---------------------------------------- -------------- ------------ -------------- ------------------
Balance, January 27, 1997
<S> <C> <C> <C> <C>
Issuance of Common Stock for cash 4,000,000 4,000 56,000 --
Less share issue costs -- -- (24,350) --
- ---------------------------------------- -------------- ------------ -------------- ------------------
Balance, December 31, 1997 4,000,000 4,000 31,650 --
======================================== ============== ============ ============== ==================
Issuance of Common Stock for services
[note 6] 400,000 400 199,600 --
Issuance of Common Stock on acquisition
of subsidiary [note 4] 1,500,000 1,500 838,248 --
Issuance of Common Stock for cash 2,800,000 2,800 1,017,200 --
Warrants issued with issuance of
convertible debentures [note 8] -- -- -- 342,857
Equity component of convertible
debentures [note 8] -- -- -- 118,462
Equity component of financing fees
[note 8] -- -- -- (11,760)
Equity component of financing fees
[note 8] -- -- -- (24,000)
Issue of Common Stock upon conversion
of convertible debentures [note 8] 1,912,317 1,912 211,886 --
Financing fee associated with converted
debentures [note 8] -- -- (21,117) --
Share issue costs -- -- (65,314)
- ---------------------------------------- -------------- ------------ -------------- ------------------
Balance, December 31, 1998 10,612,317 10,612 2,212,153 425,559
======================================== ============== ============ ============== ==================
(unaudited)
Issuance of Common Stock for cash 317,188 317 101,183 --
Equity component of convertible
debentures [note 8] -- -- -- 424,575
Equity component of financing fees
[note 8] -- -- -- (14,000)
Issuance of Common Stock for cash 4,044,761 4,044 2,867,756 --
Equity component of convertible
debenture [note 8] -- -- -- 193,292
Equity component of financing fee
[note 8] -- -- -- (19,329)
Warrants issued with issuance of
convertible debentures [note 8] -- -- -- 341,538
Equity component of financing fee [note
8] -- -- -- (110,028)
Issuance of Common Stock in settlement
of trade payable 141,000 141 188,799 --
- ---------------------------------------- -------------- ------------ -------------- ------------------
Balance, September 30, 1999 15,115,266 15,114 5,369,891 1,241,607
======================================== ============== ============ ============== ==================
</TABLE>
See accompanying notes
906592.5
F-15
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
Period from
incorporation
Nine months ended Year ended January 27, to
September 30, December 31, December 31,
--------------------------- ---------------- ----------------
1999 1998 1998 1997
$ $ $ $
- -----------------------------------------------------------------------------------------------------
(unaudited)
Cash flows used in operating activities
<S> <C> <C> <C> <C>
Loss for the period (3,839,135) (2,210,064) (3,076,287) (136,854)
Adjustments to reconcile loss to cash
flows used in operating activities:
Consulting expense not involving
the payment of cash [note 6] -- 200,000 200,000 --
Depreciation and amortization 67,462 8,877 14,041 580
Amortization of deferred financing 75,601 -- 5,158 --
fees
Software development costs -- 909,189 909,003 --
Non-cash interest expense on
warrants -- -- 257,143 --
Non-cash interest expense on
convertible debentures 755,792 -- 118,462 --
Non-cash interest expense on
convertible debenture conversion
and accrued interest 77,323 -- 6,083 --
Changes in non-cash working capital
balances [note 13] 121,341 364,410 439,422 25,476
- --------------------------------------- -------------- ------------- ---------------- ----------------
(2,741,731) (727,588) (1,126,975) (110,798)
- --------------------------------------- -------------- ------------- ---------------- ----------------
Cash flows used in investing activities
Purchase of fixed assets (542,329) (134,474) (115,584) (2,900)
Purchase of term deposits [note 4] (27,000) -- -- --
- --------------------------------------- -------------- ------------- ---------------- ----------------
(569,329) (134,474) (115,584) (2,900)
- --------------------------------------- -------------- ------------- ---------------- ----------------
Cash flows generated by (used in)
financing activities
Proceeds from the issuance of Common
Stock, net of issue costs 3,024,314 954,686 954,686 35,650
Repayment of stockholder advances (72,673) (117,044) (78,159) 78,159
Proceeds from stockholder advances -- 24,309 20,273 --
Proceeds on issue of convertible
debenture 1,100,000 -- 420,000 --
Financing fees on issue of convertible
debenture (110,000) -- (42,000) --
- --------------------------------------- -------------- ------------- ---------------- ----------------
3,941,641 861,951 1,274,800 113,809
- --------------------------------------- -------------- ------------- ---------------- ----------------
Increase (decrease) in cash 630,696 (111) 32,241 111
Cash acquired on acquisition of
subsidiary -- -- 1,380 --
Cash, beginning of period 33,732 111 111 --
- --------------------------------------- -------------- ------------- ---------------- ----------------
Cash, end of period 664,428 -- 33,732 111
- --------------------------------------- -------------- ------------- ---------------- ----------------
</TABLE>
See accompanying notes
906592.5
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
1. BASIS OF PRESENTATION
JAWS Technologies, Inc., (the "Company") was incorporated on January 27, 1997
under the laws of the State of Nevada as "E-Biz" Solutions, Inc. On March 27,
1998, "E-Biz" Solutions, Inc. changed its name to JAWS Technologies, Inc. The
business purpose is developing and selling encryption software. These activities
are carried out through the Company's wholly owned Canadian subsidiary.
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 a working capital deficiency of $505,883 at December
31, 1998, a deficit of $3,213,141 at December 31, 1998 and $7,052,276 as at
September 30, 1999 and net operating cash outflows of $2,741,616 for the nine
month period ended September 30, 1999. Although it has a positive working
capital balance of $89,026 at September 30, 1999, 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.
Management believes that 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 accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States.
Use of estimates
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.
Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, JAWS Technologies, Inc., an Alberta, Canada
corporation ("JAWS Alberta"), and JAWS
906592.5
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Technologies (Ontario) Inc. an Ontario Canada corporation ("JAWS Ontario"),
after elimination of intercompany accounts and transactions.
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 for internal use - 33% straight line
Leasehold improvements - 20% 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.
Financing fees
Financing fees associated with that portion of the 10% convertible debentures
classified as debt are deferred and amortized over the life of the debentures.
Financing fees associated with that portion of the convertible debentures
classified as contributed surplus is charged to that account. The pro rata
portion of financing fees associated with converted debentures is charged to
share capital in excess of par value.
Revenue Recognition
Revenue from selling encryption software is recognized when the software is
delivered. Consulting fees are recognized when the services are rendered or
earned.
Advertising
Advertising costs are expensed as incurred.
Income Taxes
The Company follows the liability method of accounting for the tax effect of
temporary differences between the carrying amount and the tax basis of the
company's assets and liabilities. Temporary differences arise when the
realization of an asset or the settlement of a liability would give rise to
either an increase or decrease in the Company's income taxes payable for the
year or later period. Deferred income taxes are recorded at the income tax rates
that are expected to apply when the deferred tax liability is settled or the
deferred tax asset is realized. When necessary, valuation allowances are
established to reduce deferred income tax assets to the amount expected to be
realized. Income tax expense is the tax payable for the period and the change
during the period in deferred income tax assets and liabilities.
906592.5
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Foreign Currency Translation
The functional currency of the Company's subsidiaries is the Canadian dollar.
Accordingly, assets and liabilities of the subsidiaries 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 subsidiaries are recorded in a "Cumulative Translation
Adjustment" account in stockholders' equity.
Loss Per Common Share
The loss per common share has been calculated based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share, assuming all warrants, options and conversion features were exercised,
does not differ from basic earnings per share.
Stock Options
The Company applies the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock option plans. Accordingly,
no compensation cost is recognized in the accounts as options are granted with
an exercise price that approximates the prevailing market price.
Prior year amounts
Certain prior year amounts have been reclassified to conform to the presentation
adopted in 1999.
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 in exchange for all of the outstanding Common Stock of JAWS
Alberta. The options issued in connection with the acquisition have been
ascribed no value. JAWS Alberta was 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, and thereby the amounts allocated to software and the shares
issued, net of other assets and liabilities acquired, 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:
$
- ---------------------------------------------------------
Net assets acquired
Non-cash working capital (5,087)
Software under development 909,003
Fixed assets 2,891
Due to stockholders (54,443)
- ---------------------------------------------------------
906592.5
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Net assets acquired, excluding cash 852,364
Acquisition costs (13,996)
Cash acquired 1,380
- ----------------------------------------------------------------
Net assets acquired for Common Stock 839,748
================================================================
The amount allocated to software under development relates to encryption
software and its related algorithms, including the "L5" software. This software,
at the time of purchase, was not completely developed, tested or otherwise
available for sale and therefore has been immediately expensed in the
accompanying consolidated statements of loss and deficit. Coding and testing
activities for this software were completed on July 31, 1998.
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
Pro forma loss and pro forma 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 (year ended December 31,
1998 - $3,083,685 and $0.42 respectively). Pro forma revenue does not differ
from that recorded for the period to September 30, 1998, being $28,440, or for
the period to December 31, 1998, being $29,068.
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. These deposits
have been pledged as security for certain corporate credit cards, and as such
are not available for the Company's general use. These deposits earn interest at
2.95 percent per annum and mature May 9, 2000.
5. FIXED ASSETS
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
$ $ $
- -------------------------------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
Furniture and fixtures 261,184 29,978 231,206
Computer hardware 122,815 27,769 95,046
Computer software for internal use 33,937 6,680 27,257
Leasehold improvements 162,360 17,865 144,495
- -------------------------------------- ---------------- ------------------ ----------------
580,296 82,292 498,004
- -------------------------------------- ---------------- ------------------ ----------------
December 31, 1998
----------------------------------------------------
Accumulated Net Book
Cost Depreciation Value
$ $ $
- -------------------------------------- ---------------- -------------------- --------------
Furniture and fixtures 31,758 6,482 25,276
Computer hardware 47,371 5,534 41,837
</TABLE>
906592.5
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Computer software for internal use 13,162 1,445 11,717
- --------------------------------- ------------ ----------- --------------
92,291 13,461 78,830
- --------------------------------- ------------ ----------- --------------
6. SHARE CAPITAL
Authorized
95,000,000 common shares at $0.001 par value (increased from 20,000,000
April 8, 1999)
5,000,000 preferred shares at $0.001 par value
Common stock issued
During 1998, the 400,000 restricted common shares issued for services provided
by two consultants in relation to the establishment of the capital structure of
the Company. The shares were recorded at their estimated fair value of $200,000.
Common stock held in escrow
Upon entering into the 10% convertible debenture agreement (see note 8) the
Company placed 9,500,000 shares in escrow relating to the $2 million of
financing. In addition, 1,071,429 shares and 357,143 shares were placed in
escrow relating to the purchasers' and agent's warrants issued in relation to
the 10% convertible debenture agreement.
Options
As at September 30, 1999, the Company has issued 2,360,600 options to purchase
Common Stock to the Company's directors, officers and employees. Of the total
issued, none have been exercised as at September 30, 1999. Details of the stock
options outstanding at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Number of Options Exercise Price Expiry Date
- ------------------------------------- --------------------------------- --------------------------------
<S> <C> <C>
200,000 0.15 February 22, 2008
50,000 0.23 June 30, 2008
35,000 0.23 June 30, 2008
31,000 0.33 June 30, 2008
143,000 0.37 June 30, 2008
22,000 0.40 June 30, 2008
400,000 0.48 August 1, 2000
706,500 0.48 June 30, 2008
82,500 0.58 June 30, 2008
71,000 0.62 June 30, 2008
10,000 0.65 June 30, 2008
36,000 0.69 June 30, 2008
20,000 0.71 June 30, 2008
62,000 0.73 June 30, 2008
43,500 0.75 June 30, 2008
75,000 0.77 June 30, 2008
5,000 0.81 June 30, 2008
47,500 0.82 June 30, 2008
</TABLE>
906592.5
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
250,000 0.87 June 30, 2008
5,600 0.98 June 30, 2008
65,000 2.44 June 30, 2008
- ------------------------ -------------------------- -----------------------
2,360,600
======================== ========================== =======================
The fair value of each option granted to date is estimated on the date of grant
using the Black Scholes option- pricing model with the following assumptions:
expected volatility of 167%, risk-free interest rate of 4.87%; no payment of
common share dividends; and expected life of 10 years. Had compensation cost 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," the Company's loss and loss
per common share for the nine month period ended September 30, 1999 would have
been $4,220,310 and $0.33 respectively (year ended December 31, 1998: $3,324,618
and $0.45, nine months ended September 30, 1998: $2,996,987 and $0.36,
respectively).
During 1998, the Company had entered into a Put Option agreement with an
investor which allowed the Company to require the investor to purchase up to
25,000,000 shares of the Common Stock of the Company. In addition, the investor
was to be granted warrants to purchase up to 3,000,000 shares of Common Stock.
On April 26, 1999, the Company and the investor agreed to cancel the agreement
in exchange for warrants to the investor to purchase up to 1,000,000 shares of
Common Stock at an exercise price of $0.70 per share. The warrants expire April
15, 2002.
On June 21, 1999, the Company issued 834,000 share purchase warrants, which
entitle the holder to purchase 834,000 common shares at $2.25 per share until
June 20, 2001. On August 26, 1999 the Company issued 141,000 common shares at
$1.34 per common share in settlement of a trade payable.
7. RELATED PARTY TRANSACTIONS
Amounts due to related parties consist of the following amounts:
September December December
30, 31, 31,
1999 1998 1997
$ $ $
- ------------------------------ ---------- ------------------ -----------------
Due from related parties
Futurelink Corp. -- 9,073 --
Futurelink/Sysgold Ltd. -- 4,045 --
- ------------------------------ ---------- ------------------ -----------------
-- 13,118 --
============================== ========== ================== =================
Due to related parties
Officers and stockholders 12,849 43,588 --
Futurelink Corp. 18,602 32,175 --
Willson Stationers Ltd. 7,304 1,352 --
Directors 157,503 120,000 --
- ------------------------------ ---------- ------------------ -----------------
196,258 197,115 --
============================== ========== ================== =================
906592.5
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Due to stockholders
Bankton Financial Corporation -- 15,775 --
Cameron Chell 2,044 1,957 --
Hampton Park Ltd. -- 56,985 --
Other stockholder -- -- 78,159
- ------------------------------- ---------- ------------------ -----------------
2,044 74,717 78,159
=============================== ========== ================== =================
Effective July 31, 1999 the Company entered into an agreement with Pace Systems
Group Inc., a related party (see note 17), whereby Pace assigned certain of its
revenue contracts to the Company. During the period from July 31 to September
30, 1999 the Company earned $337,988 from these contracts, which is included in
revenues on the accompanying financial statements. The Company also incurred
sub-contracting costs in respect of these contracts, in the amount of $337,712
which is included in expenses in the accompanying financial statements.
During the year ended December 31, 1998, the Company incurred $76,612 in fees
associated with computer services provided by Futurelink Corp., an entity of
which certain directors are also directors of the Company. There were $28,289
fees incurred during the period ended September 30, 1999. The Company provided
sales to Futurelink Corp. during the period ended September 30, 1999 in the
amount of $2,925 (December 31, 1998 - $9,073). The fees charged by and sales
provided to Futurelink Corp. are recorded at their exchange amounts.
During the year ended December 31, 1998, the Company provided services of $4,045
to Futurelink/Sysgold Ltd., an entity of which certain directors are also
directors of the Company. This amount was included in due from related parties
at December 31, 1998. These services are provided on normal commercial terms and
conditions. No services were provided to Futurelink/Sysgold Ltd. during the
period ended September 30, 1999.
Office and administration expenses for the nine month period ended September 30,
1999, include $11,858 (December 31, 1998 - $8,035) paid to Willson Stationers
Ltd., an entity of which certain directors are also directors and officers of
the Company. These transactions are recorded at their exchange amounts.
Consulting fees for the year ended December 31, 1998, include $198,168 to
officers and stockholders of the Company for services provided.
Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, bears interest at 8% per
annum and has no set repayment terms. The remaining amounts due to stockholders
do not carry interest and have no set repayment terms. All stockholders have
indicated they do not intend to demand repayment within the next year.
The Company entered into an agreement to lease premises from a stockholder. The
lease began on November 1, 1998 and is for a five year term. The minimum rent is
$9.42 per square foot per annum with 9,920 square feet of net rentable area.
Additional rent is estimated at $4.03 per square foot of net rentable area per
annum. The net rent expense recognized in the nine month period ended September
30, 1999 was $67,870 (year ended December 31, 1998 - $3,991).
906592.5
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
8. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
September December
30, 31
1999 1998
$ $
- --------------------------------------------------------------------- ----------------- ----------------
Principal
<S> <C> <C>
Net balance outstanding, beginning of period 146,606 --
Funds advanced to date 1,100,000 420,000
Debentures converted during the period -- (210,000)
- -------------------------------------------------------------------- ------------------ ----------------
1,246,606 210,000
- --------------------------------------------------------------------- ----------------- ----------------
Financing Fees
Fees paid on funds advanced to date (110,000) (42,000)
Intrinsic value associated with equity component of 33,329 11,760
debentures
Fees paid through issuance of warrants to agent (341,538) (85,714)
Intrinsic value associated with equity component of 110,027 24,000
debentures
Amortization of financing fees to date 75,601 5,158
Financing fees associated with debentures converted to date -- 21,117
- --------------------------------------------------------------------- ----------------- ----------------
(232,581) (65,679)
- --------------------------------------------------------------------- ----------------- ----------------
Interest Expense
Accrued interest expense 77,323 2,285
- --------------------------------------------------------------------- ----------------- ----------------
Net balance outstanding, end of period 1,091,348 146,606
===================================================================== ================= =================
</TABLE>
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 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. For the
$500,000 of convertible debentures that were issued on January 26, 1999,
$250,000 of debentures can be converted at a fixed price of $0.40 per common
share and the remaining $250,000 can be converted into shares at a fixed rate of
$0.28 per common share. 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. A financing fee of 10% is charged on the
principal sum of each convertible debenture issued. 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.
On April 16, 1999, the Company drew down an additional $600,000 of financing
under the 10% convertible debenture agreement, which can be converted into
Common Stock at a fixed price of $0.65 per common share.
906592.5
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
On April 27, 1999, the debenture agreement was amended to include (among others)
the following changes:
(i) the total amount available under the debenture agreement was
increased from $2,000,000 to $5,000,000.
(ii) the financing fee applicable to the additional $3,000,000
available was set at 8% of the principal sum issued.
(iii) the balance of the financing not yet drawn, $3,480,000, has a
fixed conversion price of $0.40 per share.
(iv) an additional 923,077 share purchase warrants were issued,
which give the holder the right to purchase one common share
for each warrant held, at a price of $0.65 per warrant.
Through September 30, 1999, the Company has issued convertible debentures
totaling $1,520,000 of which $736,329 was recorded as contributed surplus with
an offsetting amount charged as interest on long term debt. Of the debentures
issued, $210,000 principal plus $3,798 interest was converted into 1,912,317
shares on November 30, 1998, based on a conversion price of $.1118 (being 78% of
the average closing bid price of the Company's Common Stock for the three
trading days preceding the Notice of Conversion). Interest totaling $79,608 has
been accrued and included in the convertible debenture balance outstanding at
September 30, 1999. These shares will be formally issued when the Company's SB-2
Registration Statement has been declared effective.
At the time of the initial funding on October 1, 1998, the Company issued
1,428,572 common share purchase warrants (357,143 to the agent and 1,071,429 to
the ultimate subscriber of the issue). Each warrant gives the holder the right
to purchase one common share of the Company at $0.28 until October 31, 2001. An
amount of $342,857 has been included in contributed surplus as the estimated
value attributed to these warrants as they were exercisable upon issuance. In
addition, the warrants issued to the agent have been treated as a financing fee
in the amount of $85,714. The value of these fees associated with the equity
component of the 10% convertible debentures has been charged to contributed
surplus in the amount of $24,000. The remaining balance is being amortized over
the life of the 10% convertible debentures.
Through September 30, 1999 the Company has paid financing fees on the 10%
convertible debentures totaling $152,000. The fees associated with the equity
component of the 10% convertible debentures, being $45,089, have been charged to
contributed surplus. The remaining amount, which has been recorded as a
reduction of the debenture principal, is being amortized over the life of the
10% convertible debentures, unless the debentures are converted. If converted,
the pro rata portion of the financing fees associated with the converted
debentures is charged to capital in excess of par value. During 1998, $21,117
has been charged to capital in excess of par value relating to $210,000 of
convertible debentures which were converted.
The additional share purchase warrants issued on April 27, 1999 as described in
(iv) above have been recorded as contributed surplus at their estimated value of
$341,538, as they were exercisable upon issuance. An offsetting amount of
$110,027 attributable to the equity portion of the related debentures has been
recorded as a charge against contributed surplus; the remainder has been charged
as a discount to debt and is being amortized over the life of the debt.
906592.5
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
The Company is currently in the process of filing a form SB-2 Registration
Statement qualifying the shares to be issued on conversion of the debentures
with the Securities and Exchange Commission. Until such time as the common
shares are registered, a charge of 0.986% per day will apply against the initial
amount funded. Further, as registration did not occur within 120 days of initial
funding, a charge of 0.1644% per day will apply for each day thereafter. The
initial amount funded on October 1, 1998 was $200,000. An amount of $82,200 for
the penalty of late filing of the Registration Statement, and has been included
in accounts payable.
9. LOSS PER SHARE
Loss per common share is loss for the period divided by the weighted average
number of common shares outstanding. The effect on earnings per share of the
exercise of options and warrants, and the conversion of the convertible
debentures is anti-dilutive.
10. INCOME TAXES
The income tax benefit differs from the amount computed by applying the U.S.
federal statutory tax rates to the loss before income taxes for the following
reasons:
<TABLE>
<CAPTION>
September 30, September 30, December 31, December 31,
1999 1998 1998 1997
$ $ $ $
- ------------------------------------------- ----------------- -------------- ---------------- ----------------
(34%) (35%) (34%) (34%)
<S> <C> <C> <C> <C>
Income tax benefit at U.S. statutory rate (1,305,306) (773,522) (1,045,938) (46,530)
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation
allowance 1,200,985 968,663 1,106,172 46,530
Non-deductible expenses 338,887 - 128,162 -
Foreign tax rate differences (234,566) (195,141) (188,396) -
- ------------------------------------------- ----------------- -------------- ---------------- ----------------
Income tax benefit -- -- -- --
- ------------------------------------------- ----------------- -------------- ---------------- ----------------
For financial reporting purposes, loss before income taxes includes the
following components:
September 30, September 30, December 31, December 31,
1999 1998 1998 1997
$ $ $ $
- ------------------------------------------ ------------------ -------------- ---------------- ----------------
Pre-tax loss:
United States (1,740,449) (258,650) (1,302,313) (136,854)
Foreign (2,098,686) (1,951,414) (1,773,974) -
- ------------------------------------------- ----------------- -------------- ---------------- ----------------
(3,839,135) (2,210,064) (3,076,287) (136,854)
=========================================== ================= ============== ================ ================
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. The components of the
Company's deferred tax assets are as follows:
September 30, December 31, December 31,
1999 1998 1997
$ $ $
- -------------------------------------------- ---------------- --------------- ------------
Deferred tax assets (liabilities):
Net operating loss carryforwards 1,884,932 697,768 --
</TABLE>
906592.5
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
Start-up costs 30,859 37,999 46,333
Depreciation 35,714 5,807 --
Organization costs 361 394 197
Debt issue costs (3,776) 5,137 --
Software costs 405,597 405,597 --
- -------------------------- ------------ ------------------- ------------------
Net deferred tax assets 2,353,687 1,152,702 46,530
Valuation allowance (2,353,687) (1,152,702) (46,530)
- -------------------------- ------------ ------------------- ------------------
Net deferred tax assets -- -- --
========================== ============ =================== ==================
The Company has provided a valuation allowance for the full amount of deferred
tax assets in light of its history of operating losses since its inception.
The Company has U.S. operating losses carried forward of $1,705,000 which expire
as follows:
$
-----------
2018 880,000
2019 825,000
The availability of these loss carryforwards to reduce future taxable income
could be subject to limitations under the Internal Revenue Code of 1986, as
amended. Certain ownership changes can significantly limit the utilization of
net operating loss carryforwards in the period following the ownership change.
The Company has not determined whether such changes have occurred and the effect
such changes could have on its ability to carry forward all or some of the U.S.
net operating losses.
The Company has non-capital losses carried forward for Canadian income tax
purposes of $3,022,000. These losses expire as follows:
$
-------------
2003 45,000
2004 7,000
2005 895,000
2006 2,075,000
906592.5
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
11. COMMITMENTS
The Company is committed to the following minimum lease payments under operating
leases for premises and equipment:
$
-----------
Remainder of 1999 28,236
2000 112,943
2001 94,932
2002 94,641
2003 78,867
-----------
Total 409,619
-----------
12. CAPITAL LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at September 30, 1999 under capital leases are
as follows:
- -------------------------------------------------------- ----------------------
Remainder of 1999 7,965
2000 22,344
2001 22,344
2002 21,486
2003 20,627
2004 11,868
- ------------------------------------------------------- -----------------------
Total future minimum lease payments 106,634
Less: imputed interest (25,526)
- -------------------------------------------------------- ----------------------
Balance of obligations under capital leases 81,108
Less: current portion included in accounts payable and accrued
liabilities (14,119)
- -------------------------------------------------------- ----------------------
Long term obligation under capital leases 66,989
- -------------------------------------------------------- ----------------------
906592.5
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
13. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
September 30, September 30, December 31, December 31,
1999 1998 1998 1997
$ $ $ $
- ------------------------------ ------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Accounts receivable (413,895) (20,088) (7,243) --
Due from related parties 13,118 -- (13,118) --
Prepaid expenses and 53,628 (19,612) (132,956) (7,500)
deposits
Accounts payable and
accrued liabilities 469,347 404,110 395,624 32,976
Due to related parties (857) -- 197,115 --
- ------------------------------- ------------ ---------------- ----------------- -------------------
Change relating to
operating activities 121,341 364,410 439,422 25,476
- ------------------------------- ------------ ---------------- ----------------- -------------------
</TABLE>
14. SEGMENTED INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to the development and sale of encryption software. These
activities are planned to be carried out in Canada and the United States. To
date, all the activities have occurred in Canada.
15. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, amounts due from
related parties, deposits, accounts payable and accrued liabilities, amounts due
to related parties, capital lease obligations, and amounts due to stockholders
approximate their fair value. It is management's opinion that the Company is not
exposed to significant currency or credit risks arising from these financial
instruments.
The estimated fair value as at September 30, 1999 of the 10% convertible
debentures is $864,934 (December 31, 1998 - $189,000). This is based on the
estimated present value of the principal and interest of the debenture.
The Company is subject to cash flow risk to the extent of the fixed 10% simple
interest rate being charged on the convertible debentures. The effective annual
interest rate realized by the Company, exclusive of the amounts relating to the
conversion feature of the 10% convertible debentures and the warrants, was 10%
(December 31, 1998 - 10%).
16. RECENT PRONOUNCEMENTS
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", which will be effective for fiscal years beginning after
June 15, 2000. The Company does not acquire derivatives or engage in hedging
activities.
906592.5
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
(Amounts as at September 30, 1999 and for the nine month period then ended are
unaudited)
17. SUBSEQUENT EVENTS
a) Effective on November 3, 1999, the Company acquired all of the
outstanding common shares of Pace Systems Group Inc. ("Pace"). As
consideration for this purchase, the Company will issue 1,731,932 common
shares, valued at $1.70 per share, representing total consideration of
$2,944,284.
b) On November 2, 1999 and as amended December 2, 1999, the Company
entered into a pre-acquisition agreement with Offsite Data Services Ltd.
(Offsite), a company incorporated in the Province of Alberta and listed on
the Alberta Stock Exchange, whereby the companies have agreed to combine
their business interests through an offer by the Company to purchase all
of the outstanding shares of Offsite. The offer is expected to be mailed
on December 10, 1999.
c) Effective on November 1, 1999 Jaws entered into a debenture amendment and
settlement agreement (the "Agreement") with Thomson Kernaghan & Co.
Limited ("Thomson Kernaghan"), which resulted in the settlement of all
outstanding obligations of the convertible debentures and related
warrants, and the issuance by Jaws of common shares to Thomson Kernaghan
on November 23, 1999.
906592.5
F-30
<PAGE>
FINANCIAL STATEMENTS
Pace Systems Group
July 31, 1999 and 1998
922641.1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors of
Pace Systems Group
We have audited the accompanying balance sheets of Pace Systems Group as at July
31, 1999 and 1998 and the related statements of income (loss) and comprehensive
income (loss) and deficit and cash flows for the years then ended. 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 United States 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Corporation as at July 31,
1999 and 1998 and the results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States.
Toronto, Canada,
October 1, 1999. Chartered Accountants
922641.1
F-31
<PAGE>
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
As at July 31
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current
Cash 12,734 236,125
Accounts receivable 350,831 193,813
Income taxes recoverable -- 2,238
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 363,565 432,176
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed assets, net [note 2] 9,870 6,129
- ------------------------------------------------------------------------------------------------------------------------------------
373,435 438,305
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current
Accounts payable and accrued liabilities 129,045 542,501
Due to related parties [note 4] 262,854 605
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 391,899 543,106
- ------------------------------------------------------------------------------------------------------------------------------------
Commitment [note 6]
Stockholders' deficiency
Authorized
100 common shares
Issued
100 common shares at $1 [note 3] 100 100
Deficit (18,564) (104,901)
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficiency (18,464) (104,801)
- ------------------------------------------------------------------------------------------------------------------------------------
373,435 438,305
====================================================================================================================================
</TABLE>
See accompanying notes
922641.1
F-32
<PAGE>
Pace Systems Group
STATEMENTs OF Income (Loss) and COMPREHENSIVE income (loss) and deficit
[all amounts are expressed in Cdn. dollars]
Years ended July 31
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
<S> <C> <C>
Consulting fees 1,901,187 1,626,094
Subcontracting [note 4] 1,580,833 1,604,394
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 320,354 21,700
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses
General and administrative 232,198 116,392
Depreciation 1,819 1,599
- ------------------------------------------------------------------------------------------------------------------------------------
234,017 117,991
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) and comprehensive
income (loss) for the year 86,337 (96,291)
Deficit, beginning of year (104,901) (8,610)
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year (18,564) (104,901)
====================================================================================================================================
</TABLE>
See accompanying notes
922641.1
F-33
<PAGE>
Pace Systems Group
STATEMENTs OF CASH FLOWS
[all amounts are expressed in Cdn. dollars]
Years ended July 31
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) and comprehensive income (loss) for the year 86,337 (96,291)
Adjustments to reconcile net income (loss) to cash used
in operating activities
Depreciation 1,819 1,599
Net change in non-cash working capital balances
related to operations [note 11] (568,236) 69,284
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (480,080) (25,408)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (5,560) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (5,560) --
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Due to related parties 262,249 (2,010)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 262,249 (2,010)
- ------------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash during the year (223,391) (27,418)
Cash, beginning of year 236,125 263,543
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of year 12,734 236,125
====================================================================================================================================
</TABLE>
See accompanying notes
922641.1
F-34
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Pace Systems Group [the "Corporation"] was incorporated in 1986 under the laws
of Ontario. The Corporation's purpose is providing consulting services to
companies relating to information systems.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the years
being presented.
These financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. The more significant accounting policies are summarized below:
Revenue recognition
Consulting fees are recognized when the services are rendered or earned.
Use of estimates
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, revenue and expenses. Actual amounts could differ from these
estimates.
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided on a declining balance basis at rates which are designed to amortize
the cost of the assets over their estimated useful lives as follows:
Furniture and fixtures 20%
Computer hardware 30%
Income taxes
The Corporation accounts for deferred income taxes based on the liability
method. Under the liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases measured using the substantially enacted tax rates and laws
that will be in effect when the difference as reflected reverse.
922641.1
F-35
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at historic rates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at the
prevailing rates at the transaction dates. Exchange gains and losses are
included in income.
Cash
Cash consists of cash on hand and balances with banks.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1999
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 67,949 58,340 9,609
Computer hardware 1,279 1,018 261
- ------------------------------------------------------------------------------------------------------------------------------------
69,228 59,358 9,870
====================================================================================================================================
1998
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Furniture and fixtures 62,388 56,632 5,756
Computer hardware 1,279 906 373
- ------------------------------------------------------------------------------------------------------------------------------------
63,667 57,538 6,129
====================================================================================================================================
</TABLE>
922641.1
F-36
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
3. SHARE CAPITAL
Share capital consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
Authorized
100 common shares
Issued
<S> <C> <C>
100 common shares 100 100
====================================================================================================================================
On August 20, 1999, the Articles of Incorporation were amended to change the
amount of authorized common shares to unlimited.
4. RELATED PARTY TRANSACTIONS
As at July 31, the Corporation has outstanding account balances with its
shareholder and related party as follows:
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
1322669 Ontario Inc. 262,395 --
Shareholder 459 605
- ------------------------------------------------------------------------------------------------------------------------------------
262,854 605
====================================================================================================================================
</TABLE>
The amount due to the shareholder is unsecured, non-interest bearing and is due
on demand. 1322669 Ontario Inc. is wholly owned by the Corporation's sole
shareholder.
922641.1
F-37
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
Included in subcontracting expenses are expenses incurred with related parties
as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1322669 Ontario Inc. 413,050 --
Shareholder's spouse 9,800 49,346
- ------------------------------------------------------------------------------------------------------------------------------------
422,850 49,346
====================================================================================================================================
</TABLE>
5. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
combined statutory tax rates to the income (loss) before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income tax (benefit) at Canadian statutory rate 19,000 (22,000)
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance -- 22,000
Tax benefit of loss carryforwards (19,000) --
- ------------------------------------------------------------------------------------------------------------------------------------
-- --
====================================================================================================================================
</TABLE>
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. The components of the
Corporation's deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets (liabilities:
<S> <C> <C>
Tax benefit of loss carryforwards -- 22,000
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets net of liabilities -- 22,000
Valuation allowance -- (22,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets -- --
====================================================================================================================================
</TABLE>
The Corporation has provided a valuation allowance for the full amount of
deferred tax assets in light of its history of operating losses.
922641.1
F-38
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
6. COMMITMENT
The Corporation is committed to the following future minimum annual lease
payments for leasing office space:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
2000 74,476
2001 74,476
2002 43,445
- ------------------------------------------------------------------------------------------------------------------------------------
192,397
====================================================================================================================================
</TABLE>
Under the operating leases for office space, the Corporation is also required to
pay for operating expenses. These amounts vary from year to year dependent upon
usage and are, therefore, not included in the future minimum annual lease
payments shown above.
7. SEGMENTED INFORMATION
The Corporation's activities are conducted in one operating segment with all
activities relating to development and sale of encryption software. To date, all
the activities have occurred in Canada.
8. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value. It is management's opinion
that the Corporation is not exposed to significant currency or credit risks
arising from these financial instruments.
Credit risk
Accounts receivable are subject to concentration of credit risk. As at year end,
43% of accounts receivable is outstanding with two customers.
There is no allowance for doubtful accounts recorded for the years ended July
31, 1999 and 1998.
922641.1
F-39
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
July 31, 1999 and 1998
9. RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", the implementation of which has been delayed one year. The
Corporation does not acquire derivatives or engage in hedging activities.
10. STATEMENT OF CASH FLOWS
The net change in non-cash working capital balances related to operations
consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable (157,018) (172,608)
Income taxes recoverable 2,238 (2,238)
Accounts payable and accrued liabilities (413,456) 246,368
Income taxes payable -- (2,238)
- ------------------------------------------------------------------------------------------------------------------------------------
(568,236) 69,284
====================================================================================================================================
</TABLE>
11. ECONOMIC DEPENDENCE
Approximately 29% of the Corporation's sales were made to two customers. These
customers accounted for 24% of the Corporation's accounts receivable balance at
year end.
Approximately 31% of the Corporation's subcontracting expenses were provided by
two vendors. These vendors accounted for 23% of the Corporation's accounts
payable and accrued liabilities balance at year end.
12. SUBSEQUENT EVENT
In October 1999, the Corporation's sole shareholder agreed to sell all of the
Corporation's issued shares to Jaws Technologies Inc. The Corporation has been
dealing with Jaws Technologies Inc. as a customer in the ordinary course of
business during 1999.
922641.1
F-40
<PAGE>
FINANCIAL STATEMENTS
Pace Systems Group
Unaudited
September 30, 1999 and 1998
922687.1
F-41
<PAGE>
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
As at September 30 Unaudited Unaudited
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
<S> <C> <C>
Cash and cash equivalents 117,377 533,272
Accounts receivable 60,636 165,762
Income taxes recoverable 24,546 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 202,559 699,034
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed assets, net [note 2] 9,289 8,681
- ------------------------------------------------------------------------------------------------------------------------------------
211,848 707,715
====================================================================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIENCY)
Current
Accounts payable and accrued liabilities 108,940 564,798
Due to related parties [note 4] 158,407 605
Income taxes payable -- 64,762
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 267,347 630,165
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments [note 6]
Stockholder's equity (deficiency)
Authorized
100 common shares
Issued
100 common shares at $1 [note 3] 100 100
Retained earnings (deficit) (55,599) 77,450
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity (deficiency) (55,499) 77,550
- ------------------------------------------------------------------------------------------------------------------------------------
211,848 707,715
====================================================================================================================================
</TABLE>
See accompanying notes
922687.1
F-42
<PAGE>
Pace Systems Group
STATEMENTS OF Income (Loss) and COMPREHENSIVE
INCOME (LOSS) AND RETAINED EARNINGS (DEFICIT)
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
Two-month periods ended September 30 Unaudited Unaudited
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C>
Consulting fees 24,240 450,662
Subcontracting [note 4] 75,385 181,871
- ------------------------------------------------------------------------------------------------------------------------------------
(51,145) 268,791
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
General and administrative 9,855 19,188
Depreciation 581 252
- ------------------------------------------------------------------------------------------------------------------------------------
10,436 19,440
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (61,581) 249,351
Provision for (recovery of) income taxes [note 5] (24,546) 67,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) and comprehensive
income (loss) for the period (37,035) 182,351
Deficit, beginning of period (18,564) (104,901)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of period (55,599) 77,450
====================================================================================================================================
</TABLE>
See accompanying notes
922687.1
F-43
<PAGE>
Pace Systems Group
STATEMENTS OF CASH FLOWS
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
Two-month periods ended September 30 Unaudited Unaudited
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) and comprehensive income (loss)
for the period (37,035) 182,351
Adjustment to reconcile net income (loss) to cash provided
by operating activities
Depreciation 581 252
Net change in non-cash working capital balances
related to operations [note 10] 245,544 117,348
- ------------------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 209,090 299,951
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets -- (2,804)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities -- (2,804)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Due to related parties (104,447) --
- ------------------------------------------------------------------------------------------------------------------------------------
Cash used in financing activities (104,447) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash during the period 104,643 297,147
Cash, beginning of period 12,734 236,125
- ------------------------------------------------------------------------------------------------------------------------------------
Cash, end of period 117,377 533,272
====================================================================================================================================
</TABLE>
922687.1
F-44
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES
Pace Systems Group [the "Corporation"] was incorporated in 1986 under the laws
of Ontario. The Corporation's purpose is providing consulting services to
companies relating to information systems.
The accompanying financial statements reflect all adjustments which are, in the
opinion of management, necessary to reflect a fair presentation for the periods
being presented.
These financial statements have, in management's opinion, been properly prepared
in accordance with generally accepted accounting principles in the United
States. The more significant accounting policies are summarized below:
Revenue recognition
Consulting fees are recognized when the services are rendered or earned.
Use of estimates
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, revenue and expenses. Actual amounts could differ from these
estimates.
Fixed assets
Fixed assets are recorded at cost less accumulated depreciation. Depreciation is
provided on a declining balance basis at rates which are designed to amortize
the cost of the assets over their estimated useful lives as follows:
Furniture and fixtures 20%
Computer hardware 30%
Income taxes
The Corporation accounts for deferred income taxes based on the liability
method. Under the liability method, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases measured using the substantially enacted tax rates and laws
that will be in effect when the differences as reflected reverse.
922687.1
F-45
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at the rates of exchange prevailing at the balance sheet
dates. Non-monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at historic rates. Revenue and expenses
denominated in foreign currencies are translated into Canadian dollars at the
rates prevailing at the transaction dates. Exchange gains and losses are
included in income (loss) for the period.
Cash
Cash consists of cash on hand and balances with banks.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1999
----------------------------------------
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 67,949 58,660 9,289
Computer hardware 1,279 1,279 --
- ------------------------------------------------------------------------------------------------------------------------------------
69,228 59,939 9,289
====================================================================================================================================
1998
-----------------------------------------
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
Furniture and fixtures 65,192 56,871 8,321
Computer hardware 1,279 919 360
- ------------------------------------------------------------------------------------------------------------------------------------
66,471 57,790 8,681
====================================================================================================================================
</TABLE>
922687.1
F-46
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
3. SHARE CAPITAL
Share capital consists of the following:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Authorized
100 common shares
Issued
100 common shares 100 100
====================================================================================================================================
On August 20, 1999, the Articles of Incorporation were amended to change the
amount of authorized common shares to unlimited.
4. RELATED PARTY TRANSACTIONS
As at September 30, the Corporation has outstanding account balances with its
stockholder and related party as follows:
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
1322669 Ontario Inc. 157,948 --
Stockholder 459 605
- ------------------------------------------------------------------------------------------------------------------------------------
158,407 605
====================================================================================================================================
</TABLE>
The amount due to the stockholder is unsecured, non-interest bearing and is due
on demand. 1322669 Ontario Inc. is wholly-owned by the Corporation's sole
stockholder.
Effective August 1, 1999 the Corporation assigned the contracts which earned
consulting fees to Jaws Technologies Inc. [note 12]
922687.1
F-47
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
5. INCOME TAXES
The income tax benefit differs from the amount computed by applying the Canadian
combined statutory tax rates to the income (loss) before income taxes for the
following reasons:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income tax benefit at Canadian statutory rate (24,546) 67,000
Increase (decrease) in taxes resulting from:
Deferred tax asset valuation allowance -- --
Tax benefit of loss carryforwards -- --
- ------------------------------------------------------------------------------------------------------------------------------------
(24,546) 67,000
====================================================================================================================================
At the end of the period, no deferred tax asset or deferred tax liability had
been recorded.
6. LEASE COMMITMENTS
The Corporation is committed to the following future minimum annual lease
payments for leasing office space:
$
- ------------------------------------------------------------------------------------------------------------------------------------
2000 62,063
2001 74,476
2002 55,858
- ------------------------------------------------------------------------------------------------------------------------------------
192,397
====================================================================================================================================
</TABLE>
Under the operating leases for office space, the Corporation is also required to
pay for operating expenses. These amounts vary from year to year depending on
usage and are therefore not included in the above lease payments.
7. SEGMENTED INFORMATION
The Corporation's activities are conducted in one operating segment with all
activities relating to development and sale of encryption software. To date, all
the activities have occurred in Canada.
922687.1
F-48
<PAGE>
Pace Systems Group
NOTES TO FINANCIAL STATEMENTS
[all amounts are expressed in Cdn. dollars]
September 30, 1999 Unaudited
8. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value. It is management's opinion
that the Corporation is not exposed to significant currency or credit risks
arising from these financial instruments.
Credit risk
Accounts receivable are subject to concentration of credit risk. As at period
end, 87% of accounts receivable is outstanding with three customers.
There is no allowance for doubtful accounts recorded for the two-month periods
ended September 30, 1999 and 1998.
9. RECENT PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities", the implementation of which has been delayed one year. The
Corporation does not acquire derivatives or engage in hedging activities.
10. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable 290,195 28,051
Income taxes recoverable (24,546) 2,238
Accounts payable and accrued liabilities (20,105) 22,297
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes payable -- 64,762
- ------------------------------------------------------------------------------------------------------------------------------------
245,544 117,348
====================================================================================================================================
</TABLE>
11. ECONOMIC DEPENDENCE
100% of the Corporation's sales were made to three customers. These customers
accounted for 47% of the Corporation's accounts receivable balance at period
end.
Approximately 99% of the Corporation's subcontracting expenses were provided by
seven vendors. These vendors accounted for 16% of the Corporation's accounts
payable and accrued liabilities balance at period end.
12. SUBSEQUENT EVENT
In October 1999, the Corporation's sole stockholder agreed to sell all of the
Corporation's issued shares to Jaws Technologies Inc. The Corporation has been
dealing with Jaws Technologies Inc. as a customer in the ordinary course of
business during 1999.
922687.1
F-49
<PAGE>
(LOGO)
- --------------------------------------------------------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
425 1st Street SW
Suite 1200
Calgary Alberta
Canada T2P 3V7
Telephone+1 (403) 509 7500
Facsimile+1 (403) 781 1825
August 9, 1999
(except for note 13, which is as at January 28, 2000)
Auditors' Report
To the Directors of
Offsite Data Services Ltd.
We have audited the balance sheets of Offsite Data Services Ltd. as at June 30,
1999 and 1998 and the statements of loss and deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1999 and 1998 and
the results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.
(signed)
"PricewaterhouseCoopers LLP"
Chartered Accountants
Calgary, Alberta
PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F-50
<PAGE>
Offsite Data Services Ltd.
Balance Sheets
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- ------------------------------------
1999 1999 1998
$ $ $
(Unaudited)
Assets
<S> <C> <C> <C>
Current assets
Cash and short-term deposits 310,288 379,817 22,417
Accounts receivable 94,929 77,473 45,326
Share subscription receivable (note 8(g)) 100,000 - -
License inventory (note 6) 28,380 30,140 39,490
Prepaid and deposits 2,873 4,241 4,540
---------------------------------------------------------
536,470 491,671 111,773
Deferred initial public offering costs - - 58,839
Capital assets (note 3) 50,008 50,415 41,412
---------------------------------------------------------
586,478 542,086 212,024
=========================================================
Liabilities
Current liabilities
Accounts payable and accrued liabilities 124,906 54,605 59,683
Current portion of long-term debt (note 5) 1,401 2,452 6,626
Harbor License liability (note 6) - - 3,562
---------------------------------------------------------
126,307 57,057 69,871
Long-term debt (note 5) - - 2,455
---------------------------------------------------------
126,307 57,057 72,326
---------------------------------------------------------
Shareholders' Equity
Capital stock (note 8) 1,825,438 1,520,038 704,665
Deficit (1,365,267) (1,035,009) (564,967)
---------------------------------------------------------
460,171 485,029 139,698
-------------------------------------------------------------
586,478 542,086 212,024
-------------------------------------------------------------
</TABLE>
F-51
<PAGE>
Offsite Data Services Ltd.
Statements of Loss and Deficit
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Three months ended
September 30, Year ended June 30,
------------------------------------- --------------------------------------
1999 1998 1999 1999
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue
Backup services 91,846 42,377 224,032 123,816
License sales 3,975 3,515 13,830 15,235
----------------------------------------------------------------------------
95,821 45,892 237,862 139,051
Cost of sales 70,160 41,804 215,948 116,266
----------------------------------------------------------------------------
Gross margin 25,661 4,088 21,914 22,785
----------------------------------------------------------------------------
Expenses
General and administrative (note 8(g)) 253,475 26,757 251,118 172,652
Sales and marketing 39,295 27,339 93,899 62,171
Technical services 44,711 16,178 118,010 48,939
Corporate services 18,438 305 28,929 -
----------------------------------------------------------------------------
355,919 70,579 491,956 283,762
----------------------------------------------------------------------------
Loss for the period (330,258) (66,491) (470,042) (260,977)
Deficit - Beginning of period (1,035,009) (564,967) (564,967) (303,990)
----------------------------------------------------------------------------
Deficit - End of period (1,365,267) (631,458) (1,035,009) (564,967)
============================================================================
Loss per share ($0.03) ($0.01) ($0.05) ($0.04)
============================================================================
</TABLE>
F-52
<PAGE>
Offsite Data Services Ltd.
Statements of Cash Flows
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
Three months ended
September 30, Year ended June 30,
------------------------------------- --------------------------------------
1999 1998 1999 1998
$ $ $ $
(Unaudited) (Unaudited)
Cash provided by (used in)
<S> <C> <C> <C> <C>
Operating activities
Loss for the period (330,258) (66,491) (470,042) (260,977)
Item not affecting cash
Employee compensation (note 8(g)) 150,000 - - -
Amortization 4,545 3,588 18,507 16,613
----------------------------------------------------------------------------
(175,713) (62,903) (451,535) (244,364)
Changes in non-cash working capital balances
Accounts receivable (17,456) (10,240) (32,147) (31,010)
License inventory 1,760 2,090 9,350 10,890
Prepaids and deposits 1,368 1,825 299 288
Accounts payable and accrued liabilities 70,301 55,368 (5,078) 2,432
----------------------------------------------------------------------------
(119,740) (13,860) (479,111) (261,764)
----------------------------------------------------------------------------
Financing activities
Initial public offering costs - (39,540) - (58,839)
Increase (decrease) in long-term debt (1,051) (1,783) (6,629) (10,328)
Repayment of Harbor license liability - (3,562) (3,562) (27,050)
Issuance of capital stock, net of share 55,400 58,900 874,212 394,659
issue costs
Repayment of shareholder loans - - - (2,199)
----------------------------------------------------------------------------
54,349 14,015 864,021 296,243
----------------------------------------------------------------------------
Investing activity
Purchase of capital assets (4,138) (831) (27,510) (8,842)
----------------------------------------------------------------------------
Increase (decrease) in cash during the period (69,529) (676) 357,400 25,637
Cash and cash equivalents (bank overdraft) - 379,817 22,417 22,417 (3,220)
Beginning of period
----------------------------------------------------------------------------
Cash and equivalents - End of period 310,288 21,741 379,817 22,417
============================================================================
Interest paid on long-term debt - 1,277 842 3,574
============================================================================
</TABLE>
F-53
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
1 Nature of business
638279 Alberta Ltd. ("the Company") was incorporated under the Business
Corporations Act (Alberta) on January 10, 1995. The name of the Company
was changed to OffSite Data Services Ltd. on June 1, 1995 and the Company
commenced commercial operations on July 1, 1995. The Company offers fully
automated data backup, retrieval and storage services of mission critical
computer data. The Company has entered a software license distribution
agreement (note 6) and it is currently in the process of establishing a
market and client base for its operations.
2 Accounting policies
a) License inventory
License inventory is recorded at the lower of cost and net realizable
value.
b) Deferred initial public offering costs
Costs associated with the initial public offering have been recorded
against share capital.
c) Capital assets
Capital assets are recorded at cost, less accumulated amortization.
Amortization is provided for over the estimated useful life of the
assets at annual rates as follows, using the declining balance method
except for the first year for which only one half of this
amortization is recorded:
Computer equipment 30% declining balance
Computer equipment under capital lease 30% declining balance
Furniture and fixtures 30% declining balance
Software licenses 20% straight line
d) Revenue recognition
Revenues from back-up services and consulting are recognized in the
period in which the services are rendered. Revenues from license
sales, representing one-time fees, are recognized on delivery and
installation of the software.
e) Income taxes
The Company follows the tax allocation method of accounting for
income taxes. Provision is made for deferred income taxes applicable
to timing differences arising between taxable income and income
reported in the financial statements.
F-54
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
f) Loss per share
Earnings per share are computed based on the weighted average basic
number of shares outstanding for the period. The weighted average
shares outstanding at September 30, 1999 are 11,777,023 (September
30, 1998 - 7,244,667); June 30, 1999 - 8,841,220; June 30,
1998 - 6,274,550. Fully diluted earnings per share, which are
affected by stock options, are not materially different from basic
earnings per share.
g) Cash and cash equivalents
Cash comprises cash on hand and demand deposits. Cash equivalents are
short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk
of change in value.
3 Capital assets
<TABLE>
<CAPTION>
September 30,
1999
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
<S> <C> <C> <C>
Computer equipment 70,503 30,517 39,986
Computer equipment under capital lease 9,370 7,960 1,410
Furniture and fixtures 6,598 2,333 4,265
Software licenses 25,477 21,130 4,347
----------------------------------------------------------------
111,948 61,940 50,008
================================================================
June 30,
1999
----------------------------------------------------------------
Accumulated
Cost amortization Net
$ $ $
Computer equipment 63,692 26,931 36,761
Computer equipment under capital lease 9,370 7,490 1,880
Furniture and fixtures 5,514 2,174 3,340
Software licenses 29,234 20,800 8,434
----------------------------------------------------------------
107,810 57,395 50,415
================================================================
</TABLE>
F-55
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
June 30,
1998
----------------------------------------------------------------
Accumulated
Cost Amortization Net
$ $ $
<S> <C> <C> <C>
Computer equipment 39,628 15,864 23,764
Computer equipment under capital lease 11,454 6,684 4,770
Furniture and fixtures 3,738 1,561 2,177
Software licenses 25,476 14,775 10,701
----------------------------------------------------------------
80,296 38,884 41,412
================================================================
</TABLE>
4 Bank overdraft
The Company has an overdraft facility, which can be drawn to a maximum of
$25,000 and bears interest at prime plus 1.5%. A Guaranteed Investment
Certificate in the amount of $20,000 is pledged as collateral in the event
the facility is drawn upon. At September 30, 1999, the overdraft balance
was $Nil (June 30, 1999 - $Nil; June 30, 1998 - $Nil).
5 Long-term debt
<TABLE>
<CAPTION>
September 30, June 30,
----------------- ---------------------------------------
<S> <C> <C> <C>
1999 1999 1998
$ $ $
Small business investment loan bearing interest at prime
plus 1.25% in year one and prime plus 2.5% in years 2
and 3, collateral provided by computer equipment,
repayable in monthly installments of $350, plus
interest to January, 2000 1,401 2,452 6,656
Small business investment loan bearing interest at prime
plus 2.5%, collateral provided by computer equipment,
repayable in monthly installments of $244, plus
interest to April 1999 - - 2,425
---------------------------------------------------------
1,401 2,452 6,626
Less: Current portion (1,401) (2,452) (6,626)
---------------------------------------------------------
- - 2,455
=========================================================
</TABLE>
F-56
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
6 Harbor license inventory and liability
In August 1995, the Company purchased 500 Harbor workstation software
licenses which were recorded as inventory and are being charged to cost of
sales upon installation of the software at a customer site. The Company
currently has an international licensing agreement with Beta Systems
Canada Ltd. (formerly Harbor Systems Management Ltd.) for the Harbor
product for a five-year period commencing August 16, 1998, with a
five-year renewal option. The agreement provides for monthly maintenance
charges to Beta on installed software.
The purchase of the inventory was financed over a three-year period.
Repayments were made in monthly installments of $2,400 to August 1998. The
interest component of this liability was approximately 9.5% which was
equal to the bank borrowing rate available to the Company at the time of
acquisition. Collateral for the financing was provided by the software
licenses acquired through this financing.
September 30, June 30,
------------------ ----------------------
1999 1999 1998
$ $ $
Harbour license liability - - 3,562
Less: Current portion - - (3,562)
-----------------------------------------
- - -
=========================================
7 Related party transactions
For the period ended September 30, 1999, the Company paid $8,999
(September 30, 1998 - $10,259; June 30, 1999 - $45,056; June 30,
1998 - $5,600) in consulting fees to a company owned by a principal
shareholder.
F-57
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
8 Capital stock
Authorized
Unlimited number of common shares
Unlimited number of preferred shares
Common shares issued
<TABLE>
<CAPTION>
Number of
shares Amount
$ $
<S> <C> <C>
Balance - June 30, 1997 6,000,000 310,006
Private placement for cash 1,131,598 396,059
Repurchase of shares (4,000) (1,400)
----------------------------------------
Balance - June 30, 1998 7,127,598 704,665
Private placement for cash 168,286 58,900
Additional proceeds from founding shareholders (note (a)) - 34,994
Redemption of Special A shares (note (b)) (1,299,884) (454,959)
Redemption of Special B shares (note (b)) (996,000) (248,600)
Exercise of special warrants (note (b)) 2,815,838 703,559
Initial Public Offering (note (c)) 3,200,000 800,000
Over Allotment Option (note (c)) 320,000 80,000
Exercise of "A" Warrants 264,500 66,125
Exercise of "B" Warrants 11,750 4,700
Exercise of stock options 49,000 12,250
Share issue costs - (241,596)
----------------------------------------
Balance - June 30, 1999 11,661,088 1,520,038
Exercise of "A" warrants 31,000 7,750
Exercise of "B" warrants 1,000 400
Share issuance to employee (note (g)) 500,000 250,000
Exercise of stock options 189,000 47,250
========================================
Balance - September 30, 1999 12,382,088 1,825,438
----------------------------------------
</TABLE>
a) Additional proceeds from founding shareholders
On October 27, 1998, the Company's founding shareholders contributed
$34,994 of additional equity to the Company to be attached to the
issued and outstanding founders' common shares.
F-58
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
b) Reorganization of share capital
On October 22, 1998, the shareholders of the Company signed a special
resolution relating to the reorganization (the "Reorganization") of
the share capital of the Company. Pursuant to the Reorganization:
i) An unlimited number of Special A, Special B and Common A shares
were created.
ii) Each one outstanding common share issued at a price of $0.35 was
exchanged for 1.4 Special A shares and each one outstanding
common shares issued at a price of $0.25 was exchanged for one
Special B share.
Immediately after being issued, each Special A share and each Special
B share was redeemed by the Corporation at a deemed redemption price
of $0.25 per share, which redemption price was paid by the issuance
of one Special Warrant. Each Special Warrant entitles the holder to
acquire upon exercise or deemed exercise, at no additional cost, one
common share and one half of one A Warrant on or before the "Expiry
Time", which is the earlier of:
(a) seven business days after the date upon which the final receipt
for a final version of the prospectus is issued by the
Commissions in the qualifying jurisdictions; or
(b) an order that permits the common shares and A Warrants issuable
upon the exercise or deemed exercise of the Special Warrants to
be freely tradeable, has been obtained from the Commissions in
the qualifying jurisdictions.
Any Special Warrants which are not exercised by the Expiry Time will
be deemed to have been exercised on the Expiry Time.
Each whole A Warrant entitles the holder thereof to acquire one
common share at a price of $0.25 per share for a period ending nine
months from the completion of the offering (see note c)).
Each one outstanding common share issued at a price that was less
than $0.25 was exchanged for one Common A share.
Immediately after being issued, each Common A share was exchanged for
one common share.
F-59
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
c) Initial Public Offering
Pursuant to an Initial Public Offering ("IPO") dated February 25,
1999, the Company sold 3,200,000 units of the Company at an offering
price of $0.25 per unit. Each unit consists of one common share and
one-half common share purchase warrant ("B Warrant"). Each whole B
Warrant entitles the holder thereof to acquire one common share at a
price of $0.40 per share for a period ending one year from the date
of completion of the offering.
In addition, the IPO qualified for distribution:
i) 2,815,838 common shares and 1,407,919 A Warrants issuable upon
the exercise of 2,815,838 Special Warrants (see note a)).
ii) 320,000 common shares and 160,000 B Warrants underlying the
Agent's Option to purchase 320,000 units at a price of $0.25 per
unit, exercisable for a period ending two years following the
listing of the Company's common shares and B Warrants on the
Alberta Stock Exchange.
iii) 320,000 common shares and 160,000 B Warrants underlying the
over-allotment option to purchase 320,000 units at a price of
$0.25 per unit for a period expiring thirty days following the
closing date of this offering to cover over-allotments.
iv) 1,101,584 common shares underlying stock options to purchase
common shares at a price of $0.25 per share to be granted to
directors, officers, employees and consultants of the Company.
d) Stock options
At September 30, 1999, options were outstanding to purchase 1,037,584
common shares (June 30, 1999 - 1,037,584; June 30, 1998 - nil) at
a price of $0.25 per share. These options expire on March 15, 2004.
During the period July 1 to September 30, 1999, nil options were
granted (June 30, 1999 - 4,101,584; June 30, 1998 - $nil) 77,000
options (June 30, 1999 - 49,000; June 30, 1998 - nil) were
exercised and nil (June 30, 1999 - 15,000; June 30, 1998 - nil)
were cancelled.
e) Agent unit options
At September 30, 1999, the Company's agent had options to purchase
208,000 (June 30, 1999 - 320,000; June 30, 1998 - nil) common
shares with an exercise price of $0.25 per share. During the period
July 1 to September 30, 1999, 112,000 options (June 30, 1999 and
1998 - $nil) were exercised. With each exercised option, the
agent will also receive one-half of a warrant. Each warrant enables
the holder to purchase one common share for $0.40.
F-60
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
f) Warrants
<TABLE>
<CAPTION>
Other
A Warrants B Warrants Warrants Total
(note 8(g))
<S> <C> <C> <C> <C>
Issue of warrant on initial public
offering 1,407,919 1,920,000 - 3,327,919
Exercised 264,500 11,750 - 276,250
-------------------------------------------------------------------------
Balance - June 30, 1999 1,143,419 1,908,250 - 3,051,669
Granted - - 500,000 500,000
Exercised (31,000) (1,000) - (32,000)
-------------------------------------------------------------------------
Balance - September 30, 1999 1,112,419 1,907,250 500,000 3,519,669
=========================================================================
</TABLE>
The A warrants expire on November 15, 1999 and the B warrants expire
on March 15, 2000.
g) Share issuance to employee
In accordance with the terms of an employee agreement dated July 27,
1999, the Chairman and Chief Executive Officer of the Company
purchased 500,000 units of the company for a price of $0.38 per unit
which represented a 25% discount to the trading price of the common
shares. Each unit consists of one common share and one share purchase
warrant. The warrants entitle the holder to acquire one common share
for $0.50 per share until August 2001 if certain criteria are met and
at $0.55 per share if such criteria are not met. The common shares
were issued in September 1999. The company loaned the employee
$90,000 to purchase a portion of the shares. At the same date the
company declared a bonus of $90,000 to the employee which will be
applied in stages against the loan. The balance of $100,000 was paid
in cash by the employee in October and November 1999 and is reflected
as a share subscription receivable at September 30, 1999.
The common share discount $60,000 and the bonus $90,000 have been
accounted for as general and administrative salary expense for the
three months ended September 30, 1999.
9 Income tax losses
The following table reconciles income taxes calculated at the statutory
rate with the income tax provision in the financial statements.
<TABLE>
<CAPTION>
September 30, June 30,
----------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
$ $ $ $
Provision for income taxes at the statutory rate
(44.6%; 1998 - 44.6%) (147,295) (29,655) (209,639) (116,396)
Benefit of losses not recognized 147,295 29,655 209,639 116,396
--------------------------------------------------------------
- - - -
==============================================================
</TABLE>
<PAGE>
F-61
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
The Company has approximate non-capital tax losses available for
carryforward against future taxable income as follows:
Year of loss Amount Available until
1999 513,200 2006
1998 261,000 2005
s 1997 249,700 2004
1996 45,600 2003
-----------
1,069,500
===========
These losses are subject to Revenue Canada audit. The future benefit of
these losses has not been recognized in these financial statements.
10 Financial instruments
The Company's financial instruments recognized in the balance sheet
consist of cash and short-term deposits, accounts receivable, accounts
payable and accrued liabilities, long-term debt and Harbor License
Liability.
The estimated fair values of long-term debt and Harbor License Liability
are not materially different from their carrying values. The fair values
of all other financial instruments approximate their carrying values due
to their short-term maturity.
11 Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
12 Comparative numbers
Where necessary, information provided for comparative purposes has been
reclassified to conform with the financial statement format adopted in the
current year.
F-62
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
13 Terms of the transaction with Jaws Technologies, Inc.
Effective January 28, 2000, Jaws Technologies Inc., through its wholly
owned subsidiary, Jaws Acquisition Corp., acquired all of the common
shares and certain warrants of the Company on the basis of 0.3524
exchangeable shares of Jaws Acquisition Corp. for each common share of the
Company and one exchangeable share purchase warrant of Jaws Acquisition
Corp. for each common share purchase B warrant of the Company.
14 Generally accepted accounting principles in the United States
The financial statements have been prepared in accordance with accounting
principles generally accepted in Canada (Canadian GAAP). These principles
conform in all material respects to accounting principles generally
accepted in the United States (U.S. GAAP) except as follows:
<TABLE>
<CAPTION>
a) Statement of loss and deficit
September 30, June 30,
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
$ $ $ $
Loss for period in accordance with Canadian
GAAP (330,258) (66,491) (470,042) (260,977)
Impact of U.S. adjustments
Stock based compensation (c) - - (61,142) -
---------------------------------------------------------------------
Loss for the period and comprehensive loss
in accordance with U.S. GAAP (330,258) (66,491) (531,184) (260,977)
=====================================================================
</TABLE>
b) The liability method of accounting for income taxes is followed under
U.S. GAAP which requires that the components of the net deferred tax
asset or liability be disclosed as follows:
<TABLE>
<CAPTION>
September 30, June 30,
-------------------- -----------------------------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Net book value of capital assets in excess of
tax basis 2,709 1,330 1,471
Loss carryforwards 624,292 476,997 248,110
Share issue costs 86,201 86,201 -
----------------------------------------------------------------
713,202 564,528 249,581
Less: Valuation allowance (713,202) (564,528) (249,581)
----------------------------------------------------------------
- - -
================================================================
</TABLE>
The Company has provided a valuation allowance for the full amount of
deferred tax assets in light of its history of operating losses since its
inception.
F-63
<PAGE>
Offsite Data Services Ltd.
Notes to Financial Statements
Information for the period ended September 30, 1999 is unaudited
- --------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
c) Stock-based compensation
Under US GAAP, the Company follows APB Opinion No. 25 to account for
options issued to employees, whereby the intrinsic value method is
used to determine the cost associated with the granting of stock
options to employees. Under this method, the amount by which the
market price of the underlying shares exceeds the exercise price of
the options is accounted for as compensation expense over the periods
in which services are rendered. Accordingly, since stock options to
employees were granted at the quoted market value for the Company'
common shares at the date of the grant, there is no stock-based
compensation cost recognized by the Company. This treatment is
consistent with Canadian GAAP.
Under FASB Statement No. 123, all transactions with non-employees in
which equity instruments are issued in exchange for goods or services
should be accounted for based on the fair value of the consideration
received or the fair value of the equity instruments issued,
whichever is more reliably measurable. In the Company's case, the
fair values of the equity instruments issued were used. Under US
GAAP, the methodology for calculating the fair value of equity
instruments issued requires the use of an option-pricing model
whereas, under Canadian GAAP, the methodology for calculating fair
value is unspecified and has been determined using the intrinsic
value method. Under US GAAP, stock options issued to service
providers are recorded at their fair market value using the
Black-Scholes option-pricing model at the date of the grant and this
amount is charged to operations over the periods in which services
are rendered.
F-64
<PAGE>
- ----------------------------------------- ------------------------------
We have not authorized any dealer,
salesperson or other person to give you
written information other than this
prospectus or to make representation as
to matters not stated in this
prospectus. You must not rely on
unauthorized information. This
prospectus is not an offer to sell these
securities or our solicitation of your
offer to buy the securities in any
jurisdiction where that would not be
permitted or legal. Neither the delivery
of this prospectus nor any sales made
hereunder after the date of this
prospectus shall create an implication
that the information contained herein or
the affairs of JAWS Technologies, Inc. -------------------
have not changed since the date hereof.
TABLE OF CONTENTS
Page
---- JAWS TECHNOLOGIES, INC.
PROSPECTUS SUMMARY.........................1
COMPANY SUMMARY............................1
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.........................3
CURRENCY REFERENCES........................3
RISK FACTORS...............................4
USE OF PROCEEDS...........................12
DIVIDEND POLICY...........................12 PROSPECTUS
CONSOLIDATED CAPITALIZATION...............13
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA...............14
SELLING STOCKHOLDERS......................16 ________, 2000
PLAN OF DISTRIBUTION......................18
DESCRIPTION OF CAPITAL STOCK..............20
BUSINESS..................................22
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................36
MANAGEMENT'S DISCUSSION AND ANALYSIS -----------------
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................37
MANAGEMENT................................43
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.....................50
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..............................52
REGISTRATION RIGHTS.......................55
LEGAL MATTERS.............................55
EXPERTS...................................55
AVAILABLE INFORMATION.....................56
INDEX TO CONSOLIDATION FINANCIAL
STATEMENTS................................F-1
- -------------------------------------------- ------------------------------
906592.9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered (other than underwriting
discounts or commissions) are estimated as set forth below:
SEC Registration Fee US$............................. $ 11,193
Accounting Fees and Expenses......................... $ 15,000
Legal Fees and Expenses ............................. $ 150,000
Printing expenses.................................... $ 10,000
Miscellaneous ...................................... $ 5,000
------------
TOTAL $ 191,193
============
Item 14. Indemnification of Directors and Officers
JAWS' articles of incorporation and By-Laws provide for indemnification
of JAWS' officers and directors, to the fullest extent permitted by Nevada Law.
In addition, the Restated articles of incorporation provide, under Nevada Law,
that no director shall be personally liable to JAWS, or its shareholders, for
monetary damages because of any breach of fiduciary duty by the director as a
director. However, the directors shall be liable to the extent provided by
applicable law for
o breach of the director's duty of loyalty to JAWS or its shareholders,
or
o acts or missions not in good faith or which involve intentional
misconduct or willful violation of law.
At present, there is no pending litigation or proceeding involving a
director, officer, employee, or other agent of JAWS. Insofar as indemnification
for liability arising under the Securities Act may be permitted to directors,
officers, and controlling persons, JAWS is aware that, in the opinion of the
Securities and Exchange Commission, the indemnification is against public policy
as expressed in the Securities Act and is unenforceable.
Item 15. Recent Sales of Unregistered Securities
The following securities have been sold by JAWS since incorporation in
January 1997.
1. Sale on February 14, 1997, with a sticker supplement dated April 1,
1997, of 4,000,000 shares of common stock at $0.015 per share to forty-one
investors for an aggregate investment of $60,000. The sales were made in a
transaction in reliance on the exemption provided by Rule 504 of Regulation D
promulgated under Section 3(b) of the Securities Act of 1933, as amended (the
"Act"). The sale of shares was to 14 accredited investors in the state of
Nevada.
2. Sales to two consultants to JAWS for an aggregate of 300,000 shares
of common stock: 250,000 shares of common stock were issued to C. J. Weinstein
in December 1997 for remuneration for his services as a
906592.9
II-1
<PAGE>
Director, and as incentive to join JAWS. In February 1998, 50,000 shares of
common stock were issued to Joseph Lynch in consideration for services rendered
to JAWS in relation to the establishment of the capital structure of the company
and vetting of public relations firms. The sales were made in transactions not
involving any public offering in reliance on the exemption provided by Rule 506
of Regulation D and Section 4(2) of the Act. Each purchaser represented that he
was an accredited investor as defined in Rule 501 of Regulation D and that the
securities were acquired for investment only and not with a view to resale or
redistribution.
3. Sale on February 10, 1998 of 1,500,000 shares of common stock and
options to purchase 400,000 shares of common stock at $0.50 per share to the
shareholders of JAWS Alberta in exchange for all of the issued and outstanding
shares of JAWS Alberta. The sales were made in a transaction not involving any
public offering in reliance on the exemption provided by Rule 506 of Regulation
D and Section 4(2) of the Act. The purchasers represented that they were
accredited investors as defined in Rule 501 of Regulation D and that the
securities were acquired for investment only and not with a view to resale or
redistribution.
4. Sale pursuant to an offering memorandum on February 18, 1998 of
600,000 shares of common stock at $0.50 per share, for an aggregate investment
of $300,000. The sales were made in a transaction in reliance on the exemption
provided by Rule 504 of Regulation D promulgated under Section 3(b) of the Act.
The sale of shares was to 26 accredited investors. All investors were not
residents or citizens of the U.S.
5. Sale pursuant to an offering memorandum on February 18, 1998 of
1,250,000 shares of common stock at $0.40 per share for an aggregate investment
of $500,000 to Bristol Asset Management LLC, an accredited investor. The sale
was made in a transaction in reliance on the exemption provided by Rule 504 of
Regulation D promulgated under Section 3(b) of the Act. This agreement was
canceled on April 20, 1999, and in consideration thereof JAW agreed to issue
1,00,000 warrants to purchase 1,000,000 shares of common stock at $0.70 per
share, which warrants expire April 15, 2002.
6. Sales pursuant to an offering memorandum on February 18, 1998 of
900,000 shares of common stock to $0.20 per share for an aggregate investment of
$180,000 to two accredited investors (450,000 shares each), Hampton Park Ltd.
and Linear Strategies Ltd. These sales were made in a transaction in reliance on
the exemption provided by Rule 504 of Regulation D promulgated under Section
3(b) of the Securities Act of 1933, as amended.
7. Sales pursuant to an offering memorandum dated April 1998 of 50,000
shares of common stock at $0.40 per share for an aggregate investment of $20,000
to Riaz Mamdani, an accredited investor. This sale was made in a transaction in
reliance on the exemption provided by Rule 504 of Regulation D promulgated under
Section 3(B) of the Act.
8. On September 25, 1998, JAWS entered into a U.S.$2,000,000, 10%
convertible, debenture agreement with Thomson Kernaghan (the "Debenture
Agreement") whereby Thompson Kernaghan was granted 1,428,572 warrants to
purchase 1,428,572 shares in the common stock at $0.28 per share. On April 27,
1999, JAWS and Thomson Kernaghan amended the Debenture Agreement to increase the
amount available to JAWS to $5,000,000. However, on November 17, 1999, JAWS and
Thomson Kernaghan entered into a debenture amendment and settlement agreement
(the "Debenture Settlement Agreement") whereby all outstanding obligations of
the parties were settled. Under the Debenture Settlement Agreement, JAWS issued
the following shares of common stock to Thomason Kernaghan on November 23, 1999;
(a) 5,127,672 shares of common stock in conversion of the debentures;
906592.9
II-2
<PAGE>
(b) 1,428,572 shares of common stock upon the exercise of warrants held
by Thomson Kernaghan at a price of U.S.$0.28 per share; and
(c) 751,648 shares of common stock in consideration for the
relinquishment by Thomson Kernaghan of additional warrants to
acquire shares of common stock.
In total, Thomson Kernaghan has been issued a total of 7,307,892 shares of
common stock pursuant to the Debenture Agreement, as amended and settled.
Thomson Kernaghan warranted in the Debenture Agreement that it was not a "U.S.
Person", as such term is defined in Rule 92(k) of Regulation S, that the
securities have not been offered to it in the United States and that offers of
securities of JAWS shall not be made to "U.S. Persons" for a period of one year
from the closing of all debentures offered pursuant to the agreement.
9. Sale on July 24, 1998 of 100,000 shares of common stock of JAWS to
Bonanza Management Ltd. in consideration of investor relations and consulting
services rendered, including the distribution of the JAWS business plan to the
investment community. The sale was made in a transaction not involving any
public offering in reliance on the exemption provided by Rule 506 of Regulation
D and Section 4(2) of the Act. The purchaser represented that he is an
accredited investor as defined in Rule 501 of Regulation D and that the
securities were acquired for investment only and not with a view to resale or
redistribution.
10. Sale on December 15, 1998 of 1,182,188 shares of common stock at
$0.32 per share for an aggregate investment of $378,300. Further, the sale
included 391,094 warrants to purchase 391,094 common shares at $1.00 per share
until March 30, 2000, and 391,094 warrants to purchase 391,094 common shares at
$2.00 per share until March 30, 2000. The sale of shares was to nine accredited
investors. The sales were made in a transaction not involving any public
offering in reliance on the exemption provided by Rule 506 of Regulation D,
Section 4(2) of the Act and Regulation S. Each purchaser represented that it is
not a "U.S. Person", as such term is defined in Rule 902(k) of Regulation S,
that the securities had not been offered to it in the United States and that
offers of securities of JAWS shall not be made to "U.S. Persons" for a period of
one year from the date of closing.
11. Sale on April 6, 1999 pursuant to an offering memorandum on
February 18, 1998 of 1,571,428 common shares at $0.35 per share for an aggregate
investment of $550,000 to Hampton Park Ltd. ($300,000) and Global Equity Fund
Ltd. ($250,000), both accredited investors. The sales were made in a transaction
in reliance on the exemption provided by Rule 504 of Regulation D promulgated
under Section 3(b) of the Act. The purchasers are contractually prohibited from
reselling the securities for a six-month period.
12. Sale on June 9, 1999 of 408,333 shares of common stock at $0.60 per
share for an aggregate investment of $245,000 to Royale Crown Limited, an
accredited investor. The sale was made in a transaction not involving any public
offering in reliance on the exemption provided by Rule 506 of Regulation D
Section 4(2) of the Act and Regulation S. The purchaser represented that it was
not a "U.S. Person", as such term is defined in Rule 902(k) of Regulation S,
that the securities had not been offered to it in the United States and that
offers of securities of JAWS would not be made to "U.S. Persons" for a period of
one year from the date of closing.
13. Sale to Glentel Inc., on June 21, 1999, of 1,000,000 shares of
common stock at $1.50 per share for an aggregate investment of $1,500,000. This
sale included 834,000 warrants to purchase 834,000 common shares at $2.25 per
share until June 30, 2001. The sale was made in a transaction not involving any
public offering in reliance on the exemption provided by Rule 506 of Regulation
D, Section 4(2) of the Act and Regulation S. A finder fee of $105,000 was paid
to Mr. Joe Dobosz. The purchaser represented that it was not a "U.S. Person", as
such term is defined in Rule 902(k) of Regulation S, that the securities had not
been offered to it in the United States and that offers of securities of JAWS
would not be made to "U.S. Persons" for a period of one year from the date of
closing.
906592.9
II-3
<PAGE>
14. Sale on June 21, 1999 of 200,000 shares of common stock of JAWS at
$1.50 per share for an aggregate investment of $300,000. This sale included
166,000 warrants to purchase 166,000 common shares at $2.25 per share until June
30, 2001, to 10 accredited investors, all of whom are not U.S. citizens or
residents. The sale was made in a transaction not involving any public offering
in reliance on the exemption provided by Rule 506 of Regulation D, Section 4(2)
of the Act and Regulation S. The purchaser represented that it was not a "U.S.
Person", as such term is defined in Rule 902(k) of Regulation S, that the
securities had not been offered to it in the United States and that offers of
securities of JAWS would not be made to "U.S. Persons" for a period of one year
from the date of closing.
15. Sale on September 15, 1999 of 141,000 shares of common stock to
Richard H. Langley Jr., an accredited investor, for consulting services
including investor relations, communication and public relations services. The
sale was made in a transaction not involving any public offering in reliance on
the exemption provided by Rule 506 of Regulation D and Section 4(2) of the Act.
The purchaser represented that he was an accredited investor as defined in Rule
501 of Regulation D and that the securities were acquired for investment only
and not with a view to resale or redistribution.
16. Sale on October 28, 1999 of 283,000 shares of common stock at $1.50
per share for an aggregate investment of $424,500 to Striker Capital, an
accredited investor. The sale was made in a transaction in reliance on the
exemption from registration provided by section 3(b) of the Act and the
provisions of Regulation D Rule 504 promulgated under the Act as well as the
exemption from registration in Section 109.3 of the Texas Administrative Code
that permits general solicitation and general advertising so long as sales are
made only to "accredited investors" as defined in Rule 501(a). The investor has
represented that it was an institutional "accredited investor" as defined in
Rule 501(a)(1), (2), (3) and (7) of Regulation D under the Act purchasing in the
State of Texas for its own account and for investment purposes and not with a
view to or for offer or sale in connection with any distribution.
17. Sale on November 18, 1999, JAWS issued 94,340 shares of common
stock at $0.53 per share to Cameron Chell in satisfaction of the $50,000 fee
payable to Mr. Chell for serving as a director of JAWS in 1998. The issuance was
made in a transaction not involving any public offering in reliance on the
exemption provided by Rule 506 of Regulation D, Section 4(2) of the 1993
Securities Act and Regulation S. Mr. Chell represented that the was not a "U.S.
Person", as such term is defined in Rule 902(k) of Regulation S, that the
securities had not been offered to him in the United States and that offers of
securities of JAWS would not be made to "U.S. Persons" for a period of one year
from the date of closing.
18. Sale on November 18, 1999 of 11,999 shares of common stock at $0.53
per share to GROVEJOHNSONWOOD in consideration of services rendered related to
interior design services. The issuance was made in a transaction not involving
any public offering in reliance on the exemption provided by Rule 506 of
Regulation D, Section 4(2) of the 1993 Securities Act and Regulation S.
GROVEJOHNSONWOOD represented that it was not a "U.S. Person", as such term is
defined in Rule 902(k) of Regulation S, that the securities had not been offered
to it in the United States and that offers of securities of JAWS would not be
made to "U.S. Persons" for a period of one year from the date of closing.
19. Sale on November 24, 1999 of 411,765 shares of common stock at
$1.70 per share to Heronwood, Ltd. for an aggregate investment of $700,000.
Further, the sale included 411,765 warrants to purchase 411,765 shares of common
stock at $1.70 per share until November 1, 2002. The sale was made in a
906592.9
II-4
<PAGE>
transaction not involving any public offering in reliance on the exemption
provided by Rule 506 of Regulation D, Section 4(2) of the 1993 Securities Act
and Regulation S. Heronwood, Ltd, represented that it was not a "U.S. Person",
as such term is defined in Rule 902(k) of Regulation S, that the securities had
not been offered to it in the United States and that offers of securities of
JAWS would not be made to "U.S. Persons" for a period of one year from the date
of closing.
20. Sale on December 31, 1999 of 2,176,418 Units, each Unit consisting
of one share of common stock and one warrant to purchase one-half share of
common stock for $6.50 per share, at $4.25 per Unit for an aggregate investment
of $9,249,777. The sales were made to 29 accredited investors, all of whom are
not U.S. citizens or residents. The sales were made in a transaction not
involving any public offering of securities in reliance of Rule 506 of
Regulation D and Section 4(2) of the Securities Act. Each subscriber represented
that it was an institutional accredited investor as defined in Rule 501(a) of
Regulation D and that the securities were acquired for investment only and not
with a view to resale or distribution.
Item 16. Exhibits and Financial Statement Schedules
(a) The Exhibits to this registration statement on Form S-1 are listed
in the Prospectus. See "Index to Consolidated Financial Statements"
in the Prospectus on page F-1.
(b) The following financial statement schedules are filed herewith:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of "e-biz" solutions, inc. (now JAWS Technologies, Inc., a Nevada
corporation), dated January 27, 1997.
3.2 Certificate of Amendment of Articles of Incorporation of JAWS Technologies, Inc., a Nevada
corporation, dated March 30, 1998, changing the name of E-Biz to JAWS Technologies, Inc.
3.3 Certificate of Amendment of Articles of Incorporation of JAWS Technologies, Inc., a Nevada
corporation, increasing the total number of common stock which JAWS is allowed to issue from
20,000,000 to 95,000,000.
3.4 Bylaws of e-biz solutions, inc. (now JAWS Technologies, Inc., a Nevada corporation), dated January 27, 1997.
4.1 Investment Agreement by and between JAWS Technologies, Inc., a Nevada corporation, and Bristol
Asset Management LLC dated August 27, 1998 and letter of termination.
4.2 Debenture Acquisition Agreement by and between JAWS Technologies, Inc., a Nevada corporation,
and Thomson Kernaghan & Co. Limited, dated September 25, 1998.
4.3 Amendment No. 1 to Debenture Purchase Agreement by and between JAWS and Thomson
Kernaghan dated April 27, 1999.
4.4 Warrant to purchase 1,000,000 shares of common stock of JAWS Technologies, Inc., a Nevada
corporation, issued to Bristol Asset Management LLC, dated April 20, 1999
4.5 Form of Warrant to purchase 834,000 shares of common stock of JAWS Technologies, Inc., a
Nevada corporation, issued to Glentel Inc., dated June 21, 1999.
</TABLE>
II-5
906592.9
<PAGE>
<TABLE>
<S> <C>
4.6 Schedule of Warrant holders which received the Form of Warrant set forth in 4.5 above.
4.7 Form of Warrant issued by JAWS in connection with the Private Placement Transaction.
4.8 Schedule of Warrant holders which received the Form of Warrant set forth in 4.9 above.
4.9 Warrant to purchase 217,642 shares of common stock of JAWS Technologies, Inc., a Nevada
corporation, issued to Thomson Kernaghan & Co. Limited, dated December 31, 1999.
4.10 Certificate of the Designation, Voting Power, Preference and Relative , Participating, optional and
other Special Rights and Qualifications, Limitations or Restrictions of the Special Series & Preferred
Voting Stock of JAWS Technologies, Inc., dated November 30, 1999.
4.11 Incentive and Non-Qualified Stock Option Plan of JAWS Technologies, Inc., a Nevada corporation.
5.1* Opinion of Lionel Sawyer & Collins LLP.
10.1 Director's Agreement between JAWS Technologies, Inc., a Nevada corporation, and Arthur Wong
dated July 1998.
10.2 Director's Agreement between JAWS Technologies, Inc., a Nevada corporation, and Julia Johnson
dated July 30, 1998.
10.3 Letter Agreement between JAWS Technologies, Inc., a Nevada corporation, and Arrow
Communications (ApexMail) dated August 10, 1999.
10.4 Addendum to the Letter Agreement between JAWS Technologies, Inc., a Nevada corporation, and
ApexMail.net, dated September 28, 1999.
10.5 Assignment from James L. A. Morrison to JAWS Technologies Inc., a Nevada corporation, dated
October 9, 1998.
10.6 Notification of Assignment from United States Department of Commerce, Patent and Trademark
Office, dated March 15, 1999.
10.7 Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada corporation, and Ms.
Julia L. Johnson.
10.8 Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada corporation, and Mr.
Arthur Wong.
10.9 Form of Stock Purchase Agreement to purchase 1,000,000 shares of common stock and warrants
to purchase 834,000 shares of common stock by and between JAWS Technologies, Inc., a Nevada
corporation, and Glentel Inc., dated June 21, 1999.
10.10 Schedule of purchasers which purchased shares of common stock pursuant to the Form of Stock
Purchase Agreement set forth in 10.9.
</TABLE>
II-6
906592.9
<PAGE>
<TABLE>
<S> <C>
10.11 Form of Investor Rights Agreement by and between JAWS Technologies, Inc., a Nevada
corporation, and Glentel Inc., dated June 21, 1999.
10.12 Schedule of investors that received rights pursuant to the Form of Investors Rights Agreement set
forth above in 10.11.
10.13 Placement Agency Agreement by and between JAWS Technologies, Inc., a Nevada corporation, and
Thomson Kernaghan & Co. Limited, dated December 31, 1999.
10.14 Form of Subscription Agreement to purchase 235,295 Units of JAWS Technologies, Inc., a Nevada
corporation, by and between JAWS Technologies, Inc., a Nevada corporation, and BPI Canadian
Small Companies Fund, dated December 20, 1999.
10.15 Schedule of Subscribers that purchased subscriptions pursuant to the Form of Subscription
Agreement set forth above in 10.14.
10.16 Debenture Amendment and Settlement Agreement, dated November 17, 1999 and effective as of
November 1, 1999, by and between JAWS Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited.
10.17 Form of Employment Agreement
10.18 Schedule of officers of JAWS Technologies, Inc., a Nevada corporation, who executed employment
agreements the form of which is set forth in Exhibit 10.17.
21 Subsidiaries of JAWS Technologies, Inc., a Nevada corporation: JAWS Technologies Inc., an
Alberta corporation, Pace Systems Group Inc., an Ontario corporation, JAWS Technologies
(Ontario), Inc., an Ontario corporation, JAWS Technologies (Delaware), Inc., a Delaware
corporation, Offiste Data Services Ltd., an Alberta corporation and JAWS Acquisition Corp.,
an Alberta corporation.
23.1 Consent of Lionel Sawyer & Collins LLP (included in exhibit 5.1).
23.2 Consent of Ernst & Young LLP. (JAWS Technologies Inc.)
23.3 Consent of Ernst & Young LLP (Pace Systems Group Inc.)
23.4 Consent of PricewaterhouseCoopers LLP (Offsite Data Services Ltd.).
27 Financial Data Schedule.
</TABLE>
- ----------------------
* To be filed by amendment.
II-7
906592.9
<PAGE>
Item 17. Undertakings
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Registrant pursuant to the provisions described above in Item 15, or
otherwise, the Registrant has been informed 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. 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
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes:
(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) of the Securities Act of 1933, as amended, if, in the
aggregate, the changes in volume and price represent nor 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.
(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) For purposes of determining any liability under the
Securities Act, 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 which remain unsold at the
termination of this offering.
906592.9
II-8
<PAGE>
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 New York,
State of New York, on February 14, 2000.
JAWS TECHNOLOGIES, INC.
By:/s/Robert J. Kubbernus
------------------------------------
Name: Robert J. Kubbernus
Title: Chairman of the Board, Chief Executive Officer
and President
(Principal Executive Officer)
POWER OF ATTORNEY
Each person signing below also hereby appoints Robert J. Kubbernus and
Riaz Mamdani, and each of them singly, with full power of substitution, his
lawful attorney-in-fact, with full power to execute and file any amendments to
the registration statement, and generally to do all such things, as such
attorney-in-fact may deem appropriate to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/Robert J. Kubbernus
_________________________ Chairman of the Board, Chief February 14, 2000
Robert J. Kubbernus Executive Officer, President and
Director (Principal Executive Officer)
/s/Riaz Mamdani
_________________________ Chief Financial Officer and Director February 14, 2000
Riaz Mamdani (Principal Financial Officer and
Principal Accounting Officer)
/s/Julia L. Johnson
_________________________ Director February 14, 2000
Julia L. Johnson
/s/Arthur Wong
_________________________ Director February 14, 2000
Arthur Wong
</TABLE>
906592.9
II-9
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<S> <C>
3.1 Articles of Incorporation of "e-biz" solutions, inc. (now JAWS Technologies, Inc., a Nevada
corporation), dated January 27, 1997.
3.2 Certificate of Amendment of Articles of Incorporation of JAWS Technologies, Inc., a Nevada
corporation, dated March 30, 1998, changing the name of E-Biz to JAWS Technologies, Inc.
3.3 Certificate of Amendment of Articles of Incorporation of JAWS Technologies, Inc., a Nevada
corporation, increasing the total number of common stock which JAWS is allowed to issue from
20,000,000 to 95,000,000.
3.4 Bylaws of e-biz solutions, inc. (now JAWS Technologies, Inc., a Nevada corporation), dated January 27, 1997.
4.1 Investment Agreement by and between JAWS Technologies, Inc., a Nevada corporation, and Bristol
Asset Management LLC dated August 27, 1998 and letter of termination.
4.2 Debenture Acquisition Agreement by and between JAWS Technologies, Inc., a Nevada corporation,
and Thomson Kernaghan & Co. Limited, dated September 25, 1998.
4.3 Amendment No. 1 to Debenture Purchase Agreement by and between JAWS and Thomson
Kernaghan dated April 27, 1999.
4.4 Warrant to purchase 1,000,000 shares of common stock of JAWS Technologies, Inc., a Nevada
corporation, issued to Bristol Asset Management LLC, dated April 20, 1999
4.5 Form of Warrant to purchase 834,000 shares of common stock of JAWS Technologies, Inc., a
Nevada corporation, issued to Glentel Inc., dated June 21, 1999.
4.6 Schedule of Warrant holders which received the Form of Warrant set forth in 4.5 above.
4.7 Form of Warrant issued by JAWS in connection with the Private Placement Transaction.
4.8 Schedule of Warrant holders which received the Form of Warrant set forth in 4.9 above.
4.9 Warrant to purchase 217,642 shares of common stock of JAWS Technologies, Inc., a Nevada
corporation, issued to Thomson Kernaghan & Co. Limited, dated December 31, 1999.
4.10 Certificate of the Designation, Voting Power, Preference and Relative , Participating, optional and
other Special Rights and Qualifications, Limitations or Restrictions of the Special Series & Preferred
Voting Stock of JAWS Technologies, Inc., dated November 30, 1999.
4.11 Incentive and Non-Qualified Stock Option Plan of JAWS Technologies, Inc., a Nevada corporation.
5.1* Opinion of Lionel Sawyer & Collins LLP.
10.1 Director's Agreement between JAWS Technologies, Inc., a Nevada corporation, and Arthur Wong
dated July 1998.
</TABLE>
906592.9
<PAGE>
<TABLE>
<S> <C>
10.2 Director's Agreement between JAWS Technologies, Inc., a Nevada corporation, and Julia Johnson
dated July 30, 1998.
10.3 Letter Agreement between JAWS Technologies, Inc., a Nevada corporation, and Arrow
Communications (ApexMail) dated August 10, 1999.
10.4 Addendum to the Letter Agreement between JAWS Technologies, Inc., a Nevada corporation, and
ApexMail.net, dated September 28, 1999.
10.5 Assignment from James L. A. Morrison to JAWS Technologies Inc., a Nevada corporation, dated
October 9, 1998.
10.6 Notification of Assignment from United States Department of Commerce, Patent and Trademark
Office, dated March 15, 1999.
10.7 Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada corporation, and Ms.
Julia L. Johnson.
10.8 Indemnity Agreements by and between JAWS Technologies, Inc., a Nevada corporation, and Mr.
Arthur Wong.
10.9 Form of Stock Purchase Agreement to purchase 1,000,000 shares of common stock and warrants
to purchase 834,000 shares of common stock by and between JAWS Technologies, Inc., a Nevada
corporation, and Glentel Inc., dated June 21, 1999.
10.10 Schedule of purchasers which purchased shares of common stock pursuant to the Form of Stock
Purchase Agreement set forth in 10.09
10.11 Form of Investor Rights Agreement by and between JAWS Technologies, Inc., a Nevada
corporation, and Glentel Inc., dated June 21, 1999.
10.12 Schedule of investors that received rights pursuant to the Form of Investors Rights Agreement set
forth above in 10.11
10.13 Placement Agency Agreement by and between JAWS Technologies, Inc., a Nevada corporation, and
Thomson Kernaghan & Co. Limited, dated December 31, 1999.
10.14 Form of Subscription Agreement to purchase 235,295 Units of JAWS Technologies, Inc., a Nevada
corporation, by and between JAWS Technologies, Inc., a Nevada corporation, and BPI Canadian
Small Companies Fund, dated December 20, 1999.
10.15 Schedule of Subscribers that purchased subscriptions pursuant to the Form of Subscription
Agreement set forth above in 10.14
10.16 Debenture Amendment and Settlement Agreement, dated November 17, 1999 and effective as of
November 1, 1999, by and between JAWS Technologies, Inc., a Nevada corporation, and Thomson
Kernaghan & Co. Limited.
</TABLE>
906592.9
<PAGE>
<TABLE>
<S> <C>
10.17 Form of Employment Agreement
10.18 Schedule of officers of JAWS Technologies, Inc., a Nevada corporation, who executed employment
agreements the form of which is set forth in Exhibit 10.17.
21 Subsidiaries of JAWS Technologies, Inc., a Nevada corporation: JAWS Technologies Inc., an Alberta
corporation, Pace Systems Group Inc., an Ontario corporation, JAWS Technologies (Ontario), Inc., an
Ontario corporation, JAWS Technologies (Delaware), Inc., a Delaware corporation, Offiste Data
Services Ltd., an Alberta corporation,and JAWS Acquisition Corp., an Alberta corporation.
23.1 Consent of Lionel Sawyer & Collins LLP (included in exhibit 5.1).
23.2 Consent of Ernst & Young LLP. (JAWS Technologies Inc.)
23.3 Consent of Ernst & Young LLP (Pace Systems Group Inc.)
23.4 Consent of PricewaterhouseCoopers LLP (Offsite Data Services Ltd.).
27 Financial Data Schedule.
</TABLE>
- ---------------------
* To be filed by amendment.
906592.9
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
E-BIZ SOLUTIONS, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the laws
of the State of Nevada, and we do hereby certify that:
ARTICLE I - NAME: The exact name of this Corporation is:
E-biz solutions, inc.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law
Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which
this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or desirable
to accomplish the above purposes, and to do all other things incidental
thereto which are not forbidden by law or by these Articles of
Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted
by 78.060 and 78.070 of the Nevada Revised Statutes under which this corporation
is formed. In addition, the Corporation shall have the following specific
powers:
(a) To elect or appoint officers and agents of the Corporation and to fix
their compensation;
(b) To act as an agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the ownership
or possession thereof, sell, or otherwise dispose of, shares or other
interests in, or obligations of, individuals, associations, partnerships,
corporations, or governments;
<PAGE> 2
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of
shares of the corporation, but such shares may only be purchased, directly
or indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for charitable,
scientific or educational purposes, and in time of war, to make donations in
aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Capital Stock at
$.001 par value per share as set forth in subsections (a) and (b) of this
Section 1 of Article VI.
(a) The total number of shares of Common Stock which this
Corporation is authorized to issue is 20,000,000 shares at $.001
par value per share.
(b) The total number of shares of Preferred Stock which this
Corporation is authorized to issue is 5,000,000 shares at $.001
par value per share, which Preferred Stock may contain special
preferences as determined by the Board of Directors of the
Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the
Corporation.
Section 2. Voting Rights of Shareholders. Each holder of the Common
Stock shall be entitled to one vote for each share of stock standing in
his name on the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued
for such consideration, as shall be fixed from time to time by the Board
of Directors. In the absence of fraud, the judgment of the Directors as
to the value of any property for shares shall be conclusive. When shares
are issued upon payment of the consideration fixed by the Board of
Directors, such shares shall be taken to be fully paid stock and shall
be non-assessable. The Articles shall not be amended in this particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by
the Board of Directors, no holder of any shares of the stock of the
Corporation, shall have any preemptive right to purchase, subscribe for,
or otherwise acquire any shares of stock of the Corporation of any class
now or hereafter authorized, or any securities exchangeable for or
convertible into such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase, or otherwise
acquire such shares.
Section 5. Stock Rights and Options. The Corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the corporation any shares of its
capital stock of any class or classes, upon such terms and conditions
and at such times and prices as the Board of Directors may provide,
which terms and conditions shall be incorporated in an instrument or
instruments evidencing
<PAGE> 3
such rights. In the absence of fraud, the judgment of the Directors as
to the adequacy of consideration for the issuance of such rights or
options and the sufficiency thereof shall be conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after
the amount of the subscription price has been fully paid in, shall not be
assessable for any purpose, and no stock issued as fully paid up shall ever be
assessable or assessed. The holders of such stock shall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of the
Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election,
time and place of meeting, and powers and duties shall be such as are
prescribed by statute and in the by-laws of the Corporation. The name
and post office address of the directors constituting the first board of
directors, which shall be One (1) in number are:
NAME ADDRESS
Max C. Tanner 2950 East Flamingo Road
Suite G
Las Vegas, NV 89121
Section 2. Powers of Board. In furtherance and not in limitation of the
powers conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the
power of the shareholders to alter or repeal the By-Laws made by
the Board of Directors.
(b) Subject to the applicable provisions of the By Laws then in
effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what conditions
and regulations, the accounts and books of the Corporation, or
any of them, shall be open to shareholder inspection. No
shareholder shall have any right to inspect any of the accounts,
books or documents of the Corporation, except as permitted by
law, unless and until
<PAGE> 4
authorized to do so by resolution of the Board of Directors or
of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property, services
rendered, labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance with
the action of the board of directors without vote or consent of
the shareholders and the judgment of the board of directors as
to value received and in return therefore shall be conclusive
and said stock, when issued, shall be fully-paid and
non-assessable.
(d) To authorize and issue, without shareholder consent, obligations
of the Corporation, secured and unsecured, under such terms and
conditions as the Board, in its sole discretion, may determine,
and to pledge or mortgage, as security therefore, any real or
personal property of the Corporation, including after-acquired
property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types
of incentive compensation plans for the employees, including
officers and directors, of the Corporation, and to fix the
amount of profits to be shared or distributed, and to determine
the persons to participate in any such plans and the amount of
their respective participation.
(h) To designate, by resolution or resolutions passed by a majority
of the whole Board, one or more committees, each consisting of
two or more directors, which, to the extent permitted by law and
authorized by the resolution or the By-Laws, shall have and may
exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members by
By-Law, and to fix the terms and conditions upon which such
compensation will be paid;
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors may
exercise all such powers and do all such acts and things as may
be exercised or done by the corporation, subject, nevertheless,
to the provisions of the laws of the State of Nevada, of these
Articles of Incorporation, and of the By-Laws of the
Corporation.
Section 3. Interested Directors. No contract or transaction between this
Corporation
<PAGE> 5
and any of its directors, or between this Corporation and any other
corporation, firm, association, or other legal entity shall be
invalidated by reason of the fact that the director of the Corporation
has a direct or indirect interest, pecuniary or otherwise, in such
corporation, firm, association, or legal entity, or because the
interested director was present at the meeting of the Board of Directors
which acted upon or in reference to such contract or transaction, or
because he participated in such action, provided that: (1) the interest
of each such director shall have been disclosed to or known by the Board
and a disinterested majority of the Board shall have nonetheless
ratified and approved such contract or transaction (such interested
director or directors may be counted in determining whether a quorum is
present for the meeting at which such ratification or approval is
given); or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or the
Shareholders for damages for breach of fiduciary duty as a director or officer
shall be limited to acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The 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, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, 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 expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with the action, suit
or proceeding, 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 and with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suite or
proceeding, by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not of itself
create a presumption that the person did not act in good faith
and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and that, with
respect to any criminal action or proceeding, he had reasonable
cause to believe that his conduct was unlawful.
(b) The 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, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint
<PAGE> 6
venture, trust or other enterprise against 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 there from, 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.
(c) 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 referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he must be indemnified by the
corporation against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the
defense.
(d) Any indemnification under subsections (a) and (b) unless ordered
by a court or advanced pursuant to subsection (e), must be made
by the corporation only as authorized in the specific case upon
a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances. The
determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act,
suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(e) Expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of
an undertaking by or on behalf of the director or officer to
repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified
by the corporation. The provisions of this
<PAGE> 7
subsection do not affect any rights to advancement of expenses
to which corporate personnel other than directors or officers
may be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may
be entitled under the certificate or articles of
incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise,
for either an action in his official capacity or an
action in another capacity while holding his office,
except that indemnification, unless ordered by a court
pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made
to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of
action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a
person.
ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the State
of Nevada, the shareholders and the Directors shall have power to hold their
meetings, and the Directors shall have power to have an office or offices and to
maintain the books of the Corporation outside the State of Nevada, at such place
or places as may from time to time be designated in the By-Laws or by
appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be added.
All rights herein conferred on the directors, officers and shareholders are
granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
IN WITNESS WHEREOF, the undersigned incorporator has executed these
Articles of Incorporation this 27th day of January, 1997.
<PAGE> 8
/s/ Max C. Tanner
------------------------------
Max C. Tanner
STATE OF NEVADA )
COUNTY OF CLARK )
On January 27, 1997, personally appeared before me, a Notary Public, Max C.
Tanner, who acknowledged to me that he executed the foregoing Articles of
Incorporation for E-biz solutions, inc., a Nevada corporation.
------------------------------
Notary Public
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF ARTICLE OF INCORPORATION
OF
"E-BIZ" SOLUTIONS, INC.
Pursuant to NRS 78.385 and 78.390, the undersigned President and
Secretary of "E-Biz" Solutions, Inc. do hereby certify:
That the following amendments to the articles of incorporation were
unanimously approved by the Board of Directors of said corporation by written
consent in lieu of a special meeting of the Board of Directors dated March 11,
1998 and by a majority of the outstanding shares entitled to vote.
Article I is hereby amended to read as follows:
The exact name of this Corporation is Jaws Technologies, Inc.
This Certificate of Amendment to the Articles of Incorporation may be
signed in two or more counterparts.
/s/ Robert Kubbernus
----------------------------
Robert Kubbernus, President
/s/ Timothy Delaney
----------------------------
Timothy Delaney, Secretary
Province of Alberta )
)ss.
City of Calgary )
On the 23rd day of March, 1998, personally appeared before me, a Notary Public,
Robert Kubbernus, President of the above mentioned Corporation, who acknowledged
that he executed the above instrument.
/s/ David M. Bickman
----------------------------
Signature of Notary
(Notary stamp or seal)
Province of British Columbia )
)ss.
City of Delta )
On the 25th day of March, 1998, personally appeared before me, a Notary Public,
Robert Kubbernus, President of the above mentioned Corporation, who acknowledged
that he executed the above instrument.
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION
(After Issuance of Stock)
JAWS TECHNOLOGIES, INC.
a Nevada corporation
We the undersigned President and Secretary of JAWS Technologies, Inc., a
Nevada corporation, do hereby certify:
That the Board of Directors of said corporation adopted a resolution by
written consent without a meeting pursuant to the provisions of Section 78.196
of the Nevada Revised Statutes to amend the original articles as follows:
Article VI, Section 1 is hereby amended to read as follows:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 100,000,000 shares of Capital Stock at
$.001 par value per share as set forth in subsections (a) and (b) of this
Section 1 of Article VI.
(a) The total number of shares of Common Stock which this Corporation is
authorized to issue is 95,000,000 shares at $.001 par value per share.
(b) The total number of shares of Preferred Stock which the Corporation
is authorized to issue is 5,000,000 shares at $.001 par value per share, which
Preferred Stock may contain special preferences as determined by the Board of
Directors of the Corporation, including, but not limited to, the bearing of
interest and convertibility into shares of Common Stock of the Corporation.
The number of shares of the Corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation if 8,70,000, that said
change(s) and amendment have been consented to and approved by a majority of the
stockholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/Robert Kubbernus
-----------------------------
Robert Kubbernus, President
/s/Vikki Robinson
-----------------------------
Vikki Robinson, Secretary
922179.1
<PAGE>
Pursuant to NRS 78.385 and 78.390, the undersigned President and
Secretary of "E-Biz" Solutions, Inc. do hereby certify:
That the following amendments to the articles of incorporation were
unanimously approved by the Board of Directors of said corporation by written
consent in lieu of a special meting of the Board of Directors dated March 11,
1998 and by a majority of the outstanding shares entitled to vote.
Article I is hereby amended to read as follows:
The exact name of this Corporation is JAWS Technologies, Inc.
This Certificate of Amendment to the Articles of Incorporation may be
signed in two or more counterparts,
/s/ Robert Kubbernus
------------------------------
Robert Kubbernus, President
/s/ Timothy Delaney
------------------------------
Timothy Delaney, Secretary
Province of Alberta )
)ss.
City of Calgary )
On the 23rd day of March, 1998, personally appeared before me, a Notary Public,
Robert Kubbernus, President of the above-mentioned Corporation, who acknowledged
that he executed the above instrument.
/s/ David M. Bickman
------------------------------
Signature of Notary
(Notary stamp or seal)
Province of _____________ )
)ss.
City of _________________ )
Province of _____________ )
)ss.
City of _________________ )
922179.1
2
<PAGE>
On the ____ day of ___________, 1998, personally appeared before me, a Notary
Public, Timothy Delaney, Secretary of the above-mentioned Corporation, who
acknowledged that he executed the above instrument.
------------------------------
Signature of Notary
922179.1 2/9/2000 6:53a
3
EXHIBIT 3.4
BY-LAWS OF
E-BIZ SOLUTIONS INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders
shall be held at such date and time as shall be designated by the board of
directors and stated in the notice of the meeting or in a duly-executed waiver
of notice thereof. If the corporation shall fail to provide notice of the annual
meeting of the shareholders as set forth above, the annual meeting of the
shareholders of the corporation shall be held during the month of November or
December of each year as determined by the Board of Directors, for the purpose
of electing directors of the corporation to serve during the ensuing year and
for the transaction of such other business as may properly come before the
meeting. If the election of the directors is not held on the day designated
herein for any annual meeting of the shareholders, or at any adjournment
thereof, the president shall cause the election to be held at a special meeting
of the shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders may
be called by the president or the Board of Directors and shall be called by the
president at the written request of the holders of not less than 51% of the
issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders
of record written or printed notice of any meeting at least ten (10)
days, but not more than sixty (60) days, before the date of such
meeting; which notice shall state the place, date and time of the
meeting, the general nature of the business to be transacted, and, in
the case of any meeting at which directors are to be elected, the names
of nominees, if any, to be presented for election.
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(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be valid
only if the general nature of the proposal is stated in the notice or
written waiver of notice:
(1) Action with respect to any contract or
transaction between the corporation and one or more of its
directors or another firm, association, or corporation in
which one or more of its directors has a material financial
interest;
(2) Adoption of amendments to the Articles of
Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or
dissolution of the corporation.
(c) The notice shall be personally delivered or mailed by
first class mail to each shareholder of record at the last known
address thereof, as the same appears on the books of the corporation,
and the giving of such notice shall be deemed delivered the date the
same is deposited in the United States mail, postage prepaid. If the
address of any shareholder does not appear upon the books of the
corporation, it will be sufficient to address any notice to such
shareholder at the principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and
place the notice was mailed or personally delivered to the several
shareholders, and the addresses to which the notice was mailed shall be
prima facie evidence of the manner and fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date
as a record date for the determination of the shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of any
dividend or other distribution or allotment of any rights or entitled
to exercise any rights in respect of any other lawful action. The
record date so fixed shall not be more than sixty (60) days prior to
the date of such meeting nor more than sixty (60) days prior to any
other action. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution or allotment of
rights, or to exercise their rights, as the case may be,
notwithstanding any transfer of any shares on the books of the
corporation after the record date.
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(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (2) the record date for
determining shareholders entitled to give consent to corporate action
in writing without a meeting, when no prior action by the Board of
Directors is necessary, shall be the day on which written consent is
given; and (3) the record date for determining shareholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto, or the
sixtieth (60th) day prior to the date of such other action, whichever
is later.
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the
issued and outstanding shares of the corporation represented in person
or by proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding
shares are represented, a majority of shares so represented may adjourn
from time to time at the meeting, until holders of the amount of stock
required to constitute a quorum shall be in attendance. At any such
adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted as originally called.
When a shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken,
unless the adjournment is for more than ten (10) days in which event
notice thereof shall be given.
Section 1.08 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote
for each share of stock standing registered in such shareholder's name
on the books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with
respect to shares standing in the name of an individual on the record
date (included pledged shares) shall be cast only by that individual or
such individual's duly authorized proxy or attorney-in-fact. With
respect to shares held by a representative of the estate of a deceased
shareholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do
not stand in the name of such holder. In the case of shares under the
control of a receiver, the receiver may cast votes carried by such
shares even though the shares do not stand in the name of the receiver
provided that the order of the court of competent jurisdiction which
appoints the receiver contains the authority to cast votes carried by
such shares. If shares stand in the name of a minor, votes may be cast
only by the duly-appointed guardian of the estate of such minor if such
guardian has provided the corporation with written notice and proof of
such appointment.
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(c) With respect to shares standing in the name of a
corporation on the record date, votes may be cast by such officer or
agents as the by-laws of such corporation prescribe or, in the absence
of an applicable by-law provision, by such person as may be appointed
by resolution of the Board of Directors of such corporation. In the
event no person is so appointed, such votes of the corporation may be
cast by any person (including the officer making the authorization)
authorized to do so by the Chairman of the Board of Directors,
President or any Vice President of such corporation.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast
with respect thereto on any matter except to the extent that the
beneficial owner thereof possesses and exercises either a right to vote
or to give the corporation holding the same binding instructions on how
to vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by
the entirety, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise and shares held by two or
more persons (including proxy holders) having the same fiduciary
relationship respect in the same shares, votes may be cast in the
following manner:
(1) If only one such person votes, the votes of such
person binds all.
(2) If more than one person casts votes, the act of
the majority so voting binds all.
(3) If more than one person casts votes, but the vote
is evenly split on a particular matter, the votes shall be
deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter and refrain from
casting the remaining votes or cast the same against the proposal,
except in the case of elections of directors. If such holder entitled
to vote fails to specify the number of affirmative votes, it will be
conclusively presumed that the holder is casting affirmative votes with
respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders of
a majority of the shares represented at the meeting and entitled to
vote on any matter shall be the act of the shareholders, unless a vote
of greater number or voting by classes is required by the laws of the
State of Nevada, the Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may authorize another person or persons to vote by proxy
with respect to the shares held by an instrument in writing and subscribed to by
the holder of such shares entitled to vote. No proxy shall
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be valid after the expiration of six (6) months from the date of execution
thereof, unless coupled with an interest or unless otherwise specified in the
proxy. In no event shall the term of a proxy exceed seven (7) years from the
date of its execution. Every proxy shall continue in full force and effect until
its expiration or revocation. Revocation may be effected by filing an instrument
revoking the same or a duly-executed proxy bearing a later date with the
secretary of the corporation.
Section 1.10 Order of Business. At the annual shareholders meeting, the
regular order of business shall be as follows:
(1) Determination of shareholders present and
existence of quorum;
(2) Reading and approval of the minutes of the
previous meeting or meetings;
(3) Reports of the Board of Directors, the president,
treasurer and secretary of the corporation, in the order
named;
(4) Reports of committee;
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any meeting
of the shareholders are as valid as though had at a meeting duly-held after
regular call and notice if a quorum is present, either in person or by proxy,
and if, either before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy (and those who, although present, either
object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice if such objection is
expressly made at the beginning. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be specified
in any written waiver of notice, except as otherwise provided in Section 1.04(b)
of these By-Laws.
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Section 1.12 Action Without Meeting. Any action which may be taken by
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or such
greater proportion as may be required by the laws of the State of Nevada, the
Articles of Incorporation, or these By-Laws. Whenever action is taken by written
consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualification. Except as otherwise
provided herein, the Board of Directors of the corporation shall consist of at
least one (1) but no more than nine (9) persons, who shall be elected at the
annual meeting of the shareholders of the corporation and who shall hold office
for one (1) year or until their successors are elected and qualify.
Section 2.02 Resignation. Any director may resign effective upon giving
written notice to the chairman of the Board of Directors, the president, or the
secretary of the corporation, unless the notice specifies a later time for
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board or
the shareholders may elect a successor to take office when the resignation
becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of a
director who has been declared incompetent by an order of a court of
competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise may
be filled by the shareholders at any regular or special meeting or any
adjourned meeting thereof or the remaining director(s) by the
affirmative vote of a majority thereof. A Board of Directors consisting
of less than the maximum number authorized in Section 2.01 of ARTICLE
II constitutes vacancies on the Board of Directors for purposes of this
paragraph and may be filled as set forth above including by the
election of a majority of the remaining directors. Each successor so
elected shall hold office until the next annual meeting of shareholders
or until a successor shall have been duly-elected and qualified.
(b) If, after the filling of any vacancy by the directors, the
directors then in office
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who have been elected by the shareholders shall constitute less than a
majority of the directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the total number of shares
entitled to vote may call a special meeting of shareholders to be held
to elect the entire Board of Directors. The term of office of any
director shall terminate upon such election of a successor.
Section 2.06 Regular Meetings. Immediately following the adjournment
of, and at the same place as, the annual meeting of the shareholders, the Board
of Directors, including directors newly elected, shall hold its annual meeting
without notice, other than this provision, to elect officers of the corporation
and to transact such further business as may be necessary or appropriate. The
Board of Directors may provide by resolution the place, date and hour for
holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman upon
the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of the
corporation may be held at its principal office in the State of Nevada, or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail, or by telegram. If mailed, the notice shall be deemed delivered two
(2) business days following the date the same is deposited in the United States
mail, postage prepaid. Any director may waive notice of any meeting, and the
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, unless such attendance is for the express purpose of objecting to
the transaction of business threat because the meeting is not properly called or
convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to
time, until a quorum is present, and no notice of such adjournment
shall be required. At any adjourned meeting where a quorum is present,
any business may be transacted which could have been transacted at the
meeting originally called.
Section 2.11 Action Without Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if a written consent thereto is signed by all of
the members of the Board of Directors or of such committee. Such written consent
or consents shall be filed with the minutes of the proceedings of
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the Board of Directors or committee. Such action by written consent
shall have the same force and effect as the unanimous vote of the Board
of Directors or committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of Directors
may be held through the use of a conference telephone or similar communications
equipment so long as all members participating in such meeting can hear one
another at the time of such meeting. Participation in such a meeting constitutes
presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of
Directors is invested with the complete and unrestrained authority to
manage the affairs of the corporation, and is authorized to exercise
for such purpose as the general agent of the corporation, its entire
corporate authority in such manner as it sees fit. The Board of
Directors may delegate any of its authority to manage, control or
conduct the current business of the corporation to any standing or
special committee or to any officer or agent and to appoint any persons
to be agents of the corporation with such powers, including the power
to sub-delegate, and upon such terms as may be deemed fit.
(b) The Board of Directors shall present to the shareholders
at annual meetings of the shareholders, and when called for by a
majority vote of the shareholders at a special meeting of the
shareholders, a full and clear statement of the condition of the
corporation, and shall, at request, furnish each of the shareholders
with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of
the shareholders or any special meeting properly called for the purpose
of considering any such contract or act, provided a quorum is present.
The contract or act shall be valid and binding upon the corporation and
upon all the shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such meeting.
(d) In furtherance and not in limitation of the powers
conferred by the laws of the State of Nevada, the Board of Directors is
expressly authorized and empowered to issue stock of the Corporation
for money, property, services rendered, labor performed, cash advanced,
acquisitions for other corporations or for any other assets of value in
accordance with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of Directors
as to the value received and in return therefore shall be conclusive
and said stock, when issued, shall be fully-paid and non-assessable.
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Section 2.15 Compensation. The directors shall be allowed and paid all
necessary expenses incurred in attending any meetings of the Board.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of the
Board of Directors. The Board of Directors may also elect such other
board officers and for such term as it may, from time to time,
determine advisable.
(b) Any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 2.17 Order of Business. The order of business at any meeting of
the Board of Directors shall be as follows:
(1) Determination of members present and existence of
quorum;
(2) Reading and approval of the minutes of any
previous meeting or meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
(6) New business;
(7) Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first meeting
following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and until
their successors are elected and qualify. Any person may hold two or more
offices. The Board of Directors may, from time to time, by resolution, appoint
one or more vice presidents, assistant secretaries, assistant treasurers and
transfer agents of the corporation as it
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may deem advisable; prescribe their duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected or
appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to which
the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of death,
resignation, removal, or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
Section 3.04 President. The president shall be the general manager and
executive officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall direct the corporate affairs, with full power
to execute all resolutions and orders of the Board of Directors not especially
entrusted to some other officer of the corporation. The president shall preside
at all meetings of the shareholders and shall sign the certificates of stock
issued by the corporation, and shall perform such other duties as shall be
prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the president shall
have full power and authority on behalf of the corporation to attend and to act
and to vote at any meetings of the shareholders of any corporation in which the
corporation may hold stock and, at any such meetings, shall possess and may
exercise any and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time to time, may confer like powers
on any person or persons in place of the president to represent the corporation
for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one or
more vice presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed by
the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of all
meetings of the shareholders and the Board of Directors in books provided for
that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be open
for examination by any director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may appoint an
assistant secretary who shall have such powers and perform such duties as may be
prescribed for him by the secretary
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of the corporation or by the Board of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes and other obligations, and shall
deposit all monies to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer shall sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these By-laws or by the Board of Directors to be signed by the treasurer. The
treasurer shall enter regularly in the books of the corporation, to be kept for
that purpose, full and accurate accounts of all monies received and paid on
account of the corporation and whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The treasurer shall
at all reasonable times exhibit the books of account to any directors of the
corporation and shall perform all acts incident to the position of treasurer
subject to the control of the Board of Directors. The treasurer shall, if
required by the Board of Directors,give a bond to the corporation in such sum
and with such security as shall be approved by the Board of Directors for the
faithful performance of all the duties of the treasurer and for restoration to
the corporation in the event of the treasurer's death, resignation, retirement,
or removal from office, of all books, records, papers, vouchers, money and other
property belonging to the corporation. The expense of such bond shall be borne
by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may appoint an
assistant treasurer who shall have such powers and perform such duties as may be
prescribed by the treasurer of the corporation or by the Board of Directors, and
the Board of Directors may require the assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for the
restoration to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation shall
be issued in such manner and at such times and upon such conditions as shall be
prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal
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of the corporation and shall be signed by the president or the vice president
and also by the secretary or an assistant secretary. Each certificate shall
contain the name of the record holder, the number, designation, if any, class or
series of shares represented, a statement of summary of any applicable rights,
preferences, privileges, or restrictions thereon, and a statement that the
shares are assessable, if applicable. All certificates shall be consecutively
numbered. The name and address of the shareholder, the number of shares, and the
date of issue shall be entered on the stock transfer books of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificates shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any shareholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a replacement, provide
the corporation with his, her or its affidavit of the facts surrounding the
loss, theft, destruction or mutilation and an indemnity bond in an amount and
upon such terms as the treasurer, or the Board of Directors, shall require. In
no case shall the bond be in amount less than twice the current market value of
the stock and it shall indemnify the corporation against any loss, damage, cost
or inconvenience arising as a consequence of the issuance of a replacement
certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue a
new certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange the same for new certificates within a reasonable time to
be fixed by the Board of Directors. The order may provide that a holder of any
certificate(s) ordered to be surrendered shall not be entitled to vote, receive
dividends or exercise any other rights of shareholders until the holder has
complied with the order provided that such order operates to suspend such rights
only after notice and until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be valid as
against the corporation except on surrender and cancellation by the certificate
therefor, accompanied by an assignment or transfer by the registered owner made
either in person or under assignment. Whenever any transfer shall be expressly
made for collateral security and not absolutely, the collateral nature of the
transfer shall be reflected in the entry of transfer on the books of the
corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint one or
more transfer agents and registrars of transfer and may require all certificates
for shares of stock to bear the signature of such transfer agent and such
registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall be
closed for a period
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of ten (10) days prior to all meetings of the shareholders and shall be closed
for the payment of dividends as provided in Article V hereof and during such
periods as, from time to time, may be fixed by the Board of Directors, and,
during such periods, no stock shall be transferable.
Section 4.08 Miscellaneous. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance a record date, as provided in Section 1.06 of these By-laws,
prior to the dividend payment for the purpose of determining shareholders
entitled to receive payment of any dividend. The Board of Directors may close
the stock transfer books for such purpose for a period of not more than ten (10)
days prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the corporation
in the State of Nevada shall be the Law Offices of Max C. Tanner, 2950 East
Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have an
office in any other state or territory as the Board of Directors may designate.
Section 6.02 Records. The stock transfer books and a certified copy of
the By-laws, Articles of Incorporation, any amendments thereto, and the minutes
of the proceedings of the shareholders, the Board of Directors, and committees
of the Board of Directors shall be kept at the principal office of the
corporation for the inspection of all who have the right to see the same and for
the transfer of stock. All other books of the corporation shall be kept at such
places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of any
class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such period.
In addition, if no annual report for the last fiscal year has been sent to
shareholders, such shareholder or shareholders may make a request
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for a balance sheet as of the end of such fiscal year and an income statement
and statement of changes in financial position for such fiscal year. The
statement shall be delivered or mailed to the person making the request within
thirty (30) days thereafter. A copy of the statements shall be kept on file in
the principal office of the corporation for twelve (12) months, and such copies
shall be exhibited at all reasonable times to any shareholder demanding an
examination of them or a copy shall be mailed to each shareholder. Upon request
by any shareholder, there shall be mailed to the shareholder a copy of the last
annual, semiannual or quarterly income statement which it has prepared and a
balance sheet as of the end of the period. The financial statements referred to
in this Section 6.03 shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and
committees of the Board of Directors shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours for a
purpose reasonably related to such holder's interest as a shareholder
or as the holder of such voting trust certificate. This right of
inspection shall extend to the records of the subsidiaries, if any, of
the corporation. Such inspection may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and
make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of
every kind and to inspect the physical properties of the corporation
and/or its subsidiary corporations. Such inspection may be made in
person or by agent or attorney, and the right of inspection includes
the right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall
be the calendar year or such other term as may be fixed by resolution of the
Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of Directors
may deem beneficial to the corporation, and the directors may modify or abolish
any such reserves in the manner in which they were created.
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ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless prohibited
by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved in
any manner (including, without limitation, as a party or a witness) or is
threatened to be so involved in any threatened, pending or completed action suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its favor
(collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, 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, employee benefit plan or
other entity or enterprise, against all Expenses and Liabilities actually and
reasonably incurred by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed to have been relied
upon by the directors, officers, employees and agents of the corporation and
shall be enforceable as a contract right and inure to the benefit of heirs,
executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific rights
of indemnification in addition to the rights provided hereunder to the fullest
extent permitted by Nevada Law. Such agreements or arrangements may provide (i)
that the Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the corporation as they are
incurred and in advance of the final disposition of any such action, suit or
proceeding provided that, if required by Nevada Law at the time of such advance,
the officer or director provides an undertaking to repay such amounts if it is
ultimately determined by a court of competent jurisdiction that such individual
is not entitled to be indemnified against such expenses, (iii) that the
Indemnitee shall be presumed to be entitled to indemnification under this
Article or such agreement or arrangement and the corporation shall have the
burden of proof to overcome that presumption, (iii) for procedures to be
followed by the corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and (iv) for insurance
or such other Financial Arrangements described in Paragraph 7.02 of this
Article, all as may be deemed appropriate by the Board of Directors at the time
of execution of such agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation may,
unless prohibited by Nevada Law, purchase and maintain insurance or make other
financial arrangements ("Financial Arrangements") on behalf of any Indemnitee
for any liability asserted against him and liability and expenses incurred by
him in his capacity as a director, officer, employee or agent, or arising out of
his status as such, whether or not the corporation has the authority to
indemnify him against such liability and expenses. Such other Financial
Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv)
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the establishment of a letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs incurred,
paid or accrued, (ii) all attorneys' fees, retainers, court costs,
transcripts, fees of experts, witness fees, travel expenses, food and
lodging expenses while traveling, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service, freight or
other transportation fees and expenses, (iii) all other disbursements
and out-of-pocket expenses, (iv) amounts paid in settlement, to the
extent permitted by Nevada Law, and (v) reasonable compensation for
time spent by the Indemnitee for which he is otherwise not compensated
by the corporation or any third party, actually and reasonably incurred
in connection with either the appearance at or investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a
right to indemnification under any agreement or arrangement, this
Article, the Nevada Law or otherwise; provided, however, that
"Expenses" shall not include any judgments or fines or excise taxes or
penalties imposed under the Employee Retirement Income Security Act of
1974, as amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any type
whatsoever, including, but not limited to, judgments or fines, ERISA or
other excise taxes and penalties, and amounts paid in settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada
Revised Statutes as amended and in effect from time to time or any
successor or other statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through
7.04 of these By-Laws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including
this Paragraph, of these By-Laws may be amended by the stockholders
only by vote of the holders of sixty-six and two-thirds percent (66
2/3%) of the entire number of shares of each class, voting separately,
of the outstanding capital stock of the corporation (even though the
right of any class to vote is otherwise restricted or denied);
provided, however, no amendment or repeal of this Article shall
adversely affect any right of any Indemnitee existing at the time such
amendment or repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these By-Laws may be amended or repealed by the Board of
Directors only by vote of eighty percent (80%) of the total number of
Directors and the holders of sixty-six and two-thirds percent (66 2/3)
of the entire number of shares of each class, voting separately, of the
outstanding capital stock of the corporation (even though the right of
any class to vote is otherwise restricted or denied); provided,
however, no amendment or repeal of this Article shall adversely affect
any
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right of any Indemnitee existing at the time such amendment or repeal
becomes effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be
made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a consent
in writing signed by the holders of a majority of the issued and outstanding
capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent
herewith may be adopted by the Board of Directors at any meeting of the Board of
Directors at which a quorum is present by an affirmative vote of a majority of
the directors present or by the unanimous consent of the Board of Directors in
accordance with Section 2.11 of these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected secretary of the
Corporation, do hereby certify that the foregoing By-laws were adopted by the
Board of Directors on the 27th day of January, 1997.
/s/Max C. Tanner
-----------------------------------
Max C. Tanner, Secretary
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EXHIBIT 4.1
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "Agreement") dated as of August 27, 1998
between Bristol Asset Management V LLC, a limited liability company organized
and existing under the laws of the State of Delaware (the "Investor"), and Jaws
Technology, Inc., a corporation organized and existing under the laws of the
State of Nevada (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Investor shall invest up to $7,000,000 in the
Company's Common Stock, par value $.01 per share (the "Common Stock").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
Purchase and Sale of Common Stock; Issuance of Warrants
Section 1.1 Purchase and Sale of Common Stock. Upon the terms and
subject to the conditions set forth herein, the Company shall issue and sell to
the Investor, and the Investor shall purchase from the Company, up to $7,000,000
of Common Stock, such stock to be valued as provided in Section 1.3(b) herein.
Section 1.2 Delivery of Put Notices.
(a) At any time prior to the date which is three years from the
effective date of the Registration Statement (as defined below), the Company may
deliver written notices to the Investor (each such notice hereinafter referred
to as a "Put Notice") in the form of the Put Notice annexed to this Agreement as
Exhibit A stating a dollar amount (the "Dollar Amount") of Common Stock which
the Company intends to sell to the Investor five business days following the
date (the "Put Notice Date") on which the Put Notice is given to the Investor by
the Company in accordance with Section 5.4 herein, provided that each Put Notice
Date and Dollar Amount shall be subject to Section 1.3(a) below. "Business
day(s)" shall mean any day on which the New York Stock Exchange is open for
trading. The Dollar Amount designated by the Company in any given Put Notice
shall be an amount equal to at least $50,000.
(b) Notwithstanding any of the foregoing, the Company may not
deliver a Put Notice if (i) trading of the Common Stock on the principal market
on which it is then traded (the "Principal Market") is then suspended or the
Common Stock is then delisted from or is no longer eligible to be traded on the
Principal Market, (ii) the closing price of the Common Stock on the Principal
Market is less than $.10 per share (appropriately adjusted for any stock splits,
reverse splits or combinations, stock dividends and similar events), (iii) the
Dow Jones Industrial Average has dropped more than 3% within the preceding five
business days, or (iv) the Common Stock is not then registered under the
Securities Exchange Act of 1934, as amended (the "Exchange
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Act"). If any of the events described in clauses (i), (ii), (iii) or (iv) above
occurs after a Put Notice is delivered but prior to the Closing (as defined
below) associated with such Put Notice, such Put Notice shall be null, void and
of no force and effect and a new Put Notice shall be required following the
termination of any such event.
Section 1.3 Determination of Share Number; Valuation Period
(a) Within ten days after the end of each calendar month, at the
option of the Company it may require a purchase of Common Stock by the Investor
(except as hereinafter in this Agreement provided), subject to the procedures
set forth in Section 1.2(a), in a maximum amount not to exceed the lesser of (i)
$7,000,000, less all amounts previously paid by the Investor pursuant to this
Section 1.3(a), (ii) $583,333, (iii) the product of (x) the number of shares of
Common Stock traded on the Principal Market during the preceding calendar month,
multiplied by (y) the average of the closing bid prices as reported by Bloomberg
L.P. ("Bloomberg") (or other appropriate published source) for the Common Stock
during the prior calendar month, multiplied by (z) 10% and (iv) such Dollar
Amount which, together with the related Warrants (as defined below) to be issued
pursuant to Section 1.4 below, would result in the Investor beneficially owning
no more than 4.9% of the Common Stock outstanding on the Closing Date (as
defined below) in question (including without limitation Common Stock deemed
beneficially owned by the Investor pursuant to any Warrants), as determined in
accordance with Section 13(d) of the Exchange Act and the regulations
promulgated thereunder. The Put Notice shall include a representation of the
Company as to the Common Stock outstanding on the Put Notice Date as determined
in accordance with Section 13(d) of the Exchange Act and the regulations
promulgated thereunder. In the event that the amount of Common Stock outstanding
as determined in accordance with Section 13(d) of the Exchange Act and the
regulations promulgated thereunder is different on a Closing Date than on the
Put Notice Date associated with such Closing Date, the amount of Common Stock
outstanding on such Closing Date shall govern for purposes of determining
whether the Investor would own more than 4.9% of the Common Stock as of such
Closing Date.
For example, if a total of 2,000,000 shares of Common Stock
traded during January of a particular year on the Principal Market and the
average of the closing bid prices was $1.00, on or before February 10 the
Company could request a draw down not to exceed 10% of $2,000,000 or $200,000,
so long as such amount was available under this Agreement and so long as such
amount did not result in the Investor beneficially owning more than 4.9% of the
Common Stock.
(b) Simultaneously with the deposit of the funds from the
Investor in the amount of the draw down (except as otherwise provided in Section
1.4 below) the Company shall issue and sell to the Investor and the Investor
shall be deemed to have purchased, in consideration of the funds so deposited,
the number of shares of Common Stock equal to the draw down divided by 77% of
the lowest sale price for the Common Stock on the Principal Market as reported
by Bloomberg (or other appropriate published source) (the "Lowest Sale Price")
during the ten trading days prior to the Put Notice Date (the "Look Back
Period"). For example, if the Lowest
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Sale Price for the Look Back Period was $1.00 and the draw down was $100,000,
the number of shares of Common Stock to be issued would be 129,870 shares.
Notwithstanding the foregoing, in the event that the Lowest Sale Price during
the 20 trading days after a particular Closing is less than 95% of the Lowest
Sale Price applicable to such Closing, then the Company shall promptly issue to
the Investor an additional number of shares of Common Stock with respect to such
Closing such that the number of shares of Common Stock issued to the Investor at
such Closing plus such additional number of shares to be issued are equal to the
funds drawn down at such Closing divided by 77% of the Lowest Sale Price during
such 20 trading day period. The Investor shall also be issued additional
Warrants equal to 12% of the number of additional shares so issued and the
exercise price of such additional Warrants shall equal, and the exercise price
of the Warrants issued at such prior Closing shall be adjusted to, 94% of the
average closing bid price for the Common Stock on the Principal Market as
reported by Bloomberg (or other appropriate published source) during such 20
trading day period.
(c) The Company shall not be required to issue fractional shares
of Common Stock and instead shall refund to the Investor an amount equal to the
fraction which would otherwise have been issued times 77% of the average closing
bid price during the Look Back Period determined as provided in Section 1.3(b)
above.
Section 1.4 Closing.
(a) Each Closing of a purchase and sale of Common Stock (a
"Closing") shall take place at 10:00 a.m. Los Angeles time on the fifth business
day following the Put Notice Date to which such Closing relates or the earliest
date thereafter on which all conditions to Closing have been satisfied. Each
date on which a Closing occurs is referred to herein as a "Closing Date."
(b) On each Closing Date the Investor shall deliver to the
Company the Dollar Amount with respect to such Closing by cashier's check or
wire transfer to such account as shall be designated in writing by the Company;
provided however, that to the extent the Company has not paid fees and expenses
of the Investor's representatives and counsel which are payable by the Company
under this Agreement, the amount of such fees and expenses may be withheld by
the Investor and applied to such unpaid fees and expenses with no reduction in
the number of shares to be issued and sold to the Investor. On each Closing
Date, the Company shall deliver to the Investor unlegended certificates
representing the number of shares to be issued and sold to the Investor on such
date and registered in the name of the Investor. In addition, each of the
Company and the Investor shall deliver all documents, instruments and writings
required to be delivered by either of them pursuant to this Agreement at or
prior to each Closing.
(c) On each Closing Date, except as provided in Section 1.4(d)
below, the Company shall also deliver to the Investor warrants in the form
annexed to this Agreement as Exhibit B ("Warrants") to purchase shares of Common
Stock (the "Warrant Shares"), which Warrants shall expire on the fifth
anniversary of the date of issuance thereof. The Warrants issuable at any
Closing shall entitle the holders thereof from time to time (the "Warrant
Holders")
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to purchase a number of Warrant Shares equal to 12% of the number of shares of
Common Stock purchased at the Closing in question at an initial exercise price
(subject to the provisions of Section 1.3(b) above) equal to 94% of the average
closing bid price for the Common Stock on the Principal Market as reported by
Bloomberg (or other appropriate published source) during the Look Back Period in
question.
(d) (i) To the extent that the Investor has not purchased shares
of Common Stock in an aggregate Dollar Amount equal to $2,333,333 on or before
one year from the date of this Agreement for any reason (other than the
Investor's breach of this Agreement and then only to the extent of such breach),
additional Warrants shall be issued within ten days thereafter to the Investor
as follows. The number of Warrants to be so issued shall be equal to 12% of the
difference between (x) $2,333,333 and (y) the aggregate Dollar Amount of Common
Stock purchased by the Investor on or prior to such one year anniversary
(including any amounts withheld by the Investor pursuant to Section 1.4(b)),
divided by (z) 77% of the Lowest Sale Price for the Common Stock on the
Principal Market as reported by Bloomberg (or other appropriate published
source) during the ten trading days prior to such one year anniversary. The
initial exercise price of such Warrants shall be equal to the lower of (A) 94%
of the average closing bid price for the Common Stock on the Principal Market as
reported by Bloomberg (or other appropriate published source) during the ten
trading days prior to such one year anniversary and (B) 94% of the average of
the Monthly Closing Prices (as defined below) for any months in the year ending
on such one year anniversary with respect to which no Shares were purchased by
the Investor. The term Monthly Closing Price means the average closing bid price
for the Common Stock on the Principal Market as reported by Bloomberg (or other
appropriate published source) during the last ten trading days of the calendar
month in question.
(ii) To the extent that the Investor has not purchased shares
of Common Stock in an aggregate Dollar Amount equal to $4,666,667 on or before
two years from the date of this Agreement for any reason (other than the
Investor's breach of this Agreement and then only to the extent of such breach),
additional Warrants shall be issued within ten days thereafter to the Investor
as follows. The number of Warrants to be so issued shall be equal to 12% of the
difference between (x) $4,666,667 and (y) the aggregate Dollar Amount of Common
Stock purchased by the Investor on or prior to such two year anniversary
(including any amounts withheld by the Investor pursuant to Section 1.4(b)),
divided by (z) 77% of the Lowest Sale Price for the Common Stock on the
Principal Market as reported by Bloomberg (or other appropriate published
source) during the ten trading days prior to such two year anniversary. The
initial exercise price of such Warrants shall be equal to the lower of (A) 94%
of the average closing bid price for the Common Stock on the Principal Market as
reported by Bloomberg (or other appropriate published source) during the ten
trading days prior to such two year anniversary and (B) 94% of the average of
the Monthly Closing Prices for any months in the year ending on such two year
anniversary with respect to which no Shares were purchased by the Investor.
(iii) To the extent that the Investor has not purchased
shares of Common Stock in an aggregate Dollar Amount equal to $7,000,000 on or
before three years from the date of this Agreement for any reason (other than
the Investor's breach of this Agreement and then
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only to the extent of such breach), additional Warrants shall be issued within
ten days thereafter to the Investor as follows. The number of Warrants to be so
issued shall be equal to 12% of the difference between (x) $7,000,000 and (y)
the aggregate Dollar Amount of Common Stock purchased by the Investor on or
prior to such three year anniversary (including any amounts withheld by the
Investor pursuant to Section 1.4(b)), divided by (z) 77% of the Lowest Sale
Price for the Common Stock on the Principal Market as reported by Bloomberg (or
other appropriate published source) during the ten trading days prior to such
three year anniversary. The initial exercise price of such Warrants shall be
equal to the lower of (A) 94% of the average closing bid price for the Common
Stock on the Principal Market as reported by Bloomberg (or other appropriate
published source) during the ten trading days prior to such three year
anniversary and (B) 94% of the average of the Monthly Closing Prices for any
months in the year ending on such three year anniversary with respect to which
no Shares were purchased by the Investor.
On each Closing Date subsequent to the issuance of Warrants pursuant to
this Section 1.4(d), notwithstanding the provisions of Section 1.4(c) above, the
Company shall only be obligated to issue Warrants pursuant to Section 1.4(c) at
such times as and to the extent that the total Dollar Amount of Common Stock
purchased by the Investor exceeds the Dollar Amount set forth in the clause
pursuant to which the Warrants were issued, in each case including any amounts
withheld by the Investor pursuant to Section 1.4(c). For example, if Warrants
are issued pursuant to clause (i) above, then no Warrants shall thereafter be
issuable pursuant to Section 1.4(c) until such time as the aggregate Dollar
Amount of Common Stock purchased by the Investor pursuant to this Agreement
exceeds $2,500,000.
Section 1.5. Registration.
(a) The Company agrees that all shares of Common Stock issued to
the Investor pursuant to this Agreement shall, at the time of such issuance and
for so long thereafter as is required by this Agreement, be subject to an
effective registration statement covering the resale or other disposition of
such shares thereof by the Investor at any time and from time to time after each
such issuance and, with respect to the Warrant Shares, covering the resale or
other disposition by the holders of the Warrant Shares at any time and from time
to time after each such issuance for so long as is required by this Agreement.
The shares of Common Stock to be issued to the Investor pursuant to this
Agreement and any Warrant Shares are collectively referred to as the "Shares."
The Company agrees that the registration statement described in this Section
1.5(a) (together with all amendments and supplements thereto, including any
additional registration statements filed in accordance with Section 1.5(b)
below, the "Registration Statement") shall, in accordance with Section 1.5(c)
below, remain effective pursuant to the provisions of the Securities Act of
1933, as amended (the "Securities Act"), or otherwise, (x) in the case of any
Shares issued pursuant to this Agreement at all times during the term of this
Agreement and for a period of 120 days thereafter and (y) in the case of any
Warrant Shares at all times during the term of the Warrants and for a period of
three years thereafter (as applicable, the "Registration Period").
(b) The Company shall use its best efforts in order that the
Registration Statement may become effective within 30 days of the date of this
Agreement. The Registration
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Statement shall register at least 50% of the number of shares of Common Stock
and 100% of the number of Warrant Shares issuable during the term of this
Agreement. In the event that the Company has not initially registered all shares
of Common Stock issuable under this Agreement, a new registration statement
shall be filed covering the remaining shares of Common Stock, and the Company
shall use its best efforts in order that the new registration statement may
become effective within 60 days of the first anniversary of this Agreement.
(c) The Company shall, as expeditiously as reasonably possible
and in accordance with Section 1.5(a) herein:
(i) Prepare and file with the Securities and Exchange
Commission (the "SEC") such amendments and supplements to such Registration
Statement and the prospectus used in connection therewith as may be necessary to
comply with this Agreement and the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement.
(ii) Furnish to the Investor and any Warrant Holders, as the
case may be, such numbers of conformed copies of the Registration Statement and
of each amendment and supplement thereto (in each case including all exhibits
and documents incorporated by reference), such number of copies of the
prospectus contained in the Registration Statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under Rule
424 promulgated under the Securities Act, and such other documents as the
Investor and Warrant Holders, as the case may be, may reasonably require in
order to facilitate the disposition of shares sold pursuant to this Agreement or
issued pursuant to the Warrants.
(iii) Insure that all Shares subject to the Registration
Statement shall at all times during the applicable Registration Period be
registered and qualified under such other securities or "Blue Sky" laws of such
jurisdictions as shall be requested by the Investor and/or the Warrant Holders,
as the case may be, provided that the Company shall not be required in
connection herewith or as a condition hereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(iv) Notify the Investor and/or any Warrant Holders of (A)
the happening of any event or the existence of any circumstance as a result of
which the prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and as soon as may be
practicable prepare and file with the SEC such amendments and supplements to
such Registration Statement and prospectus used in connection therewith as may
be necessary to eliminate or correct such untrue statement or omission and
otherwise to cause such Registration Statement and prospectus to remain current
and useable for the purposes intended hereunder; (B) receipt of any request by
the SEC or any other federal or state governmental authority for additional
information, amendments or supplements to the Registration Statement or related
prospectus; (C) the issuance by the SEC or any other federal or state
governmental authority of
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any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; or (D) receipt of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose.
(v) Make available for inspection by the Investor's
designated representatives upon request from time to time, all documents filed
by the Company with the SEC (including any documents which may be filed pursuant
to the Exchange Act), require the Company's employees to supply all information
reasonably required by the Investor's designated representatives in connection
with the Registration Statement, require the Company's employees to meet with
representatives of the Investor's designated representatives during normal
business hours and on such basis as the Investor's designated representatives
may reasonably request, and make available to the Investor's designated
representatives, contemporaneously with the provision of such information, any
and all information about the Company provided by the Company to securities
analysts. In addition, the Company will permit the Investor's designated
representatives access to the Company's premises and personnel, consultants,
agents, attorneys, accountants, customers, suppliers, bankers and others who
have significant relationships or agreements with the Company and the Company's
assets, books and records and the Company will provide the Investor's designated
representatives with information (financial and otherwise) concerning the
Company to enable the Investor's designated representatives to conduct
reasonably appropriate ongoing due diligence review of the Company. The Company
will disseminate to the Investor's designated representatives all press releases
and public information disseminated by the Company at the same time it
disseminates such releases and information to others.
(vi) Except as required, in the opinion of the Company's
counsel, by law or consented to in advance by the Investor (which consent shall
not be unreasonably withheld), refrain from using the name of the Investor in
the Registration Statement or other regulatory filings (including the SEC
Documents).
(vii) The Company shall enter into reasonably customary
agreements and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Shares (whereupon the Investor
and/or the Warrant Holders, as the case may be, may at their option require that
any or all of the representations, warranties and covenants of the Company also
be made to and for the benefit of the Investor and/or the Warrant Holders, as
the case may be).
(d) (i) The Company shall indemnify, defend and hold harmless the
Investor and Warrant Holders and each of their respective officers, directors,
partners, employees, agents and counsel and each person, if any, who controls
any such person within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (each, an "Indemnified Party") from and against,
and shall reimburse the Indemnified Parties with respect to, any and all claims,
suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such Indemnified Parties may become subject
under the Securities Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue
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<PAGE> 8
statement of any material fact contained in the Registration Statement or any
prospectus contained therein or (B) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company shall not be liable in any such
case to the extent that any such Liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by the Investor or any Warrant
Holder in writing specifically for use in the preparation thereof.
(ii) The Investor and/or the Warrant Holder, as the case may
be, shall indemnify, defend and hold harmless the Company and each of its
respective officers, directors, partners, employees, agents and counsel and each
person, if any, who controls any such person within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each, an "Indemnified
Party") from and against, and shall reimburse the Indemnified Parties with
respect to, any and all Liabilities to which such Indemnified Parties may become
subject under the Securities Act or otherwise, arising from or relating to (A)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any prospectus contained therein or (B) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent and only to the extent that any such Liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by the Investor or the
Warrant Holder, as the case may be, in writing specifically for use in the
preparation thereof. In addition, if a Registration Statement is suspended by
the SEC as a result of any untrue statement of a material fact intentionally
made by the Investor in the Registration Statement, then the Investor shall
indemnify, defend and hold harmless the Company from losses actually incurred by
the Company (excluding any speculative or consequential damages or damages for
loss of profits or lost opportunities) from its failure to be able to require
purchases of Common Stock under this Agreement during the period of such
suspension provided that the Company proves that (a) it would have required such
purchases and (b) no alternative sources of financing were available.
(iii) Promptly after receipt by an Indemnified Party of
notice of the commencement of any action, the Indemnified Party shall, if a
claim in respect thereof is to be made against the other party (the
"Indemnifying Party") hereunder, notify the Indemnifying Party in writing
thereof, but the omission so to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any Liability which it may have to any Indemnified
Party other than under this section and shall only relieve it from any Liability
which it may have to the Indemnified Party under this section if and to the
extent the Indemnifying Party is materially prejudiced by such omission. In case
any such action shall be brought against an Indemnified Party and the
Indemnified Party shall notify the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate in the defense
thereof with counsel reasonably satisfactory to the Indemnified Parties. If the
Investor is a defendant in such action, the Investor shall select separate
counsel to represent the Investor and all Indemnified Parties; however, if the
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Investor is not a defendant, such separate counsel shall be selected by the
majority of the Indemnified Parties named as defendants; in each case the fees
and expenses of such counsel and other expenses related to the action shall be
reimbursed by the Indemnifying Party as such fees and expenses are incurred. The
legal fees and expenses of any Indemnified Party choosing not to be represented
by such separate counsel selected by the Investor or the majority of the
Indemnified Parties, as the case may be, shall be borne by such Indemnified
Party.
(e) If the indemnification provided for in Section 1.5(d) above
is unavailable to an Indemnified Party in respect of any Liabilities, then the
Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liabilities such proportion of such Liabilities as is appropriate to
reflect the relative fault of the Indemnifying Party and of the Indemnified
Party in connection with such statements or omissions described in Section
1.5(d)(i) or (ii) above, as well as any other relevant equitable considerations.
The relative fault of the Indemnifying Party and of the Indemnified Party shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
"Liabilities" pursuant to this Section 1.5(e) and Section 1.5(d) shall be deemed
to include without limitation any legal or other expenses reasonably incurred by
the Indemnified Parties in connection with investigating or defending any action
or claim by a third party and in connection with any enforcement of this Section
1.5(e) and Section 1.5(d).
(f) (i) All legal, accounting and other fees, costs and expenses
of and incidental to the Registration Statement (including without limitation
the fees, costs and expenses of the Investor's designated representatives as
provided in Section 1.5(c)(v) and the fees, costs and expenses of the Investor's
counsel) shall be borne by the Company (other than such fees, costs and expenses
as are in the nature of commissions incurred in connection with the sale of
Shares by the Investor or any Warrant Holder). The Company shall pay such
advances and retainers toward such expenses as the Investor may from time to
time reasonably request.
(ii) The fees, costs and expenses to be borne by the Company
as provided in this subsection (f) shall include, without limitation, all
registration, filing and NASD fees, printing expenses, fees and disbursements of
counsel and accountants for the Company and all legal fees and disbursements and
other expenses of complying with state securities or "Blue Sky" laws of any
jurisdiction or jurisdictions in which securities to be offered are to be
registered and qualified. The Company shall pay such advances and retainers
toward such expenses as the Investor may from time to time reasonably request.
Section 1.6 Distributions. In the event the Company delivers a Put
Notice, the Company shall not make any distributions to its shareholders
(including without limitation any rights to purchase securities or properties)
or have any record dates with respect thereto from the beginning of the Look
Back Period until five business days after the Closing.
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Section 1.7 Delisting and Registration Statement Suspension. If within
60 days after a Closing the Common Stock is delisted from or is no longer
eligible to be traded on the then Principal Market or the Common Stock is not
registered under the Exchange Act, the Investor shall have the right, at its
option in its sole discretion, which right shall be exercised within 30 days of
such delisting or deregistration, to sell to the Company, and the Company agrees
to buy, promptly upon the exercise of such right by the Investor, a number of
Shares up to the number of the Shares purchased by the Investor at such Closing
and the immediately prior Closing at a price equal to the purchase price
therefor, as well as all Warrants then held by the Investor and/or the Warrant
Holders at a price equal to the average closing sales prices for the Common
Stock on the Principal Market as reported by Bloomberg (or other appropriate
published source) for the five trading days prior to the commencement of the
event in question (less any applicable exercise price for unexercised Warrants).
In addition if at any time during the Registration Period the Registration
Statement is not effective for a five-day period or if the Investor and/or the
Warrant Holders are not otherwise able to sell their Shares pursuant to the
Registration Statement for a five-day period or trading is halted in the Common
Stock for more than a five-day period, then the Investor and/or the Warrant
Holders, as the case may be, shall have the right, at their option in their sole
discretion, which right shall be exercised within 90 days after such five-day
period to sell to the Company, and the Company agrees to buy, promptly upon the
exercise of such right, all or any part of the Shares then held by the Investor
and/or the Warrant Holders, as the case may be, and/or the Warrants held by the
Warrant Holders at a price equal to the average closing sales prices for the
Common Stock on the Principal Market as reported by Bloomberg (or other
appropriate published source) for the ten trading days prior to the commencement
of the event in question (less any applicable exercise price for unexercised
Warrants).
ARTICLE 2
Representations and Warranties
Section 2.1 Representations and Warranties of the Company. The Company
makes the following representations and warranties to the Investor as of the
date hereof and as of each Closing Date:
(a) Organization and Qualification. The Company is a corporation
duly incorporated in and existing in good standing under the laws of the State
of Nevada and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary and where
the failure to so qualify would have a Material Adverse Effect. "Material
Adverse Effect" means any adverse effect on the operations, properties,
prospects or financial condition of the Company and/or any of its subsidiaries
which is material to the Company and its subsidiaries taken as a whole.
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(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement and to
issue all Shares and Warrants in accordance with the terms hereof and thereof.
The execution and delivery of this Agreement and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been and the Warrants will be duly executed and
delivered by the Company. This Agreement constitutes and the Warrants will
constitute a valid and binding obligation of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
(c) Capitalization. As of ____________, 1998, the authorized
capital stock of the Company and the shares thereof currently issued and
outstanding (and shares subject to issuance upon outstanding options, warrants,
purchase agreements and rights and/or convertible securities) were as follows:
_______________________________________. All of the outstanding shares of Common
Stock have been validly issued and are fully paid and non-assessable. No shares
of Common Stock are entitled to preemptive rights. The Company owns 100% of the
equity securities of any of its subsidiaries, and no other person has the right
(contingent or otherwise) to acquire any such securities.
(d) Issuance of Shares. The issuance of all Shares and Warrants
to be issued hereunder has been duly authorized and all such Shares, when paid
for and issued in accordance with the terms hereof and the Warrants, shall be
validly issued, fully paid and non-assessable. The Company has authorized and
reserved and will continue to reserve for issuance the requisite number of
shares of Common Stock to be issued pursuant to the Warrants.
(e) Agreements. There has been no breach or default by the
Company or by any other party thereto of any provisions of any material
agreements to which the Company is a party which would result in a Material
Adverse Effect, and nothing has occurred which, with lapse of time or the giving
of notice of both, would constitute such a breach or default by the Company by
any other party thereto.
(f) Brokers. The Investor shall not be responsible for any fees
of any broker, finder, commission agent or other person employed by the Company
in connection with this Agreement and the transactions contemplated hereby.
(g) No Conflicts. The execution, delivery and performance of this
Agreement and the Warrants by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby do not and will not (i) result
in a violation of the Company's charter documents or by-laws or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument
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to which the Company is a party, or result in a violation of any Federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected (except for
such conflicts, defaults, terminations, amendments, accelerations, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect). The business of the Company is not being conducted in violation
of any law, ordinance or regulations of any governmental entity, except for
violations which either singly or in the aggregate do not have a Material
Adverse Effect. The Company is not required under law, rule or regulation to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or issue and sell
any shares in accordance with the terms hereof or to enable the Investor to sell
Shares on the Principal Market (other than the filing and effectiveness of the
Registration Statement and compliance with applicable state securities or "Blue
Sky" laws).
(h) SEC Documents, Financial Statements. Upon the effectiveness
of the Registration Statement and at all times thereafter, the Common Stock will
be registered pursuant to Section 12 of the Exchange Act, and the Company will
timely file all reports, schedules, forms, statements and other documents,
together with all exhibits, financial statements and schedules thereto, required
to be filed by it with the SEC pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d) (all
of the foregoing, including materials filed with the SEC and the Registration
Statement, when declared effective and as it may be amended from time to time,
being hereinafter referred to herein as the "SEC Documents"). As of their
respective dates, the SEC Documents will comply in all material respects with
the requirements of the Exchange Act or the Securities Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder and other
Federal, state and local laws, rules and regulations applicable to such SEC
Documents, and none of the SEC Documents will contain any untrue statement of a
material fact or will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of the date of
delivery by the Investor and/or a holder of Warrant Shares of the prospectus
contained in the Registration Statement in connection with sales of Shares by
the Investor and/or holder of Warrant Shares, such prospectus will comply in all
material respects with the requirements of the Securities Act and the rules and
regulations of the SEC promulgated thereunder, and other Federal, state and
local laws, rules and regulations applicable to such prospectus. The financial
statements of the Company included in the SEC Documents will comply as to form
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements will be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except (x) as may be otherwise indicated in
such financial statements or the notes thereto or (y) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and will fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of operations
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and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(i) There is not in effect any agreement by the Company pursuant
to which any holders of securities of the Company have a right to cause the
Company to register or qualify such securities under the Securities Act or any
securities or blue sky laws of any jurisdiction.
(j) The SEC has not issued an order preventing or suspending the
use of any prospectus relating to the offering of any Shares nor instituted
proceedings for that purpose.
(k) No Material Adverse Change. No Material Adverse Effect has
occurred or exists with respect to the Company since the date of this Agreement.
(l) No Undisclosed Events or Circumstances. No material event or
circumstance has occurred or exists with respect to the Company or its business,
properties, prospects, operations or financial condition which should be
disclosed by the Company under the Exchange Act or other applicable law if the
Company were selling Common Stock but which has not been so publicly announced
or disclosed.
(m) There has been no material adverse change in the number
and/or stature of firms making a market in the Common Stock since the date of
this Agreement.
Section 2.2 Representations and Warranties of the Investor. The Investor
makes the following representations and warranties to the Company as of the date
hereof and as of each Closing Date:
(a) Authorization; Enforcement. The Investor is duly organized
and validly existing under the laws of the State of Delaware. The Investor has
the requisite power and authority to enter into and perform this Agreement and
to purchase the Shares to be sold hereunder. The execution and delivery of this
Agreement by the Investor and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate or
other action, and no further consent or authorization of the Investor is
required. This Agreement has been duly authorized, executed and delivered by the
Investor. This Agreement constitutes a valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(b) No Conflicts. The execution, delivery and performance of this
Agreement and the consummation by the Investor of the transactions contemplated
hereby or relating hereto do not and will not (i) result in a violation of the
Investor's charter documents or (ii) conflict with, or constitute a default (or
an event which with notice of lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
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cancellation of, any agreement, indenture or instrument to which the Investor is
a party, or result in a violation of any law, rule, or regulation, or any order,
judgment or decree of any court or governmental agency applicable to the
Investor or any of its properties (except for such conflicts, defaults and
violations as would not individually or in the aggregate have a material adverse
effect on the Investor or a Material Adverse Effect on the Company or the
transactions contemplated hereunder). The Investor is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or purchase securities in accordance
with the terms hereof.
(c) Opportunity for Review. The Investor has been afforded, to
the satisfaction of the Investor, the opportunity to review the SEC Documents
and obtain such additional information concerning the Company and its business,
and to ask such questions and receive such answers, as the Investor deems
necessary to make an informed investment decision and to evaluate the merits and
risks of entering into this Agreement.
(d) Investment Representation. The Investor is an "accredited
investor" as that term is defined by the Securities Act. The Investor is
purchasing the shares of Common Stock and the Warrants for its own account. The
Investor has no present intention to sell any such securities (or shares of
Common Stock issuable upon exercise of the Warrants) except in compliance with
the Securities Act.
ARTICLE 3
Covenants
Section 3.1 Securities Compliance.
(a) The Company shall notify the SEC and the Principal Market and
any other applicable market in accordance with their requirements, if any, of
the transactions contemplated by this Agreement and shall take all other
necessary action and proceedings as may be required by applicable law, rule and
regulation for the legal and valid issuance of all securities to be issued to
the Investor hereunder.
(b) The Company will cause its Common Stock to continue to be
registered under Section 12 of the Exchange Act, will comply in all material
respects with its reporting and filing obligations under said Act, will comply
with all requirements related to the Registration Statement, and will not take
any action or file any document (whether or not permitted by said Act or the
rules thereunder) to terminate or suspend such Registration Statement or to
terminate or suspend its reporting and filing obligations under the Exchange
Act, expect as permitted herein. The Company will take all action necessary to
continue the listing or trading of its Common Stock on the Principal Market and
will comply in all material respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the Principal Market.
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(c) The Company will file in a timely manner information,
documents and reports in compliance with the Securities Act and the Exchange Act
and will, at its expense, promptly take such further action as holders of Shares
and/or holders of Warrants may reasonably request to enable such holders to sell
Shares without registration under the Securities Act within the limitation of
the exemptions provided by (i) Rule 144 under the Securities Act ("Rule 144"),
as such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the SEC. If at any time the Company is not
required to file such reports, it will, at its expense, forthwith upon the
written request of any holder of Shares, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2)
of Rule 144 or such other information as may be necessary to permit sales
pursuant to Rule 144. Upon the request of the Investor, the Company will deliver
to the Investor a written statement, signed by the Company's principal financial
officer, as to whether it has complied with such requirements.
Section 3.2 Preliminary Put Notice. The Company shall deliver to the
Investor, at least seven calendar days prior to the delivery of each Put Notice,
a preliminary Put Notice which notice shall state that the Company is
considering delivery of a Put Notice to the Investor ten or more calendar days
following delivery of the preliminary Put Notice and the maximum Dollar Amount
of such Put Notice. In no event shall delivery of a preliminary Put Notice to
the Investor obligate the Company to deliver any Put Notice to the Investor, but
any Put Notice so delivered shall not require the Investor to purchase a Dollar
Amount greater than the amount set forth in such preliminary Put Notice.
Notwithstanding anything to the contrary contained in this Agreement, the
Investor shall have the right to decline to purchase the Common Stock which the
Investor would otherwise be required to purchase under any two Put Notices
designated by the Investor in any 12 month period.
ARTICLE 4
Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to
Issue Shares. The obligation hereunder of the Company to issue shares of Common
Stock hereunder to the Investor is further subject to the satisfaction at or
before each Closing of each of the following conditions set forth below. These
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(a) Accuracy of the Investor Representations and Warranties. The
representations and warranties of the Investor shall be true and correct in all
material respects as of the date when made and as of the date of each Closing
Date as though made at that time.
(b) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to such Closing.
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(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
Section 4.2 Conditions Precedent to the Obligation of the Investor to
Purchase any Shares. The obligation of the Investor to purchase any Shares under
this Agreement is subject to the satisfaction, at or before each Closing, of
each of the following conditions set forth below. These conditions are for the
Investor's sole benefit and may be waived by the Investor at any time in its
sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of each Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date or refer to a particular point in time).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement.
(d) No Adverse Change and Proper Disclosure. There shall have
been no adverse change in the business, assets, liabilities or prospects of the
Company since the date of this Agreement which the Investor reasonably believes
could have a Material Adverse Effect. The Investor shall not have advised the
Company that the Investor believes in good faith that the disclosures contained
in the Registration Statement may not comply with applicable law.
(e) Principal Market. Trading in the Company's Common Stock shall
not have been suspended by the SEC or the Principal Market, and trading in
securities generally as reported by the Principal Market shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by the Principal Market.
(f) Opinion of Counsel, Etc. At each Closing the Investor shall
have received an opinion of counsel to the Company, which counsel shall be
reasonably satisfactory to the Investor, dated the effective date of such
Closing concerning such matters as the Investor shall reasonably request, a copy
of a "cold comfort" letter addressed to the Company from an accounting firm
satisfactory to the Investor, dated the effective date of such Closing
concerning such matters as the Investor shall reasonably request, and such other
certificates, opinions of other
16
<PAGE> 17
counsel, and documents as the Investor or its counsel shall reasonably request
incident to such Closing. The form of all such certificates, opinions, "cold
comfort" letters and other documents shall be satisfactory to the Investor.
(g) Effectiveness of Registration Statement. The Registration
Statement covering the Shares previously issued to the Investor (to the extent
the Investor has not disposed of such Shares in accordance with the Registration
Statement) and the Warrant Shares underlying the Warrants previously issued to
the Investor (to the extent the Investor has not disposed of such Warrant Shares
in accordance with the Registration Statement) and covering the Shares and the
Warrant Shares underlying the Warrants to be issued at the Closing shall be
effective at the time of each Closing and no stop order suspending the
effectiveness of the Registration Statement shall have been instituted, be
pending or be threatened.
(h) Accuracy of Registration Statement. The Registration
Statement (including information or documents incorporated by reference therein)
and any amendments or supplements thereto shall not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(i) Officers' Certificate. At each Closing the Investor shall
have received certificates from the CEO and the CFO of the Company concerning
such matters as the Investor shall reasonably request incident to such Closing.
The form of such certificates shall be satisfactory to the Investor.
ARTICLE 5
Miscellaneous
Section 5.1 Fees and Expenses. The Company shall pay the legal and other
fees and expenses of the Investor in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement, which are
agreed to be $10,000 for services through the date of this Agreement. The
Company shall pay all stamp and other taxes and duties levied in connection with
the issuance of any Shares issued pursuant hereto.
Section 5.2 Specific Enforcement; Consent to Jurisdiction.
(a) The Company and the Investor acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled by
law or equity.
17
<PAGE> 18
(b) Except as hereinafter provided, each of the Company and the
Investor (i) hereby irrevocably submits to the exclusive jurisdiction of the
Federal and state courts in Los Angeles County, California for the purposes of
any suit, action or proceeding arising out of or relating to this Agreement and
(ii) hereby waives, and agrees not to assert in any such suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Notwithstanding the foregoing, at the option of the Investor, all
controversies, claims, disputes or counterclaims arising under or relating to
Section 1.4(d) of this Agreement, whether they involve a disagreement about its
meaning, interpretation, application, performance, breach, termination,
enforceability or validity and whether based on statute, tort, contract, common
law or otherwise (a "Dispute") shall be arbitrable (an "Arbitration"). Any such
Arbitration shall be conducted in Los Angeles, California by the American
Arbitration Association, and the judgment rendered by the arbitrator may be
entered in any court having jurisdiction thereof. Any such Arbitration shall
commence within 14 days of the date of filing a demand for arbitration, and the
arbitrator shall render his or her decision within 30 days of the date of filing
a demand for arbitration. In any such Arbitration, the arbitrator, who shall be
a certified public accountant, shall determine all questions or arbitrability,
including, without limitation, the scope of this agreement to arbitrate a
Dispute, whether an agreement to arbitrate exists and if so whether it covers
the Dispute in question or any other form of disagreement or conflict among the
parties to this Agreement whether such Dispute existed, prior to or arises after
the date of this Agreement.
Any such Arbitration shall be administered by the American
Arbitration Association in accordance with its Commercial Arbitration Rules. The
arbitrator, shall have no power to order discovery. The arbitration award shall
be in writing. The arbitrator may not make any ruling, finding or award that
does not conform to the terms and conditions of this Agreement. The arbitrator
shall have the authority to award any remedy or relief that a court of the State
of California could order or grant, including, without limitation, specific
performance of any obligation created under Section 1.4(d) of this Agreement
(including specific performance of the issuance of the Warrants provided for
thereunder). To the extent that the Company has not timely issued Warrants to
the Investor in accordance with Section 1.4(d) above, in any such Arbitration
the arbitrator shall order the Company to issue such Warrants at an exercise
price equal to the lower of the exercise price specified in Section 1.4(d) and a
price equal to 94% of the average closing bid price for the Common Stock on the
Principal Market as reported by Bloomberg (or other appropriate published
source) during the ten trading days prior to the date the Warrants are actually
issued by the Company, which date shall be no later than ten days after the date
or the arbitrator's ruling, finding or award. The arbitrator is empowered to
award damages in excess of compensatory damages, including punitive damages. The
parties and the arbitrator may not disclose the existence, content or results of
any Arbitration hereunder without the prior written consent of all of the
parties, except as required by the Civil Code of Procedure of California Section
1281-9 or as required by applicable law.
Each of the Company and the Investor consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address in effect for
18
<PAGE> 19
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law. The prevailing party in any such suit, action or proceeding
shall be entitled to attorney's fees and costs.
Section 5.3 Entire Agreement; Amendments. This Agreement contains the
entire understanding of the parties with respect to the transactions
contemplated hereby and, except as specifically set forth herein, neither the
Company nor the Investor makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
waived or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
Section 5.4 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be effective upon
hand delivery or delivery by facsimile at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received). The addresses for such communications shall be:
to the Company: Jaws Technology, Inc.
603 7th Avenue SW, Suite 380
Calgary, Alberta Canada T2P 2T5
Attn:___________________
Facsimile No. (___) _______
with copies to: Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067-5010
Facsimile No. (310) 203-0567
to the Investor: Bristol Asset Management V LLC
10990 Wilshire Boulevard, Suite 1800
Los Angeles, CA 90024
Attn: Paul Kessler
Facsimile No. (310) 473-8858
with copies to: Christensen, Miller, Fink, Jacobs,
Glaser, Weil & Shapiro, LLP
2121 Avenue of the Stars, l8th fl.
Los Angeles, CA 90067
Attn: Stephen D. Silbert, Esq.
Facsimile No. (310) 556-2920
Either party hereto may from time to time change its address for notices under
this Section 5.4 by giving written notice of such changed address to the other
party hereto.
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<PAGE> 20
Section 5.5 Waivers. No waiver by either party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provisions, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. The parties hereto waive any and
all rights to a jury trial in connection with any action or proceeding arising
under this Agreement or the transactions contemplated hereby.
Section 5.6 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 5.7 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their permitted successors and
permitted assigns. The parties hereto may amend this Agreement without notice to
or the consent of any third party. Neither the Company nor the Investor shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other (which consent may be withheld for any reason in
the sole discretion of the party from whom consent is sought).
Section 5.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and the holders of Warrants and their
respective permitted successors and assigns and is not for the benefit of, nor
may any provisions hereof be enforced by, any other person other than a holder
of Warrants. Notwithstanding the foregoing, this Agreement may be amended
(and/or requirements hereunder may be waived) from time to time by the Company
and the Investor.
Section 5.9 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to the principles of conflict of laws.
Section 5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
Section 5.11 Publicity and Confidentiality. The Company and the Investor
shall consult and cooperate with each other in issuing any press releases or
otherwise making public statements with respect to the transactions contemplated
hereby, provided the foregoing shall not interfere with the legal obligations of
either party with respect to public disclosure.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date hereof.
"The Company"
Jaws Technology, Inc.
By:
--------------------------------------
Name:
Title:
By:
--------------------------------------
Name:
Title: Secretary
"The Investor"
Bristol Asset Management V LLC
By:
--------------------------------------
Name:
Title:
21
<PAGE> 22
EXHIBIT A
Jaws Technology, Inc.
603 7th Avenue SW, Suite 380
Calgary, Alberta Canada T2P 2T5
--------------------, -----
Bristol Asset Management V LLC
10990 Wilshire Boulevard, Suite 1800
Los Angeles, CA 90024
Attn: Paul Kessler
Gentlemen:
Reference is made to that certain Investment Agreement (the
"Agreement") dated as of August 27, 1998 between you and the undersigned. This
is a Put Notice as that term is defined in Section 1.2 of the Agreement.
This is to advise you that the undersigned will sell to you five
business days (as that term is defined in the Agreement) following the date this
Put Notice is given to you in accordance with Section 5.4 of the Agreement
$______________ of the undersigned's Common Stock.
The undersigned hereby represents that the number of shares of
Common Stock outstanding as of the date hereof and expected to be outstanding as
of five business days after the date hereof, determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, is
_________________.
Very truly yours,
Jaws Technology, Inc.
By
---------------------------------------
22
<PAGE> 1
APRIL 20, 1999
MR. PAUL KESSLER
BRISTOL ASSET MANAGEMENT LLP
1801 CENTURY PARK EAST
LOS ANGELES, CALIFORNIA
1132 LA 90067
Dear Sir,
As per our recent discussions and negotiations and further to recent
comments and concerns by the SEC, relative to JAWS Technologies Inc. becoming a
reporting issuer, all parties are in agreement that the commitment for financing
by Bristol Asset Management to JAWS Technologies Inc. is cancelled herewith.
JAWS Technologies Inc., in consideration of this cancellation, agrees to
issue Bristol Asset Management 1,000,000 warrants with an exercise price of
$0.70 USD. The warrants will expire April 15, 2002.
Please sign below to signify your acknowledgement of the above terms.
Please return this signed document, via facsimile, to our offices by April 23,
1999 so that we may proceed with our registration.
We appreciate your urgent attention to this matter.
/s/Robert Kubbernus /s/Paul Kessler
___________________________________ ___________________________________
Robert Kubbernus Paul Kessler
JAWS Technologies Inc. Bristol Asset Management LLP
EXHIBIT 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION
UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
DEBENTURE ACQUISITION AGREEMENT
THIS DEBENTURE ACQUISITION AGREEMENT (the "Agreement") is made
and entered into as of September 25, 1998, by and between JAWS TECHNOLOGIES
INC., a Nevada corporation ("Seller") and THOMSON KERNAGHAN & CO. LTD, an
Ontario corporation ("Buyer"), with respect to the following facts:
A. Seller desires to sell to the Buyer, and Buyer desires to
purchase from the Seller up to $2,000,000 of a 10% Convertible Debentures (the
"Debentures") of Seller and $300,000 of Warrants of Seller (the "Warrants")
exercisable at a per share price equal to the average of the closing bid prices
of the Common Stock of the Seller as quoted on the NASD Electronic Bulletin
Board for the three trading days prior to the Initial Funding Date, September
25, 1998 (as hereinafter defined), equal to U.S. Twenty-Eight Cents ($0.28) in
the forms of Exhibit A and Exhibit D hereto, respectively, (collectively, the
"Securities"), upon the terms and conditions as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing facts and the
mutual covenants and agreements contained herein, the parties hereby agree as
follows:
1. PURCHASE AND SALE OF SECURITIES. Seller hereby sells to the
Buyer, and Buyer hereby purchases the Securities from Seller. Seller is
acquiring the Securities as Nominee and intends to resale the Securities to its
customers.
2. PURCHASE PRICE. The total purchase price (the "Purchase
Price") for the Securities shall be up to Two Million Dollars ($2,000,000),
payable in cash in accordance with the terms, conditions and procedures set
forth herein.
<PAGE> 2
3. TRANSFER OF SECURITIES AND DELIVERY OF PURCHASE
PRICE.
3.1
(a) On the Initial Funding Date, the Buyer will advance
Two Hundred Thousand Dollars ($200,000) to be used for working capital provided
that:
(i) The Seller has filed on an appropriate form
with the United States Securities and Exchange Commission (the "SEC") to
register its Common Stock under Section 12(g) of the Securities Exchange Act of
1934, as amended, and the registration statement with the SEC under the
Securities Act of 1933, as amended, as provided for in Section 6 hereof, which
registration statements contains the required clean opinion on the financial
statements of the Seller by Ernst & Young and was reviewed by United States
securities counsel for the Seller, Jeffer, Mangels, Butler & Marmaro LLP; and
(ii) the opinion of the Seller's counsel, Jeffer,
Mangels, Butler and Marmaro, LLP to the effect that the Seller is duly
incorporated and has the corporate power to enter into this Agreement and the
Exhibits thereto, that this Agreement and the Exhibits thereto that have been
entered into as of the Initial Closing Date have been duly approved by all
necessary action on behalf of the Seller and this Agreement and such Exhibits
are binding agreements effective according to their respective terms except for
bankruptcy and equitable principal.
The amount advanced shall be represented by a Debenture(s)
in the form of Exhibit B hereto for the amount advanced; provided that
Debentures, at the Buyer's request may be issued in amounts of One Hundred
Thousand Dollars ($100,000) or multiples thereof, whether issued at the Initial
Funding Date or any Subsequent Funding Date. The Seller shall also deliver to
the Buyer on the Initial Funding Date, the Warrants in the form of Exhibit A
hereto.
(b) After the Initial Funding Date, one or more Subsequent
Funding Dates may occur in which the Buyer will advance to the Seller no more
than an aggregate of One Million Eight Hundred Thousand Dollars ($1,800,000)
under the following terms and conditions:
(i) No more than Two Hundred Thousand Dollars
($200,000) may be advanced on any Subsequent Funding Date;
(ii) A Subsequent Funding Date will occur on the
thirtieth (30) day (or the next business day if such thirtieth (30th) day is not
a business day, as defined in the form of the Debenture) after the Buyer
receives a written request (the "Request") from the Seller to advance additional
funds under this Section 3(b), with such written request being sent by facsimile
to the Buyer followed up in writing by overnight courier service;
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<PAGE> 3
(iii) Notwithstanding any other provision of
this Section 3(b), the Buyer at a proposed Subsequent Funding Date is not
required to advance any additional amounts to the Seller if (A) the Form 10 or
Form 10-SB registration statement described in Section 3(a) hereof has not
become effective under the Securities Exchange Act of 1934, as amended and the
registration statement under the Securities Act of 1933, as amended, as provided
for in Section 6 hereof has not become effective; (B) the average closing bid
price for the Common Stock of the Seller on the principal market in which such
Common Stock is then trading was Twenty-Five Cents ($0.25) or less for the five
trading days in such principal market preceding the date the Request is dated,
as reported by the principal market on which the Common Stock is then traded; or
(C) the average daily trading volume of the Common Stock of the Seller on the
principal market in which such Common Stock is traded averaged Fifty Thousand
(50,000) shares or less per day for the five trading days in such principal
market preceding the date the Request is dated, as reported by the principal
market on which the Common Stock is then traded. The principal market for the
Common Stock of the Seller shall a the market within the United States on which
the greatest trading volume is occurring. Currently, the principal market for
such Common Stock is the NASD Electronic Bulletin Board;
(iv) The Resale Securities (as defined in
Section 6 hereof) have not been placed in the escrow provided for by the Escrow
Agreement in the form of Exhibit C hereto.
3.2 On the Initial Funding Date, Seller shall (i) pay a
commission to the Buyer, as placement agent for Buyer's own account, an amount
equal to Ten Percent (10%) of the Principal Sum (as defined in the Debenture)
that is funded on the Initial Funding Date, (ii) pay to the Buyer, for Buyer's
own account, Buyer's reasonable attorney's fees and costs incurred in entering
into this Agreement, (but not more than $10,000) against detailed invoices, and
(iii) issue to the Buyer, for Buyer's own account, $100,000 of Warrants of the
Seller exercisable at a per share price equal to the average of the closing bid
prices of the Common Stock of the Seller as quoted on the NASD Electronic
Bulletin Board for the three trading days prior to the Initial Funding Date,
Twenty-Eight Cents ($0.28), in the form of Exhibit D hereto (the "Buyer
Warrants").
3.3 On each Subsequent Funding Date. the Seller shall pay
a commission to the Buyer, as placement agents, for Buyer's own account, an
amount equal to Ten percent (10%) of the Principal Sum that is funded on each
such Subsequent Funding Date.
3.4 On the Initial Funding Date, the Seller and the Buyer
shall enter into the Escrow Agreement in the form of Exhibit C hereto, with the
Buyer as Escrow Agent.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller
hereby represents and warrants to the Buyer as follows:
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<PAGE> 4
4.1 Any Common Stock of Seller issuable upon conversion of
or as payment of interest pursuant to the Debentures and the exercise of the
Warrants and the Buyer's Warrants, will be duly and validly issued fully paid
and nonassessable Common Stock of the Seller.
4.2 The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada. The Seller
has full corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Seller is duly qualified to do business as a foreign
corporation in each jurisdiction in which the failure to be so qualified could
have a material adverse effect on the Seller. The Seller has furnished the Buyer
or its special counsel with true, correct and complete copies of its Articles of
Incorporation and Bylaws, as amended, as in effect on the date hereof.
4.3 The Seller has and will have at the Initial Date, all
requisite legal and corporate power and authority to execute and deliver this
Agreement and the Exhibits hereto, to sell and issue the Securities and the
Buyer's Warrants and all Common Stock underlying the Securities and the Buyer's
Warrants hereunder, and to carry out and perform its obligations under the terms
of this Agreement and the Exhibits hereto.
4.4 The authorized capital stock of the Seller consists of
(a) 20,000,000 shares of Common Stock, par value $.001 per share, of which
8,700,000 were issued and outstanding as of September 24, 1998 and, (b)
5,000,000 shares of Preferred Stock, par value $.001 per share, none of which
are issued and outstanding immediately prior to the Initial Funding Date.
Schedule 4.4(a) sets forth a true and correct list of the current stockholders
of the Seller indicating the number of shares of each class of the Seller's
stock held by each such stockholder. Except as set forth on Schedule 4.4(b), the
Seller does not have any authorized or outstanding options, warrants,
convertible debentures, rights or other securities exercisable for or
convertible into any capital stock of any of the Seller. Except for rights
granted under this Agreement, no person is entitled to any preemptive right or
right of first refusal or similar right with respect to any issuance of capital
stock or other securities by the Seller. Except for the Seller's obligations
under this Agreement, there are no outstanding obligations of the Seller to
redeem, purchase or otherwise acquire capital stock or other securities of any
corporation. Except as provided herein no person has any right to require the
Seller to register any shares of its capital stock for sale pursuant to the
Securities Act of 1933, as amended.
4.5 All corporate action on the part of the Seller, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement and the Exhibits hereto, the authorization,
sale, issuance and delivery of the Securities the Buyer's Warrants and all
underlying Common Stock and the performance of all of the Seller's obligations
hereunder and under each of the Exhibits hereto has been duly taken by the
Seller. This Agreement, when executed and delivered by the Seller, constitutes,
and each of the Exhibits thereto shall, when executed and delivered, constitute,
a valid and binding obligation of the Seller, enforceable in accordance with
their terms except for bankruptcy and
-4-
<PAGE> 5
equitable remedies. The Common Stock when issued in compliance with the
Securities and the Buyer's Warrants, shall be validly issued, fully paid and
non-assessable. The Securities and the Buyer's Warrants are free of any liens
claims or encumbrances; provided, however, that the will be subject to
restrictions on transfer under applicable state and/or federal securities laws
as set forth herein. The issuance of the Securities or Buyer's Warrants will not
be subject to any preemptive rights or rights of first refusal, or result in any
default of, or conflict with, the Articles of Incorporation or Bylaws of the
Seller, any contract or agreement to which the Seller is a party or by which it
is bound or any other obligation or commitment of the Seller.
4.6 The Seller has delivered to the Buyer the unaudited
balance sheet and statements of operations and cash flows of the Seller as of
and for the period ended May 31, 1998 (the "Financial Statements"). The
Financial Statements are complete and correct and have been prepared in
accordance with the books and records of the Seller on a consistent basis. The
Financial Statements accurately set out, present fairly and describe the
consolidated financial condition and operating results of the Seller as of the
dates, and during the periods, indicated therein.
4.7 Except as set forth in Schedule 4.7 hereto, the Seller
has no liabilities or obligations of any kind, absolute, contingent or
otherwise, except (a) the liabilities and obligations set forth in the Financial
Statements, (b) liabilities with respect to equipment leases entered into in the
ordinary course of business, and (c) liabilities and obligations which have been
incurred subsequent to May 31, 1998, in the ordinary course of business and
consistent with past practice.
4.8 The Seller has good and marketable title to its
properties and assets, and has good title to all its leasehold interests, in
each case subject to no lien, claim or encumbrance other than (a) the lien of
current taxes not yet due and payable, (b) possible minor liens and encumbrances
which do not in any case or in the aggregate materially detract from the value
of the property subject thereto or materially impair the operations of the
Seller, and which have not arisen otherwise than in the ordinary course of
business. The assets and properties of the Seller are adequate to conduct the
operations currently conducted and proposed to be conducted by it. The Seller
enjoys peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect. The leasehold improvements of the Seller and all of their tangible
personal property, machinery, equipment, fixtures and inventories used in the
ordinary course of business are in good repair and in good operating condition,
reasonable wear and tear excluded.
4.9 The Seller is not in violation of any term of its
Articles of Incorporation or Bylaws, or of any material term or provision of any
mortgage, indebtedness, indenture, contract, agreement, instrument, judgment or
decree, including without limitation any Material Contract. The Seller is in
compliance with all judgments, decrees, governmental orders, laws, statutes,
rules and regulations by which it is bound or to which it or any of its
properties or assets is subject, except where the failure to comply would not
have a material adverse effect on the Seller. The Seller has all permits,
licenses, franchises and authorizations
-5-
<PAGE> 6
(collectively, the "Licenses") which are required by law and/or necessary to
operate its business as conducted or proposed to be conducted, except where the
failure to have any such License would not have a material adverse effect on the
Seller. All such Licenses were validly issued and are in full force and effect.
The Seller is in compliance in all material respects with all of its Licenses
and no suspension, revocation or termination of any License is pending or, to
the knowledge of the Seller, threatened. The execution, delivery and performance
of and compliance with this Agreement and the Exhibits thereto, and the issuance
of the Securities and the Buyer's Warrants have not resulted and will not result
in any violation of, or conflict with, or constitute a material default under,
(a) the Articles of Incorporation or By-laws of the Seller or (b) assuming the
accuracy of the representations and warranties of the Seller set forth in
hereto, any applicable law, statute, rule, regulation or License, or (c) any
agreement, contract, franchise or instrument to which the Seller is a party, and
has not resulted and will not result in the creation of, any Lien upon any of
the properties or assets of the Seller.
4.10 The Seller has good and marketable title to, or valid
and continuing rights and licenses to use, all patents, patent rights, trade
secrets, trademarks, trademark rights, service marks, trade names, copyrights,
franchises, licenses, permits, inventions, customer lists, and all rights with
respect to the foregoing, which are necessary for the operation of its business
as presently conducted and now proposed to be operated (collectively, with any
application with respect to the issuance or granting of any of the foregoing,
the "Intangible Property"). To the Seller's knowledge, the conduct of business
of the Seller as now operated and as now proposed to be operated does not and
will not conflict with any valid intellectual property right of others. The
Seller has not received any notice of any claim against it that any of its
operations, activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a third party, or
that it is illegally or otherwise using the trade secrets or any property rights
of others. The Seller has no knowledge that any licensor of it has any disputes
with or claims against any third party for infringement by such third party of
any trade name or other Intangible Property. Each employee of the Seller has
executed a confidentiality and non-disclosure agreement in favor of the Seller.
4.11 There are no actions, suits, proceedings or
investigations pending against the Seller or its properties before any court or
governmental agency (nor, to the best of the Seller's knowledge, is there any
reasonable basis therefor or threat thereof).
4.12 To the best of the Seller's knowledge, no employee of
the Seller is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement relating to the
relationship of such employee with the Seller.
4.13 All agreements material to the business of the Seller
("Material Contracts") are valid, binding and in full force and effect in all
material respects. The Seller and, to the best of the Seller's knowledge, each
other party to a Material Contract have in all material respects performed all
the obligations required to be performed by them, have received no notice of
default and are not in default under any Material Contract.
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<PAGE> 7
4.14 The Seller (a) has accurately prepared and timely
filed all tax returns that are required to have been filed by it with all
appropriate federal, state, county and local governmental agencies (and all such
returns fairly reflect the Seller's operations for tax purposes); and (b) has
paid in full or made adequate provision on the Financial Statements for the
payment of all taxes.
4.15 None of this Agreement (including the Exhibits and
Schedules hereto), any instrument, certificate or report furnished to the
Shareholder when read together, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading. The Seller knows of no information or fact that has and/or
could have a material adverse effect on it that has not been disclosed to the
Buyer in writing.
4.16 The Seller represents that it has not offered the
Securities to the Subscriber in the U.S. or, to the best knowledge of the
Seller, to any person in the United States or any U.S. person (as defined in
Regulation S promulgated by the United States Securities and Exchange
Commission).
4.17 To the best of the knowledge of the Seller, neither
the Seller nor any person acting for the Seller has conducted any "directed
selling efforts" as that term is defined in Rule 902 of Regulation S.
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
BUYER. The Buyer hereby represents and warrants to and covenants and agrees with
the Seller the following:
5.1 The Buyer represents and warrants to the Seller that
(i) the Buyer is not a "U.S. person" as that term is defined in Rule 902(o) of
Regulation S; (ii) the Securities and the Buyer's Warrants were not offered to
the Buyer in the United States and at the time of execution of this Agreement
and of any offer to buy the Securities and Buyer's Warrants hereunder the Buyer
was physically outside the United States; (iii) the Buyer is purchasing the
Securities and Buyer's Warrant for its own account and not on behalf of or for
the benefit of any U.S. person and the sale of the Securities has not been
prearranged with or on behalf of any buyer in the United States; (iv) the Buyer
and to the best knowledge of the Buyer each distributor, if any, participating
in the offering of the Securities and Buyer's Warrants, has agreed and the Buyer
hereby agrees that all offers and sales of the Securities and the Buyer's
Warrants prior to the expiration of a period commencing on the closing of all
the sale of all Debentures offered by this Agreement and ending one year
thereafter (the "Distribution Compliance Period") shall not be made to U.S.
persons or for the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S. The Buyer is a dealer
with respect to this transaction and consequently a "distributor" as defined in
Regulation S.
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<PAGE> 8
5.2 The Purchase Price to be paid by Buyer to Seller for
the Securities and Buyer's Warrants has been determined by Buyer as fair and
appropriate based solely upon Buyer's independent investigation and due
diligence of the Seller, and neither the Seller nor any of its agents,
including, without limitation, any of their officers, directors, employees,
accountants and attorneys, has made any representations or warranties whatsoever
in connection with the sale of the Securities and Buyer's Warrants by the Seller
to the Buyer, except as specifically set forth herein. The Buyer has had
sufficient opportunity in connection with the sale of the Securities and Buyer's
Warrants to review the Seller's business and affairs (including, without
limitation, the Seller's financial statements and other information) and to
inquire of the Seller's management with respect thereto. The Buyer has had
answered to its satisfaction any questions with respect to the Seller's business
and affairs. The Buyer further has had the opportunity to obtain independent
financial, legal, accounting, business, tax and other appropriate advice with
respect to the transactions contemplated by this Agreement, and is not relying
upon the Seller or any of its agents in any manner in connection with same.
5.3 The certificates representing the Securities and the
Buyer's Warrants shall bear the first legend set forth on the first page of this
Agreement and any other legend, if such legend or legends are reasonably
required by the Seller to comply with state, federal or foreign law.
5.4 THE BUYER UNDERSTANDS AND AGREES WITH THE SELLER, THAT
IN THE ABSENCE OF THE REGISTRATION OF THE SECURITIES, THE BUYER'S WARRANTS AND
THE UNDERLYING COMMON STOCK UNDER THE ACT, THE SECURITIES, THE BUYER'S WARRANTS
AND THE UNDERLYING COMMON STOCK MAY ONLY BE RESOLD AS PROVIDED FOR IN RULES 903
OR 904 OF REGULATION S, PURSUANT TO A VALID EXEMPTION FROM REGISTRATION UNDER
THE ACT, INCLUDING SALES UNDER RULE 144. Rule 144, promulgated by the United
States Securities and Exchange Commission under the Act, may not be currently
available for sale of the Securities and Buyer's Warrants and underlying Common
Stock in the United States, and there is no assurance that it will be available
at any particular time in the future. Sales of Common Stock underlying the
Securities and the Buyer's Warrants may be made in reliance upon Rule 144 but
ONLY (i) limited quantities after the completion of the Distribution Compliance
Period (for Common Stock underlying the Warrants, one year after exercise if
latter), or (ii) in unlimited quantities by non-affiliates after the first
yearly anniversary of the completion of the Distribution Compliance Period (for
Common Stock underlying the Warrants, two years after exercise if latter), in
each case in accordance with the conditions of the Rule, all of which must be
met (including the requirement, if applicable, that adequate information
concerning the Seller is then available to the public).
5.5 To the best of the knowledge of the Buyer and Seller
neither the Buyer nor any distributor, if any, participating in the offering of
the Securities and Buyer"s Warrants nor any person acting for the Buyer or any
such distributor has conducted any "directed selling efforts" as that terms is
defined in Rule 902 of Regulation S.
5.6 The Buyer understands that the Securities, the Buyer's
Warrants and all underlying Common Stock have not been registered under the Act
and are being offered
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<PAGE> 9
and sold pursuant to a "safe harbor" from registration contained in Regulation S
promulgated under the Act based in part upon the representations of the Seller
contained herein. The Seller has reviewed the terms of the Warrants and the
Buyer's Warrants and is aware of the restrictions on exercise of the Warrants
and the Buyer's Warrants by U.S. Persons, namely the following:
THE WARRANTS AND THE BUYER'S WARRANTS MAY ONLY BE EXERCISED (I) BY A PERSON WHO
IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), (II) IF NOT EXERCISED ON BEHALF OF A U.S.
PERSON, (III) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS OR BUYER'S
WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON
EXERCISE, AND (IV) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING
THE WARRANTS AND THE BUYER'S WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED
STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANTS AND THE BUYER'S
WARRANTS CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND
SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE SELLER
PRIOR TO EXERCISE OF THE WARRANTS AND BUYER'S WARRANTS BEING EXERCISED THAT
REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON
EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
5.7 The Buyer knows of no public solicitation or
advertisement of an offer in connection with the proposed issuance and sale of
the Securities and the Buyer's Warrants, the Buyer's Warrants or any underlying
Common Stock.
5.8 The Buyer is acquiring the Securities to be issued and
sold hereunder (and the Common Shares issuable thereunder) as a nominee (but is
acquiring the Buyer's Warrants (and the underlying Common Stock) for its own
account for investment and not as a nominee and not with a view to the
distribution thereof). The Buyer understands that it must bear the economic risk
of this investment indefinitely unless the sale of such Securities
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<PAGE> 10
and Buyer's Warrants and the underlying shares of Common Stock is registered
pursuant to the Act, or an exemption from such registration is available, and
that the Buyer has no present intention of registering any such sale of the
Securities, the Buyer's Warrants and any underlying Common Stock, except as
otherwise specifically provide for herein. The Buyer represents and warrants to
the Seller that it has no present plan or intention to sell any of such
Securities, the Buyer's Warrants and the underlying Common Stock in the United
States or to a United States person pursuant to any predetermined arrangements.
The Buyer covenants that neither it not its affiliates nor any person acting on
its or their behalf has the intention of entering or will enter during the
Distribution Compliance Period, into any put option, short position, hedging
transactions, equity swaps or other similar instrument or position with respect
to any of such Securities, the Buyer's Warrants and the underlying Common Stock
or securities of the same class as any of such Securities, the Buyer's Warrants
and the underlying Common Stock in violation of the Act and neither the Buyer
nor any of its affiliates or any person acting on its or their behalf will use
at any time any of such acquired pursuant to this Agreement to settle any put
option, short position, hedging transactions, equity swaps or other similar
instrument or position that may have been entered into prior to the execution of
this Agreement in violation of the Act.
5.9 The Buyer further covenants that it will not make any
sale, transfer or other disposition of the Securities and the Buyer's Warrants
or any underlying Common Stock in violation of the Act, the Securities and
Exchange Act of 1934, as amended (the "Exchange Act") or the rules and
regulations of the Securities and Exchange Commission (the "Commission")
promulgated thereunder.
5.10 The Buyer has the full power and authority to
execute, deliver and perform this Agreement. This Agreement when executed and
delivered by the Buyer will constitute a valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms except for bankruptcy and
equitable remedies.
5.11 The Buyer has reviewed with his, her or its own tax
advisors the foreign, federal, state and local tax consequences of this
investment, where applicable, and the transactions contemplated by this
Agreement. The Buyer is relying solely on such advisors and not on any
statements or representations of the Seller or any of its agents and understands
that the Buyer (and not the Seller) shall be responsible for the Buyer's own tax
liability that may arise as a result of this investment or the transactions
contemplated by this Agreement.
5.12 The Buyer acknowledges that it has had this Agreement
and the transactions contemplated by this Agreement reviewed by its own legal
counsel. The Buyer is relying solely on such counsel and not on any statements
or representations of the Seller or any of its agents for legal advice with
respect to this investment or the transactions contemplated by this Agreement.
5.13 The Buyer is a "distributor" as defined in Regulation
S will send to any broker/dealer or other person receiving a commission on the
sale of the Securities. the Buyer's Warrants and the underlying Common Stock, a
confirmation or other notice stating
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<PAGE> 11
that such person is subject to the same restrictions on transfer to U.S. Persons
or for the account of or benefit of U.S. Persons during the Distribution
Compliance Period as provided herein.
5.14 Upon any transfer of the Securities, the Buyer's
Warrants or the underlying Common Stock unless such transfer is subject to Rule
144 or is covered by a current and effective registration statement under the
Act, the transferee must supply to the Seller with the same representations and
warranties as provided for in Section 5 hereof.
5.15 NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS
AGREEMENT, THE DEBENTURES, THE WARRANTS OR THE BUYER'S WARRANTS, THE SELLER DOES
NOT HAVE TO AND WILL NOT RECOGNIZE AND WILL TREAT AS NULL AND VOID ANY ATTEMPT
TO TRANSFER THE DEBENTURES, THE WARRANTS, THE BUYER'S WARRANTS AND THE
UNDERLYING COMMON STOCK MADE IN VIOLATION OF THIS AGREEMENT OR REGULATION S OR
TO EXERCISE THE WARRANTS AND THE BUYER'S WARRANTS OTHER THAN AS PROVIDED
THEREIN.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) As soon as possible after this date (but in no case
prior to the Initial Funding Date), the Seller will include in an appropriate
form of registration statement filed under the Securities Act of 1933 (the
"Act") for resale by the potential holders (the "Buyer") the following shares of
Common Stock, but only Common Stock, of the Seller (collectively, the "Resale
Securities"):
(i) One hundred fifty percent (150%) of the
shares underlying the Debentures, assuming the aggregate outstanding Principal
Sum was Two Million Dollars ($2,000,000) based on a Conversion Price per share
equal to Seventy-eight Percent of the closing bid prices for the Common Stock of
the Seller for the three trading days prior to filing the registration
statement, Twenty-Five Cents ($0.25);
(ii) One hundred percent (100%) of the shares
underlying the Warrants to purchase Three Hundred Thousand Dollars ($300,000) of
the Common Stock of the Seller based on an exercise price per share equal to the
closing bid price for the Common Stock of the Seller for the three trading days
prior to the filing of the registration statement, Twenty-Eight Cents ($0.28);
and
(iii) One hundred percent (100%) of the shares
underlying the Buyer Warrants to purchase One Hundred Thousand Dollars
($100,000) of the Common Stock of the Seller based on the same exercise price
per share as the Warrants.
(b) The Seller shall use its best efforts to cause the
registration statement provided for in Section 6(a) hereof to become effect
under the Act no latter than the ninetieth (90th) day after the Initial Funding
Date; provided, that if such registration statement
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<PAGE> 12
has not been declared effective by the close of such ninetieth (90th) day after
the Initial Funding Date, then for each of the next thirty (30) days after such
ninetieth (90th) day after the Initial Funding Date that such registration
statement has not been declared effective, the Seller shall pay the Holder an
amount equal to the Principal Sum funded on the Initial Funding Date times Nine
Hundred Eighty Six One Thousands of a percent (0.986%); provided further, that
if such registration statement has not been declared effective by the close of
the one hundred twentieth (120th) day after the Initial Funding Date, then for
each day after such one hundred twentieth (120th) day after the Initial Funding
Date that such registration statement has not been declared effective, the
Seller shall pay the Holder and amount equal to the Principal Sum funded on the
Initial Funding Date times One Thousand Six Hundred Four-four One Ten Thousands
of a percent (0.1644%). Any amounts due to the Holder under this Section 6(b)
shall be paid by check no later than the next business day after an amount is
incurred.
(c) The following provision of this Section 6 shall also
be applicable:
(i) The Buyer shall furnish the Seller with such
appropriate information (relating to the intentions of such holders with regard
to the sale of the Resale Securities included in the registration statement as
the Seller shall reasonably request in writing. Following the effective date of
such registration statement, the Seller shall upon the request of the Buyer
forthwith supply such a number of prospectuses meeting the requirements of the
Act, as shall be requested by the Buyer to permit the Buyer to make a public
offering of all the Resale Securities from time to time offered or sold to the
Buyer provided that the Buyer shall from time to time furnish the Seller with
such appropriate information (as provided for in the immediately proceeding
sentence) as the Seller shall request in writing and provided, further, that the
Seller shall keep such registration statement current and effective until the
last to occur of thirtieth (30th) day after the last to occur of (i) the
Principal Sum of the Debentures being reduced to zero or (ii) the first to occur
of the exercise or all of the Warrants and the Buyer's Warrants or the
expiration of the Warrants and the Buyer's Warrants. The Seller shall also use
its best efforts to qualify the Resale Securities for sale in New York and
Florida, provided that the Seller shall not be required to file a general
consent to service of process in any state pursuant to this sentence.
(ii) The Seller shall fill the registration
statement at its own expense and without charge to the Buyer. The Buyer shall,
however, bear the fees of his own counsel and any transfer taxes or underwriting
discounts or commissions applicable to the Resale Securities sold by it pursuant
thereto.
(iii) The Seller shall indemnify and hold
harmless the Buyer and each underwriter, within the meaning of the Act, who may
purchase from or sell for any the Buyer any Resale Securities from and against
any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement or any post-effective amendment thereto under the Act or
any prospectus included therein required to be filed or furnished by reason of
this Section 6 or caused by any omission or alleged omission to state therein a
material fact required to be
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<PAGE> 13
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Seller by the Buyer or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of such Act; provided, however, that the Seller
shall not be obliged so to indemnify any such underwriter or controlling person
unless such underwriter shall at the same time indemnify the Seller, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Seller within the meaning of such Act, from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section 6 or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission based
upon information furnished in writing to the Seller by any such underwriter
expressly for use therein.
(iv) The Seller's agreements with respect to the
Resale Securities in this Section 6 shall continue in effect regardless or the
conversion and surrender of the Debenture or any exercise of the Warrants or the
Buyer's Warrants. The registration rights of the Buyer under this Section 6 will
inure to the benefit and be assignable automatically to any transferee of the
Securities, the Warrants, the Buyer's Warrants or the underlying Common Stock,
except for any such underlying Common Stock sold pursuant to a registration
statement under the Act or sold pursuant to Rule 144.
7. ENTIRE AGREEMENT. This Agreement, and the Exhibits hereto,
embodies the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings relating to such subject matter.
8. CHOICE OF LAW AND VENUE. This Agreement shall be governed by
and construed under the laws of the Province of Alberta, Canada, without regard
to choice of laws, in force from time to time. Any proceeding arising out of
this Agreement shall be brought in Ontario, Canada.
9. ATTORNEYS' FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable costs, including, without limitation, attorneys' fees.
10. PARTIES BOUND. This Agreement is binding on and shall inure
to the benefit of the parties and their respective successors, assigns, heirs,
and legal representatives.
11. NOTICES. Except as otherwise provided herein, all notices,
instructions or other communications required or permitted hereunder shall be in
writing and sent by registered mail, postage prepaid, addressed as follows:
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<PAGE> 14
To Jaws Technologies Inc.
380-603-7 Avenue SW
Calgary, Alberta Canada T2P 2T5
Fax: 403-508-5058
Voice: 403-508-5055
Attn: Robert Kubbernus
President and CEO
To Thomson Kernaghan & Co. Limited:
365 Bay Street,
Toronto, Ontario Canada M5H 2V2
Fax: 416-367-8055
Voice: 416-860-8800
Attn: Robert F. Wilson
or such other address, telephone numbers or contact persons as shall be
furnished in writing by such party to the other parties hereto. Any such notice,
instruction or communication shall be deemed to have been given three (3)
business days after the date mailed by registered mail or if sent by fax, upon
electronic confirmation or receipt.
12. GENDER. Masculine nouns and pronouns shall include feminine
nouns and pronouns.
13. ARBITRATION. All disputes that may arise between the parties
regarding the interpretation or application of this Agreement and the Exhibits
thereto and the legal affect of this Agreement shall, to the exclusion of any
court of law, be arbitrated and determined by a board of arbitrators, unless the
parties can resolve the dispute by mutual agreement. Either party shall have the
right to submit any dispute to arbitration thirty (30) days after the other
party has been notified as to the nature of the dispute. If the dispute goes to
arbitration, each party shall select one arbitrator and the two arbitrators so
selected shall jointly select a third arbitrator. The arbitration shall be
governed by the arbitration rules of the International Chamber of Commerce. The
arbitration proceeding shall be governed by the statutes of the Province of
Ontario, Canada, and the proceeding shall be held in Toronto, Ontario, Canada.
Anything to the contrary contained in the above-mentioned rules and statutes
notwithstanding, the parties consent that any papers, notices, or process
necessary or proper for the institution or continuance of, or relating to any
arbitration proceeding, or for the confirmation of an award and entry of
judgment on any award made, including appeals in connection with any judgment or
award, may be served on each of the parties by registered mail addressed to the
party at the principal office of the party, or by personal service on the party
in or without the above-mentioned state. The parties recognize and consent to
the above-mentioned arbitration association's jurisdiction over each and every
one of them.
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<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
Seller: JAWS TECHNOLOGIES INC.
By:
---------------------------------------
Its:
--------------------------------------
Buyer: THOMSON KERNAGHAN & CO. LTD.
By:
---------------------------------------
Its:
--------------------------------------
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<PAGE> 16
EXHIBIT LIST
<TABLE>
<S> <C>
Exhibit A WARRANT TO PURCHASE 1,071,429 SHARES OF COMMON STOCK
Exhibit B 10% CONVERTIBLE DEBENTURE
Exhibit C ESCROW AGREEMENT
Exhibit D BUYER WARRANTS
</TABLE>
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<PAGE> 17
EXHIBIT A
Void after 5:00 p.m. Alberta Time, on October 31, 2001
Warrant to Purchase Shares of Common Stock
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
--------------------------------
WARRANT TO PURCHASE 1,071,429 SHARES OF COMMON STOCK
OF
JAWS TECHNOLOGIES INC.
--------------------------------
This is to Certify That, FOR VALUE RECEIVED, THOMSON KERNAGHAN & CO. LTD.,
an Ontario corporation , or assigns ("Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from JAWS TECHNOLOGIES INC., a Nevada
corporation ("Company"), the fully paid, validly issued and nonassessable shares
of Common Stock, $0.001 par value, of the Company ("Common Stock") at any time
or from time to time during the period from the date hereof, through and
including October 31, 2001, but not later than 5:00 p.m. Calgary, Alberta Time,
on October 31, 2001 ("Exercise Period") at an initial exercise price equal to
$0.28 per share. The total number of shares of Common
<PAGE> 18
Stock to be issued upon exercise of this Warrant shall be 1,071,429 shares. The
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the respective exercise price of a share of Common
Stock in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price." This Warrant is being issued
pursuant to the Company's private placement consisting of up to $2,000,000
principal amount of a 10% Convertible Debenture (the "Debenture") and a
Debenture Acquisition Agreement dated as of September 25, 1998 between the
Company and Thomson Kernaghan & Co. Ltd. All dollar references are to United
States Dollars.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time or from time to time during the Exercise Period; provided,
however, that (i) if the last day of the Exercise Period is a day on which
banking institutions in the Province of Alberta are authorized by law to close,
then the Exercise Period shall terminate on the next succeeding day which shall
not be such a day, and during such period the Holder shall have the right to
exercise this Warrant into the kind and amount of shares of stock and other
securities and property (including cash) receivable by a holder of the number of
shares of Common Stock into which this Warrant might have been exercisable
immediately prior thereto. This Warrant may be exercised by presentation and
surrender hereof to the Escrow Agent pursuant to an Escrow Agreement between the
Company and Thomson Kernaghan & Co. Ltd., dated September 25, 1998, at its
principal office, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrants, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificates for
the Warrant Shares issuable upon such exercise, registered in the name of the
Holder or its designee. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S. PERSON
(AS DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S.
PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING
SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND
THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED
<PAGE> 19
OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE
WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND
SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY
PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT
REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933.
(b) Reservation of Shares. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made (or reported) on such day, the average closing bid and asked prices for
such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the Electronic Bulletin Board or
National Quotation Bureau, Inc. on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Upon surrender of this
Warrant to the Company at its principal office, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay and transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other warrants which
carry the
<PAGE> 20
same rights upon presentation hereof at the principal office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt of the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
This Warrant and the Common Stock issuable upon exercise of this Warrant
were issued under Regulation S under the Securities Act of 1933, as amended, and
may be transferred only as provided for in the Debenture Acquisition Agreement
between the Company and the Holder, dated September 25, 1998.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Anti-Dilution Provisions. The respective Exercise Price in effect
at any time and the number and kind of securities purchasable upon the exercise
of the Warrants shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the respective Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
respective Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such action,
and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(2) Whenever the respective Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above, the number of
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the respective number of Shares initially issuable upon
exercise of this Warrant by the respective
<PAGE> 21
Exercise Price in effect on the date hereof and dividing the product so obtained
by the respective Exercise Price, as adjusted.
(3) No adjustment in the respective Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any adjustment
which by reason of this Subsection (3) is not required to be made shall be
carried forward and taken into account in any subsequent adjustment required to
be made hereunder. All calculations under this Section (f) shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such changes in the respective
Exercise Price, in addition to those required by this Section (f), as it shall
determine, in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any Federal Income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including the Warrants).
(4) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) to (3) inclusive above.
(5) Irrespective of any adjustments in the respective Exercise
Price or the related number or kind of share purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Agreement.
(g) Officer's Certificate. Whenever the respective Exercise Price
shall be adjusted as required by the provisions of the foregoing Section (f),
the Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, an officer's certificate showing the adjusted
respective Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of related additional shares of Common Stock, if any, and such other
facts as shall be necessary to show the reason for and the manner of computing
such adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) Notices to Warrant Holders. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the
<PAGE> 22
Common Stock or (ii) if the Company shall offer to the holders of Common Stock
for subscription or purchase by them any share of any class or any other rights
or (iii) if the capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least fifteen days prior the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description of
the proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up. The failure to give such notice shall not otherwise effect the
action taken by the Company.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) Registration Under the Securities Act of 1933.
The shares of Common Stock underlying this Warrant shall be registered
under the United States Securities Act of 1933, as amended, to the extend and
subject to the provisions of the Debenture.
<PAGE> 23
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the undersigned, each being duly authorized, as of the date below.
JAWS TECHNOLOGIES INC.
____________________________________
By: Robert Kubbernus
Its:President
Dated: September 25, 1998
ATTEST:
__________________________________
_______________________, Secretary
<PAGE> 24
EXERCISE FORM
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED); (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON; (iii) IF NO U.S.
PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING
SECURITIES TO BE ISSUED UPON EXERCISE; AND (iv) OUTSIDE THE UNITED STATES AND
THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE
UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE
EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH
IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF
THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE
UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing $_____________ worth of the shares of Common Stock of
Jaws Technologies Inc. at $_______ per share for ___________ shares of Common
Stock.
--------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________________________
(Please typewrite or print in block letters)
Address __________________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH AND ANY NO U.S. PERSON
HAS ANY INTEREST IN THE WARRANT OR THE WARRANT SHARES.
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
<PAGE> 25
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________
hereby sells, assigns and transfers unto
Name ________________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________________
Social Security of Federal I.D. Number: ________________________________________
the right to purchase shares of Common Stock of Jaws Technologies Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint ______________________________________
Attorney, to transfer the same on the books of Jaws Technologies Inc. with full
power of substitution in the premises.
Date __________ __, ______
Signature _____________________________________
(Sign exactly as your name appears on
the first page of this Warrant)
NOTE: This Warrant and the Common Stock issuable upon exercise of this Warrant
were issued under Regulation S under the Securities Act of 1933, as amended, and
may be transferred only as provided for in the Debenture Acquisition Agreement
between the Company and the Holder, dated _____________, 1998.
<PAGE> 26
EXHIBIT B
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
JAWS TECHNOLOGIES INC.
10% CONVERTIBLE DEBENTURE
$200,000 September 25, 1998
JAWS TECHNOLOGIES INC., a Nevada corporation (the "Company"), for the
value received, hereby unconditionally and absolutely promises to pay to the
order of THOMSON KERNAGHAN & CO. LTD., or holder (collectively, the "Holder"),
upon presentation and surrender of this Debenture to Thomson Kernaghan & Co.
Ltd. at its office at 356 Bay Street, Toronto, Ontario, Canada M5H 2V2 or such
other place as the Company may, from time to time, designate, the Principal Sum
due under this Debenture, on October 31, 2001, or if such day is not a regular
business day, then on the next business day thereafter (the "Maturity Date"),
plus interest at the simple rate of ten percent (10%) per annum with all accrued
and unpaid interest due and payable on the Maturity Date.
All dollar amounts set forth in this Debenture are United States
Dollars. A regular business day is a day on which banks in the State of New York
and the Province of Alberta are open for business and a trading day is a day in
which the New York Stock Exchange is open for trading.
1. PRINCIPAL SUM.
The Principal Sum outstanding at any time shall be Two Hundred
Thousand Dollars ($200,000) less any Principal Sum prepaid through the date of
the calculation and less any Principal Sum which had been converted into Common
Stock as
<PAGE> 27
provided for in Section 2 hereof through the date of the calculation.
2. CONVERSION.
(a) The Holder of this Debenture shall have the right, at its option,
beginning on the thirtieth (30th) day after the Initial Funding Date through
5:00 p.m. Alberta, Canada time on the last regular business day immediately
prior to the Maturity Date to convert, subject to the terms and provisions of
this Section 2, any or all of the outstanding Principal Sum of this Debenture in
increments of at least One Hundred Thousand Dollars ($100,000) or multiples
thereof, unless the outstanding Principal Sum at the time of the conversion is
less than One Hundred Thousand Dollars ($100,000) or not multiples of One
Hundred Thousand Dollars ($100,000) then the entire outstanding Principal Sum
may be converted. Conversions pursuant to this Section 2 are at a price per
share equal to the lower of seventy-eight percent (78%) of the average closing
bid price of the Common Stock of the Company on the principal market for such
Common Stock for the three (3) trading days immediately preceding (i) the date
of the Notice of Conversion (on the form attached hereto), as reported by the
principal market on which the Common Stock is then traded or (ii) the date of
this Debenture (the "Conversion Price").
To convert this Debenture, this Debenture must be surrendered at the
principal executive office of the Escrow Agent pursuant to an Escrow Agreement
between the Company and Thomson Kernaghan & Co. Ltd., dated September 25, 1998,
accompanied by Notice of Conversion duly executed, and, accompanied by a written
instrument or instruments of transfer in form satisfactory to the Escrow Agent
duly executed by the Holder or his attorney duly authorized in writing to
specify whether the Holder desires interest on the amount of the Principal Sum
being converted to be paid in cash by Company check or in shares of Common Stock
of the Company.
(b) As promptly as practicable after the surrender, as herein
provided, of this Debenture for conversion and the completed and executed Notice
of Conversion, the Company shall deliver or cause to be delivered, to or upon
the written order of the Holder of this Debenture so surrendered: (i)
certificates representing the largest number of fully paid and nonassessable
full shares of Common Stock into which this Debenture may be converted in
accordance with the provisions of this Section 2; (ii) a check in payment for
fractional shares, based on amount in cash equal to such fraction multiplied by
the current "Market Price" as defined in Section 4 hereof; (iii) cash or
additional shares of Common Stock of the Company for the accrued but unpaid
interest due on the Principal Sum being converted through the date of the Notice
of Conversion; and (iv) a replacement Debenture identical to this Debenture,
except as to the issue date and as adjusted to reflect the Principal Amount
actually outstanding after the conversion, if less than the then outstanding
Principal Sum is being converted. Such conversion shall be deemed to have been
made at the close of business on the date that this Debenture shall have been
received by the Company for conversion, with a Notice of Conversion duly
executed, in satisfactory form for conversion, so that the rights of the Holder
of this Debenture as a Debenture holder as to the Principal Sum being converted
shall cease at such time and, subject to the provisions of this Section 2(b),
the person or
<PAGE> 28
persons entitled to receive the shares of Common Stock upon conversion of this
Debenture shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock (including any Common Stock issued for
interest) at such time and such conversion shall be at the Conversion Price in
effect at such time.
3. PREPAYMENT.
The Company may prepay at any time, upon at least thirty (30) days
advance written notice any or all of the outstanding Principal Sum of this
Debenture by notifying the Holder in writing of the date the prepayment is to be
made. Along with any prepayment of the Principal Sum, all accrued but unpaid
interest on such Principal Sum shall also be paid. Within ten (10) days of the
receipt of a notice of prepayment, the Holder shall notify the Company as to
whether the interest to be paid shall be in cash by Company check or in Common
Stock of the Company. Notwithstanding any notice of intention to prepay any or
all of the then outstanding Principal Sum, such Principal Sum may be converted
into Common Stock pursuant to Section 2 hereof until the prepayment actually is
made.
4. INTEREST.
(a) At the Holder's election, accrued but unpaid interest must be paid
in Common Stock of the Company in an amount of shares equal to the interest to
be paid in Common Stock divided by the "Market Price Per Share" of the Common
Stock. Not earlier than the sixtieth (60th ) day and not latter than the
thirtieth (30th) day prior to the Maturity Date, the Holder shall notify the
Company if it desires to have the accrued but unpaid interest due on the
Maturity Date paid in shares of Common Stock of the Company. If the Holder does
not give any such notice in a timely manner, the interest at Maturity shall be
paid in cash by Company check.
(b) For purpose of this Debenture, the "Market Price Per Share" of the
Common Stock of the Company shall be determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the "Market Price Per Share" shall be the
average of the last reported sale prices of the Common Stock on such principle
exchange or system on the five trading days prior to the date the Holder gives
the Company its notice of election to have the interest payments made in the
Common Stock of the Company (or for payment of fractional shares, the date of
the relevant Conversion Notice) or if no such sale is made on any such day, the
average of the closing bid and asked prices for such day on such exchange or
system; or
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the "Market Price Per Share" shall be the average of the
mean of the last reported bid and asked prices reported by the OTC Bulletin
Board, if so quoted, or the "pink sheets" of the National Quotation Bureau, Inc.
on the five trading days prior to the date the Holder gives the Company its
notice of election to have the interest payments made in the
<PAGE> 29
Common Stock of the Company (or for payment of fractional shares, the date of
the relevant Conversion Notice); or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
"Market Price Per Share" shall be an amount, not less than book value thereof as
at the end of the most recent fiscal year of the Company ending prior to the
date of the Conversion Notice; provided, however, in the case of this Section
4(b)(iii) payment of interest shall be paid only in cash by Company check and
not in Common Stock of the Common.
5. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon conversion of this Debenture) or in case of any sale, lease
or conveyance to another corporation of the property of the Company as an
entirety, the Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter by converting this Debenture at any time prior to the payment in full
of the Debenture, to acquire the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been acquired
upon conversion of this Debenture immediately prior to such reclassification,
change consolidation, merger, sale or conveyance. Any such provi sion shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Debenture. The foregoing
provisions of this Section 5 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of this
Section 5 hereof.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
The Company shall register certain of the shares of the Common Stock
which may be issued upon the conversion of this Debenture to the extent and as
provided for under the Debenture Acquisition Agreement between the Company and
the Holder, dated September 25, 1998. (the "Debenture Acquisition Agreement").
7. REGULATION S.
<PAGE> 30
This Debenture and the Common Stock issuable upon conversion or as
interest under this Debenture were issued under Regulation S under the
Securities Act of 1933, as amended, and may be transferred only as provided for
in the Debenture Acquisition Agreement.
8. EVENTS OF DEFAULT.
If one or more of the following described events shall occur (each an
"Event of Default"):
(a) The Company shall fail to pay the principal of, or interest on,
this Debenture within five (5) days after the Holder has given written notice to
the Company that the same has become due; or
(b) The Company shall fail to perform or observe any of the provisions
contained in any other Section of this Debenture or the Debenture Acquisition
Agreement and such failure shall continue for more than thirty (30) days after
the Holder has given written notice to the Company; or
(c) Any material representation or warranty made in writing by or on
behalf of the Company in this Debenture shall prove to have been false or
incorrect in any material respect, or omits to state a material fact required to
be stated therein in order to make the statements contained therein, in the
light of the circumstances under which made, not misleading, on the date as of
which made, and the Company shall have failed to cure such false or incorrect
statement within thirty (30) days after the Holder has given written notice to
Borrower; or
(d) The Company shall be adjudicated a bankrupt or insolvent, or admit
in writing its inability to pay its debts as they mature, or make an assignment
for the benefit of creditors; or the Company shall apply for or consent to the
appointment of a receiver, trustee, or similar officer for it or for all or any
substantial part of its property; or such receiver, trustee or similar officer
shall be appointed without the application or consent of the Company and such
appointment shall continue undischarged for a period of sixty (60) days; or the
Company shall institute (by petition, application, answer, consent or otherwise)
any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it under the laws of
any jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Company and shall remain undismissed for a
period of ninety (90) days; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a substantial
part of the property of the Company and such judgment, writ, or similar process
shall not be released, vacated or fully bonded within ninety (90) days after its
issue or levy; or
(e) A final judgment for money of over One Hundred Thousand
<PAGE> 31
($100,000) not covered by insurance shall be rendered against the Company and
if, within ninety (90) days after entry thereof, such judgment shall not have
been discharged, satisfied or execution thereof stayed pending appeal, or if,
within ninety (90) days after the expiration of any such stay, such judgment
shall not have been discharged or satisfied; or
(f) The Company shall be enjoined, restrained or in any way prevented
by a court order from continuing to conduct all or any material part of its
business affairs;
THEN, or at any time thereafter, and in each and every case:
(1) Where the Company is in default under the provisions of
Section 8(d) hereof, the entire unpaid principal amount of the Debenture, all
interest accrued and unpaid thereon, and all other amounts payable to the Holder
hereunder shall automatically become and be forthwith due and payable without
offset or counterclaim of any kind and without presentment, demand, protest or
notice of any kind, and without regard to the running of the statute of
limitations, all of which are hereby expressly waived by the Company; and
(2) In any other case referred to in this Section 8, the Holder
may, by written notice to the Company, declare the entire unpaid principal
amount of this Debenture, all interest accrued and unpaid hereon, and all other
amounts payable hereunder to be forthwith due and payable, whereupon the same
shall become immediately due and payable, without offset or counterclaim of any
kind and without presentment, demand, protest or further notice of any kind, and
without regard to the running of any statutes of limitation, all of which are
hereby expressly waived by the Company.
Any declaration made pursuant to Section 8(2) hereof is subject to the
condition that, if at any time after the principal of this Debenture shall have
become due and payable, and before any judgment or decree for the payment of the
moneys so due, or any thereof, shall have been entered, all arrears of interest
upon this Debenture (except that Principal Sum of this Debenture which by such
declaration shall have become payable) shall have been duly paid, and every
Event of Default shall have been made good, waived or cured, then and in every
such case the Holder shall be deemed to have rescinded and annulled such
declaration and its consequences; but no such rescission or annulment shall
extend to or affect any subsequent Event of Default or impair any right
consequent thereon.
9. CORPORATE OBLIGATION.
It is expressly understood that this Debenture is solely a corporate
obligation of the Company and that any and all personal liability, either at
common law or in equity, or by constitution or statute, of, and any and all
rights and claims against, every stockholder, officer, or director, as such,
past, present or future, are expressly waived and released by the Holder as a
part of the consideration for the issuance hereof.
<PAGE> 32
10. TRANSFER.
Subject to the appropriate provisions of the Act and of Section 7
hereof, this Debenture or any portion of the principal amount hereof in One
Hundred Thousand Dollars ($100,000) increments, or multiples thereof (unless the
entire Principal Sum is being transferred), is transferable on the records of
the Company upon presentation of this Debenture, properly endorsed, at its
principal office; upon such presentation and transfer a new Debenture or
Debentures will be issued; provided, however, no transfer shall be made no any
competitors of the Company. For the purposes of payment and all other purposes,
the Company shall deem and treat the person in whose name this Debenture is
registered as the absolute owner hereof and the Company shall not be affected by
any notice to the contrary.
11. MISCELLANEOUS.
(a) Notwithstanding the foregoing, the Company promises to pay
interest after maturity (whether by acceleration or otherwise, and before as
well as after judgment) at the same rate as above provided prior to maturity on
balances, if any, then outstanding.
(b) Interest under this Debenture shall be computed on the basis of a
thirty (30) day month and a year of 360 days for the actual number of days
elapsed.
(c) In case at any time any Common Stock shall be listed on any stock
exchange or NASDAQ, the Company will list on such exchange or NASDAQ, and all
other exchanges where such stock or other stock, warrants, and securities at the
time issuable upon the conversion of this Debenture may be listed, and keep
listed thereon subject to listing requirements of such exchange or exchanges, an
official notice of issuance upon the conversion of this Debenture, all shares of
common stock and other stock and securities from time to time issuable upon such
conversion.
(d) Unless otherwise specifically proved herein, any notice required
by this Agreement is effective and deemed delivered when faxed to the numbers
set forth herein and receipt of such fax is electronically confirmed. Any such
notice shall also be sent on the day such fax is sent (or if such day is not a
business day, the next business day by overnight courier), properly addressed.
Notices will be sent to the fax numbers and addresses set forth in this
Agreement, unless either party notifies the other of an fax and/or address
change in writing.
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed in
Calgary, Alberta, Canada as of the day and year first above written.
JAWS TECHNOLOGIES INC.
<PAGE> 33
By:_________________________________
Its:________________________________
By:_________________________________
Its:________________________________
[Signatures Continued from Page 7]
____________________________________
(Fax Number, including Area Code)
____________________________________
(Contact Person)
THOMSON KERNAGHAN & CO. LTD.
By:_________________________________
(Address)
____________________________________
(City) (State) (Zip Code)
____________________________________
(Fax Number, including Area Code)
____________________________________
(Contact Person)
<PAGE> 34
CONVERSION NOTICE
TO: JAWS TECHNOLOGIES INC.
The undersigned Holder of this Debenture hereby irrevocably exercises the
option to convert $________________ of the Principal Sum of this Debenture into
shares of Common Stock of JAWS TECHNOLOGIES INC. in accordance with the terms of
this Debenture, or of such other kind of stock or other property as shall be
authorized under the terms of this Debenture, and directs that the shares or
other property issuable and deliverable upon the conversion, together with any
check in payment for fractional shares and any accrued and unpaid interest on
the portion being converted and any Debenture representing the unconverted
portion of this Debenture, be issued and delivered to the undersigned unless a
different name has been indicated below. If shares are to be issued in the name
of a person other than the undersigned, the undersigned will pay all transfer
taxes payable with respect thereto.
The accrued and unpaid interest due upon the Principal Sum being converted
shall be paid in cash__ or Common Stock __. (Please check one of the blanks, if
no blanks are checked, the interest shall be paid in cash.)
The date of this Conversion Notice is _______ ___, _____. The undersigned
has determined the closing bid price for the Common Stock of JAWS TECHNOLOGIES
INC. for the three trading days preceding the date of this [Notice of
Conversion] or of the [Date of Convertible Debenture] on the principal market
for such Common Stock, was $_____, $______ and $____, or an average of $____.
Therefore pursuant to Section 2(a) of the Debenture, the Conversion Price is
$_____ per share.
If you want the stock certificate made out in another person's name, fill
in the form below and have your signature guaranteed: (Insert other person's
social security or tax I.D. no.)
(Print or type other person's name, address and zip code)
Date:_________________,___ Your Signature:
(Sign exactly as your name appears on the face of this Debenture)
Signature Guarantee:
<PAGE> 35
ASSIGNMENT FORM
To assign this Debenture, fill in the form below:
I or we assign and transfer this Security to
(insert assignee's social security or tax I.D. no.)
(print or type other person's name, address and zip code)
and irrevocably appoint
______________________ agent to transfer this Debenture on the books of the Jaws
Technologies Inc. The agent may substitute another to act for him.
Date:_________________,___ Your Signature:
(Sign exactly as your name appears on the face of this Debenture)
Signature Guarantee:
NOTE: This Debenture and the Common Stock issuable upon conversion or as
interest under this Debenture were issued under Regulation S under the
Securities Act of 1933, as amended, and may be transferred only as provided for
in the Debenture Acquisition Agreement.
<PAGE> 36
EXHIBIT C
THESE SECURITIES SUBJECT TO THIS ESCROW AGREEMENT HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE. THE SECURITIES HAVE BEEN OFFERED PURSUANT TO A SAFE
HARBOR FROM REGISTRATION UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED
IN REGULATION S PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED
UNDER THE ACT, PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM
THE REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION
OF COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
ESCROW AGREEMENT
This Escrow Agreement is entered into this 25 day of September, 1998, by
and among JAWS TECHNOLOGIES INC. (the "Jaws") and THOMAS KERNAGHAN & CO.
LIMITED. ("Escrow Agent").
1. Escrow
The Company has filed a registration statement under the United States
Securities Act of 1933, as amended (the "Act") relating to the following shares
of Common Stock (the "Shares"), all of which are being placed in Escrow with the
Escrow Agent and in the Escrow Agent's name:
(a) 9,500,000 shares in the name of Escrow Agent which may be issued
upon conversion a 10% Convertible Debenture for up to $2,000,000 , dated
September 25, 1998 (the "Debenture"), and issued to the Escrow Agent (the
"Debenture Shares");
(b) 1,071,429 shares in the name of Escrow which may be issued upon
the exercise of $300,000 of Warrants, dated September 25, 1998 (the "Warrants"),
and issued to the Escrow Agent (the "Warrant Shares"); and
(c) 357,143 shares in the name of the Escrow Agent which may be
<PAGE> 37
issued upon the exercise of $100,000 Warrants, dated September 25, 1998 (the
"Escrow Agent Warrants"), and issued to Escrow Agent (the "Escrow Agent
Shares").
For convenience one total share certificate for a total of 10,928,572
shares has been issued to the Escrow Agent.
Upon the opening of the Escrow, the Escrow Agent shall place the Shares
with the Depository Trust Company.
Copies of the form of the Debentures, the Warrants and the Escrow Agent
Warrants have also been placed in Escrow.
2. Release of the Shares
The Escrow Agent shall release the Shares from Escrow as follows:
(a) Upon any conversion of the Debenture, a copy of the Conversion
Notice attached hereto shall be promptly faxed to the Company by the Escrow
Agent simultaneously as it is sent by overnight courier service to the Company.
Unless the Escrow Agent receives a written objection sent by facsimile within
forty-eight hours of sending the fax to the Company provided for in the
immediately preceding sentence and the Company takes the action provided for in
Section 6 hereof within such forty-eight hours, the Escrow Holder shall promptly
release to the Escrow Agent, the number of Debenture Shares being acquired upon
conversion of the Debenture as set forth in the Conversion Notice.
(b) Upon any exercise of the Warrants, a copy of the Exercise Form
attached hereto and evidence of payment for the Shares being exercised shall be
promptly faxed by the Escrow Agent simultaneously as such Exercise Form and
payment is sent by overnight courier service to the Company. Unless the Escrow
Agent receives a written objection sent by facsimile within forty-eight hours of
sending the fax to the Company provided for in the immediately preceding
sentence and the Company takes the action provided for in Section 6 hereof
within such forty-eight hours, the Escrow Holder shall promptly release to the
Escrow Agent, the number of Shares being acquired upon exercise of the Warrants
as set forth in the Exercise Form.
(c) Upon any exercise of the Escrow Agent Warrants, a copy of the
Exercise Form attached hereto and evidence of payment for the Stark Shares being
exercised shall be promptly faxed to the Company by the Escrow Agent
simultaneously as such Exercise Form and payment is sent by overnight courier
service to the Company. Unless the Escrow Agent receives a written objection
sent by facsimile within forty-eight hours of sending the fax to the Company
provided for in the immediately preceding sentence and the Company takes the
action provided for in Section 6 hereof within such forty-eight hours, the
Escrow Agent, the number of Escrow Agent Shares being acquired upon exercise of
the Escrow Agent Warrant as set forth in the Exercise Form.
<PAGE> 38
(d) If prior to the conversion of a Debenture or the exercise of the
Warrants or the Escrow Agent Warrants, such securities have been transferred,
then:
(i) the transferee shall become a party to this Escrow Agreement
by executing an amended thereto reasonably acceptable to the Company and the
Escrow Agent;
(ii) the transferee must not be in the United States or a U.S.
Person (all as defined in Regulation S as promulgated under the United States
Securities Act of 1933) and the transfer must comply with the terms of the
respective security and with the terms and conditions of the Debenture
Acquisition Agreement between the Company and the Escrow Agent, dated September
25, 1998 and further, any exercise of the Warrants and the Escrow Agent Warrants
must be in strict compliance with their respective terms; and
(iii) upon conversion of the Debenture, the Conversion Notice and
upon exercise of the Warrants or the Escrow Agent Warrants, the Exercise Form
and the payment shall be delivered to the Escrow Agent and the Escrow Agent
shall then promptly comply with Section 2(a), (b) or (c) as is applicable,
3. Dividends and Other Distributions
As long as any Shares are held in Escrow pursuant to this Agreement, then
no dividends or other distributions shall be payable with respect to such
Shares. However, any shares of Common Stock resulting from a stock split,
reverse stock split or stock dividend which would be receivable upon exercise of
the Warrants or the Escrow Agent Warrant shall be placed in Escrow.
4. Voting Rights
During the term of this Agreement, and so long any Shares are in Escrow, no
one may vote the Shares on any matter.
5. Payment of the Debentures and Expiration of the Warrants
Upon the payment in full of the Debentures as evidenced by a writing signed
by the Company and the then holder, the Escrow Agent shall release all the
remaining Debenture Shares relating to such Debenture and have the Debenture
Shares transferred into the name of the Company. Upon the expiation of the
Warrants or the Escrow Agent Warrants, the Escrow Agent shall release all the
remaining Warrant Shares or the Escrow Agent Shares, respectively, and have the
Warrant Shares or the Escrow Agent Shares, respectively, into the Company. Any
such transfer of the Shares into the name of the Company may be accomplish by
transfer the Shares for an account of the Company through the Depository Trust
Company, provided that the Company so notifies the Escrow Agent of such account
and the information
<PAGE> 39
needed to effect such a transfer.
6. Objections
(a) If the Company shall notify by fax the Escrow Agent that it has
any objections to releasing any of the Shares pursuant to Section 2 hereof, the
Company shall also within the respective forty-eight hour period provided for in
Sections 2(a), (b) or (c), as the case may be also deliver to the Escrow Agent
(i) an Certificate signed by an Officer of the Company setting forth the reasons
for the objection, (ii) an opinion from the counsel to the Company, Jeffer,
Mangles, Butler and Marmaro, LLP, that the conversion or the exercise, as the
case may be, would violate either the United States Securities Act of 1933, as
amended, or the United States Securities Exchange Act of 1934, as amended, and
an indemnity bond from an person licensed to issue such bonds in Ontario, Canada
in an amount equal to the number of Shares being objected to being released from
Escrow time Two Hundred Percent of the average closing bid price of the Common
Stock of the Company on the principal market for such Common Stock for the three
(3) trading days immediately preceding the date of the Conversion Notice or the
Exercise Form, as the case may, with such bond lasting until the dispute is
settled by agreement of the parties thereto or a final action of a court of
competent jurisdiction without the right to appeal or the expiration of the
right to appeal.
(b) If the Escrow Agent does NOT receive within such forty-eight hour
period all of the original signed documents and bond provided for in Section
6(a) hereof, it shall at the end of such forty-eight hour period, release the
Shares in question as requested in the respective Conversion Notice or Exercise
Form.
(c) If the Escrow Agent does receive within such forty-eight hour
period all of the original signed documents and bond provided for in Section
6(a) hereof, it shall at the end of such forty-eight hour period, if the
objection has not be withdrawn or the parties to the Debenture, the Warrants or
the Escrow Agent Warrants, as the case may be, otherwise agree, shall surrender
the Shares in question to an appropriate court in Toronto, Ontario and submit
the issue to the court to resolve in the nature of an interpleader action.
7. Escrow Agent
Escrow Agent, when acting as Escrow Agent, shall not be liable for any
action taken or omitted by it in good faith, and believed by it to be authorized
or within the rights or powers conferred upon it by this Agreement, and may rely
and shall be protected in acting or refraining from acting in reliance upon any
notice or certificate, instrument, request, paper or other documents believed by
it to be genuine and made, sent, signed or presented by the proper party or
parties. The Escrow Agent, acting as Escrow Agent. shall not be liable for
anything it does or may not do as Escrow Agent under this Agreement, except for
its own gross negligence, willful misconduct.
Escrow Agent shall not be responsible for the validity or sufficiency of
any
<PAGE> 40
stock certificate or other instrument evidencing any security delivered to
it pursuant hereto, or for the identity or authority of any person delivering
any such certificate or other instrument to it.
Until Escrow Agent shall receive from some person interested in this
Agreement written notice of any event upon which the right to receive any
release, distribution or payment may depend, it shall incur no liability for
actions taken in good faith.
Escrow Agent shall not be obligated to take any action to enforce this
Agreement, or to appear in, prosecute or defend any action or legal proceeding
or to file any income or other tax return if any such action, in its opinion,
would or might involve cost, expense, loss or liability unless, and as often as
required by it, it shall be furnished with security and an indemnity
satisfactory to it from the Company against all such cost, expense, loss or
liability.
Escrow Agent shall not be responsible for the validity of any provision of
this Agreement or for the execution thereof by any other party, or for the truth
of any recitals or other statements of fact herein contained. The Escrow Agent
shall be considered as a fiduciary under this Agreement and is not required or
entitled to act in any capacity hereunder other than as a Escrow Agent.
8. Notices
Except as otherwise provided herein, all notices, instructions or other
communications required or permitted hereunder shall be in writing and sent by
registered mail, postage prepaid, addressed as follows:
To Jaws Technologies Inc.
603-7 Avenue SW, Suite 380
Calgary, Alberta Canada T2P 2T5
Fax: (403) 508-5058
Tel: (403) 508-5055
Attn: Robert Kubbernus, President and CEO
To Thomson Kernaghan & Co. Limited:
365 Bay Street,
Toronto, Ontario Canada M5H 2V2
Fax: 416-367-8055
Voice: 416-860-8800
Attn: Robert F. Wilson
or such other address, telephone numbers or contact persons as shall be
furnished in writing by
<PAGE> 41
such party to the other parties hereto. Any such notice, instruction or
communication shall be deemed to have been given three (3) business days after
the date mailed by registered mail or if sent by fax, upon electronic
confirmation or receipt.
9. Deliveries
Escrow Agent shall make the deliveries of the Shares pursuant to this
Agreement at the addresses set forth herein, by overnight deliver service with
the ability to trace the delivery or through the Depository Trust Company
accounts.
10. Successors and Assigns
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns.
11. Choice of Law and Venue.
This Agreement shall be governed by and construed under the laws of the
Province of Alberta, Canada, without regard to choice of laws, in force from
time to time. Any proceeding arising out of this Agreement shall be brought in
Ontario, Canada.
12. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original.
13. Attorneys' Fees
If an action is brought to enforce the terms and provisions of this
Agreement, the prevailing party in said action shall be entitled to reasonable
attorneys' fees and costs of suit. This Agreement is subject to arbitration as
provided for in that Debenture Acquisition Agreement between the Company and
Escrow Agent of even date.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
The Company: JAWS TECHNOLOGIES INC.
By: ________________________________
_________________, _____________
Escrow Agent: THOMAS KERNAGHAN & CO. LTD.
By: ________________________________
_________________, _____________
<PAGE> 42
EXHIBIT D
Void after 5:00 p.m. Alberta Time, on October 31, 2001
Warrant to Purchase Shares of Common Stock
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
--------------------------------
WARRANT TO PURCHASE 357,143 SHARES OF COMMON STOCK
OF
JAWS TECHNOLOGIES INC.
--------------------------------
This is to Certify That, FOR VALUE RECEIVED, THOMSON KERNAGHAN & CO. LTD.,
an Ontario corporation , or assigns ("Holder"), is entitled to purchase, subject
to the provisions of this Warrant, from JAWS TECHNOLOGIES INC., a Nevada
corporation ("Company"), the fully paid, validly issued and nonassessable shares
of Common Stock, $0.001 par value, of the Company ("Common Stock") at any time
or from time to time during the period from the date hereof, through and
including October 31, 2001, but not later than 5:00 p.m. Calgary, Alberta Time,
on October 31, 2001 ("Exercise Period") at an initial exercise price equal to
$0.28 per share. The total number of shares of Common
<PAGE> 43
Stock to be issued upon exercise of this Warrant shall be 357,143 shares. The
price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the respective exercise price of a share of Common
Stock in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price." This Warrant is being issued
pursuant to the Company's private placement consisting of up to $2,000,000
principal amount of a 10% Convertible Debenture (the "Debenture") and a
Debenture Acquisition Agreement dated as of September 25, 1998 between the
Company and Thomson Kernaghan & Co. Ltd. All dollar references are to United
States Dollars.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in
part at any time or from time to time during the Exercise Period; provided,
however, that (i) if the last day of the Exercise Period is a day on which
banking institutions in the Province of Alberta are authorized by law to close,
then the Exercise Period shall terminate on the next succeeding day which shall
not be such a day, and during such period the Holder shall have the right to
exercise this Warrant into the kind and amount of shares of stock and other
securities and property (including cash) receivable by a holder of the number of
shares of Common Stock into which this Warrant might have been exercisable
immediately prior thereto. This Warrant may be exercised by presentation and
surrender hereof to the Escrow Agent pursuant to an Escrow Agreement between the
Company and Thomson Kernaghan & Co. Ltd., dated September 25, 1998, at its
principal office, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of Warrant Shares
specified in such form. As soon as practicable after each such exercise of the
Warrants, but not later than seven (7) days from the date of such exercise, the
Company shall issue and deliver to the Holder a certificate or certificates for
the Warrant Shares issuable upon such exercise, registered in the name of the
Holder or its designee. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S.
PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON, (iii) IF NO U.S.
PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING
SECURITIES TO BE ISSUED UPON EXERCISE, AND (iv) OUTSIDE THE UNITED STATES AND
THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED
<PAGE> 44
OUTSIDE THE UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE
WARRANT CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND
SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY
PRIOR TO EXERCISE OF THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT
REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933.
(b) Reservation of Shares. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants.
(c) Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made (or reported) on such day, the average closing bid and asked prices for
such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the Electronic Bulletin Board or
National Quotation Bureau, Inc. on the last business day prior to the date of
the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Upon surrender of this
Warrant to the Company at its principal office, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay and transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other warrants which
carry the
<PAGE> 45
same rights upon presentation hereof at the principal office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt of the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
This Warrant and the Common Stock issuable upon exercise of this Warrant
were issued under Regulation S under the Securities Act of 1933, as amended, and
may be transferred only as provided for in the Debenture Acquisition Agreement
between the Company and the Holder, dated September 25, 1998.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Anti-Dilution Provisions. The respective Exercise Price in effect
at any time and the number and kind of securities purchasable upon the exercise
of the Warrants shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the respective Exercise
Price in effect at the time of the record date for such dividend or distribution
or of the effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by multiplying the
respective Exercise Price by a fraction, the denominator of which shall be the
number of shares of Common Stock outstanding after giving effect to such action,
and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(2) Whenever the respective Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Subsection (1) above, the number of
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the respective number of Shares initially issuable upon
exercise of this Warrant by the respective
<PAGE> 46
Exercise Price in effect on the date hereof and dividing the product so obtained
by the respective Exercise Price, as adjusted.
(3) No adjustment in the respective Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any adjustment
which by reason of this Subsection (3) is not required to be made shall be
carried forward and taken into account in any subsequent adjustment required to
be made hereunder. All calculations under this Section (f) shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section (f) to the contrary notwithstanding, the Company shall
be entitled, but shall not be required, to make such changes in the respective
Exercise Price, in addition to those required by this Section (f), as it shall
determine, in its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision, reclassification or
combination of Common Stock, hereafter made by the Company shall not result in
any Federal Income tax liability to the holders of Common Stock or securities
convertible into Common Stock (including the Warrants).
(4) In the event that at any time, as a result of an adjustment
made pursuant to Subsection (1) above, the Holder of this Warrant thereafter
shall become entitled to receive any shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) to (3) inclusive above.
(5) Irrespective of any adjustments in the respective Exercise
Price or the related number or kind of share purchasable upon exercise of this
Warrant, Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar Warrants
initially issuable pursuant to this Agreement.
(g) Officer's Certificate. Whenever the respective Exercise Price
shall be adjusted as required by the provisions of the foregoing Section (f),
the Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office, an officer's certificate showing the adjusted
respective Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of related additional shares of Common Stock, if any, and such other
facts as shall be necessary to show the reason for and the manner of computing
such adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section (a) and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
(h) Notices to Warrant Holders. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the
<PAGE> 47
Common Stock or (ii) if the Company shall offer to the holders of Common Stock
for subscription or purchase by them any share of any class or any other rights
or (iii) if the capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least fifteen days prior the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description of
the proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up. The failure to give such notice shall not otherwise effect the
action taken by the Company.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) Registration Under the Securities Act of 1933.
The shares of Common Stock underlying this Warrant shall be registered
under the United States Securities Act of 1933, as amended, to the extend and
subject to the provisions of the Debenture.
<PAGE> 48
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the Undersigned, each being duly authorized, as of the date below.
JAWS TECHNOLOGIES INC.
____________________
By: Robert Kubbernus
Its:President
Dated: September 25, 1998
ATTEST:
__________________________________
_______________________, Secretary
<PAGE> 49
EXERCISE FORM
THIS WARRANT MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED); (ii) IF NOT EXERCISED ON BEHALF OF A U.S. PERSON; (iii) IF NO U.S.
PERSON HAS ANY INTEREST IN THE WARRANTS BEING EXERCISED OR THE UNDERLYING
SECURITIES TO BE ISSUED UPON EXERCISE; AND (iv) OUTSIDE THE UNITED STATES AND
THE WARRANT SHARES UNDERLYING THE WARRANTS ARE TO BE DELIVERED OUTSIDE THE
UNITED STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANT CAN BE
EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH
IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF
THE WARRANTS BEING EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE
UNDERLYING SECURITIES DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933.
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing $_____________ worth of the shares of Common Stock of
Jaws Technologies Inc. at $_______ per share for ___________ shares of Common
Stock.
--------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH AND ANY NO U.S. PERSON
HAS ANY INTEREST IN THE WARRANT OR THE WARRANT SHARES.
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
<PAGE> 50
ASSIGNMENT FORM
FOR VALUE RECEIVED, _____________________________________________
hereby sells, assigns and transfers unto
Name ___________________________________________________________________________
(Please typewrite or print in block letters)
Address ________________________________________________________________________
Social Security of Federal I.D. Number: ________________________________________
the right to purchase shares of Common Stock of Jaws Technologies Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint ______________________________________
Attorney, to transfer the same on the books of Jaws Technologies Inc. with full
power of substitution in the premises.
Date __________ __, ______
Signature _____________________________________
(Sign exactly as your name appears on
the first page of this Warrant)
NOTE: This Warrant and the Common Stock issuable upon exercise of this Warrant
were issued under Regulation S under the Securities Act of 1933, as amended, and
may be transferred only as provided for in the Debenture Acquisition Agreement
between the Company and the Holder, dated _____________, 1998.
EXHIBIT 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE SECURITIES
ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER REGULATION S
PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES
OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S PROMULGATED UNDER
THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO
REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE ACT AND THE SELLER IS PROVIDED WITH OPINION OF COUNSEL OR
OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE SECURITIES
MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
AMENDMENT NO. 1 TO
DEBENTURE PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO DEBENTURE PURCHASE AGREEMENT (the "Agreement") is
made and entered into as of April 27, 1999, by and between JAWS TECHNOLOGIES
INC., a Nevada corporation ("Seller") and THOMSON KERNAGHAN & CO. LTD, an
Ontario corporation ("Buyer"), with respect to the following facts:
A. Buyer and Seller originally entered into a Debenture Acquisition
Agreement dated September 25, 1998 respecting a $2,000,000 10% Convertible
Debenture (the "Debenture"). To this date $1,520,000 has been drawn down (with
$210,000 thereof previously converted to common stock) leaving a balance of
$480,000. The parties desire to clarify conversion prices and other terms with
respect to the previously drawn down debentures and also to restate their terms
and intentions with respect to an additional $3,000,000 debenture facility, and
to restate the terms of portions of the convertible debentures previously drawn
down and still outstanding.
B. Seller desires to sell to the Buyer, and Buyer desires to purchase
from the Seller an aggregate of up to $5,000,000 of a 10% Convertible Debenture
(the "Debentures") of Seller in the form of Exhibit B and an aggregate of
$1,000,000 of Warrants of Seller in the forms of Exhibit A and Exhibit D hereto,
respectively, $600,000 of which may be converted at $0.28 per share and $400,000
of which may be converted at $0.65 per share (collectively, the "Securities"),
upon the terms and conditions as set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing facts and the mutual
covenants and agreements contained herein, the parties hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES. Seller hereby sells to the Buyer,
and Buyer hereby purchases the Securities from Seller on the terms and
conditions stated herein. Seller is acquiring the Securities as Nominee and
intends to resell the Securities outside the United States to certain of its
customers who are not U.S. persons.
2. PURCHASE PRICE. The total purchase price (the "Purchase Price") for
the Securities shall be up to Five Million Dollars ($5,000,000), payable in cash
in accordance with the terms, conditions and procedures set forth herein.
3. TRANSFER OF SECURITIES AND DELIVERY OF PURCHASE PRICE.
3.1 (a) As of September 25, 1998, ("Initial Funding Date"), the
Buyer purchased Two Hundred Thousand Dollars ($200,000) of Debentures and
Seller:
(i) Filed on an appropriate form with the United States Securities and
Exchange Commission (the "SEC") to register its Common Stock under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and the registration
statement with the SEC under the Securities Act of 1933, as amended, as provided
for in Section 6 hereof, which registration statements contains the required
clean opinion on the financial statements of the Seller by Ernst & Young and was
reviewed by United States securities counsel for the Seller, Jeffer, Mangels,
Butler & Marmaro LLP; and
(ii) Provided on the opinion of the Seller's counsel, Jeffer, Mangels,
Butler and Marmaro, LLP to the effect that the Seller is duly incorporated and
has the corporate power to enter into this Agreement and the Exhibits thereto,
that this Agreement and the Exhibits thereto that have been entered into as of
the Initial Closing Date have been duly approved by all necessary action on
behalf of the Seller and this Agreement and such Exhibits are binding agreements
effective according to their respective terms except for bankruptcy and
equitable principal.
The amount advanced was represented by a Debenture in the form of Exhibit B
hereto for the amount advanced. The Seller also delivered to the Buyer on the
Initial Funding Date, Warrants for the purchase of 1,071,429 shares of Common
Stock in the form of Exhibit A hereto.
(b) After the Initial Funding Date, one or more Subsequent Funding
Dates occurred in which the Buyer purchased an additional One Million Three
Hundred Twenty Thousand Dollars ($1,320,000) of Debentures.
3.2 (a) On the Initial Funding Date, Seller (i) paid a finance fee
to the Buyer, in an amount equal to ten percent (10 %) of the Principal Sum (as
defined in the Debenture) funded on the Initial Funding Date, (ii) paid Buyer's
reasonable attorney's fees and costs incurred in entering into this Agreement,
(but not more than $10,000) against detailed invoices, and (iii) issued to the
Buyer, for Buyer's own account, $100,000 of Warrants of the Seller exercisable
at a per share price equal to the average of the closing bid prices of the
Common Stock of the Seller as quoted on the NASD Electronic Bulletin Board for
the three trading days prior to the Initial Funding Date, Twenty-Eight Cents
($0.28), in the form of Exhibit D hereto (the "Buyer Warrants"). For each
funding following the Initial Funding Date and until $2,000,000 has been drawn
upon, Seller shall pay a finance fee in an amount equal to ten percent (10%) of
the sum funded on such date.
(b) Upon the first funding following the filing of Amendment No. 2 of
the Seller's SB-2 Registration Statement ("Amendment No. 2 Funding Date"),
Seller shall issue Warrants in the form of Exhibit A hereto for $600,000 of
Common Stock at an exercise price equal to sixty five cents ($0.65) per share
and shall pay to the Buyer, for Buyer's own account, Buyer's reasonable
attorney's fees and costs incurred in entering into this Agreement (but not more
than $10,000) against detailed invoices.
3.3 For each funding following a draw down of the initial Two Million
Dollars ($2,000,000) contemplated in the Debenture, the Seller shall pay a
finance fee to the Buyer, in an amount equal to eight percent (8 %) of the sum
that is funded, thirty-seven point five percent (37.5 %) of which may be paid by
the issuance of shares of Common Stock which may subsequently be resold pursuant
to an exemption under Rule 144. Such shares shall be issued at a value of
seventy-eight percent (78 %) of the average closing price for the three days
preceding the funding date on the particular financing or another conversion
price determined by the parties for such funding.
3.4 On the Initial Funding Date, the Seller and Buyer entered into the
Escrow Agreement in the form of Exhibit C hereto, with the Buyer as Escrow
Agent.
3.5 On each Amendment No. 2 Funding Date for all advances in excess of
the Two Hundred Thousand Dollars ($200,000) referred to in Section 3. 1 (a) and
the $720, 000 referred to in Section 3. 1 (b) additional funding shall be
provided up to an aggregate total of Five Million Dollars ($5,000,000). For the
Six Hundred Thousand Dollars ($600,000) advanced on April 19, 1999, the
conversion price to be reflected in the Convertible Debenture shall be sixty
five cents ($0.65) per share. With respect to any purchases of the remaining
$3,480,000, the conversion price shall be a fixed forty cents ($0.40) per share,
unless the parties agree to a higher conversion price prior to the issuance of a
debenture.
(a) An Amendment No. 2 Funding Date will occur on the 30th day (or the
next business day if such 30th day is not a Business Day as defined in the form
of debenture) after the Buyer receives a written request from the Seller to
advance additional funds with such written request being sent by facsimile to
the Buyer followed up in writing by over-night courier service;
(b) Notwithstanding any other provision hereof, the Buyer at a proposed
subsequent funding date is not required to advance any additional amounts to the
Seller if the Form 10 or Form I OSB Registration Statement described in Section
3. 1 (a) hereof has not become effective under the Securities Exchange Act of
1934, as amended, and the Registration Statement under the Securities Act of
1933, as amended as provided for in Section 6 hereof has become effective.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby
represents and warrants to the Buyer as follows:
4.1 Any Common Stock of Seller issuable upon conversion of or as
payment of interest pursuant to the Debentures and the exercise of the Warrants
and the Buyer's Warrants, will be duly and validly issued fully paid and
nonassessable Common Stock of the Seller.
4.2 The Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada. The Seller has full
corporate power and authority to own and operate its properties and assets, and
to carry on its business as presently conducted and as proposed to be conducted.
The Seller is duly qualified to do business as a foreign corporation in each
jurisdiction in which the failure to be so qualified could have a material
adverse effect on the Seller. The Seller has furnished the Buyer or its special
counsel with true, correct and complete copies of its Articles of Incorporation
and By-laws, as amended, as in effect on the date hereof.
4.3 The Seller has and will have at each Amendment No. 2 Funding
Initial Date, all requisite legal and corporate power and authority to execute
and deliver this Agreement and the Exhibits hereto, to sell and issue the
Securities and the Buyer's Warrants and all Common Stock underlying the
Securities, the Buyer's Warrants, hereunder, and to carry out and perform its
obligations under the terms of this Agreement and the Exhibits hereto.
4.4 The authorized capital stock of the Seller consists of (a)
95,000,000 shares of Common Stock, par value $.001 per share, of which
10,612,317 were issued and outstanding as of March 31, 1999 and, (b) 5,000,000
shares of Preferred Stock, par value $-001 per share, none of which are issued
and outstanding immediately prior to the Initial Funding Date. Schedule 4.4(a)
sets forth a true and correct list of the current stockholders of the Seller
indicating the number of shares of each class of the Seller's stock held by each
such stockholder. Except as set forth on Schedule 4.4(b), the Seller does not
have any authorized or outstanding options, warrants, convertible debentures,
rights or other securities exercisable for or convertible into any capital stock
of any of the Seller. Except for rights granted under this Agreement, no person
is entitled to any preemptive right or right of first refusal or similar right
with respect to any issuance of capital stock or other securities by the Seller.
Except for the Seller's obligations under this Agreement, there are no
outstanding obligations of the Seller to redeem, purchase or otherwise acquire
capital stock or other securities of any corporation. Except as provided herein
no person has any right to require the Seller to register any shares of its
capital stock for sale pursuant to the Securities Act of 1933, as amended.
4.5 All corporate action on the part of the Seller, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement and the Exhibits hereto, the authorization, sale,
issuance and delivery of the Securities the Buyer's Warrants and all underlying
Common Stock and the performance of all of the Seller's obligations hereunder
and under each of the Exhibits hereto has been duly taken by the Seller. This
Agreement, when executed and delivered by the Seller, constitutes, and each of
the Exhibits thereto shall, when executed and delivered, constitute, a valid and
binding obligation of the Seller, enforceable in accordance with their terms
except for bankruptcy and equitable remedies. The Common Stock when issued in
compliance with the Securities and the Buyer's Warrants, shall be validly
issued, fully paid and non-assessable. The Securities and the Buyer's Warrants
are free of any liens claims or encumbrances; provided, however, that the will
be subject to restrictions on transfer under applicable state and/or federal
securities laws as set forth herein. The issuance of the Securities or Buyer's
Warrants will not be subject to any preemptive rights or rights of first
refusal, or result in any default of, or conflict with, the Articles of
Incorporation or Bylaws of the Seller, any contract or agreement to which the
Seller is a party or by which it is bound or any other obligation or commitment
of the Seller.
4.6 The Seller has delivered to the Buyer the audited balance sheet and
statements of operations and cash flows of the Seller as of and for the period
ended December 31, 1998 (the "Financial Statements"). The Financial Statements
are complete and correct and have been prepared in accordance with the books and
records of the Seller on a consistent basis. The Financial Statements accurately
set out, present fairly and describe the consolidated financial condition and
operating results of the Seller as of the dates, and during the periods,
indicated therein.
4.7 Except as set forth in Schedule 4.7 hereto, the Seller has no
liabilities or obligations of any kind, absolute, contingent or otherwise,
except (a) the liabilities and obligations set forth in the Financial
Statements, (b) liabilities with respect to equipment leases entered into in the
ordinary course of business, and (c) liabilities and obligations which have been
incurred subsequent to December 31, 1998, in the ordinary course of business and
consistent with past practice.
4.8 The Seller has good and marketable title to its properties and
assets, and has good title to all its leasehold interests, in each case subject
to no lien, claim or encumbrance other than (a) the lien of current taxes not
yet due and payable, (b) possible minor liens and encumbrances which do not in
any case or in the aggregate materially detract from the value of the property
subject thereto or materially impair the operations of the Seller, and which
have not arisen otherwise than in the ordinary course of business. The assets
and properties of the Seller are adequate to conduct the operations currently
conducted and proposed to be conducted by it. The Seller enjoys peaceful and
undisturbed possession under all leases under which it is operating, and all
said leases are valid and subsisting and in full force and effect. The leasehold
improvements of the Seller and all of their tangible personal property,
machinery, equipment, fixtures and inventories used in the ordinary course of
business are in good repair and in good operating condition, reasonable wear and
tear excluded.
4.9 The Seller is not in violation of any term of its Articles of
Incorporation or Bylaws, or of any material term or provision of any mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
including without limitation any Material Contract. The Seller is in compliance
with all judgments, decrees, governmental orders, laws, statutes, rules and
regulations by which it is bound or to which it or any of its properties or
assets is subject, except where the failure to comply would not have a material
adverse effect on the Seller. The Seller has all permits, licenses, franchises
and authorizations (collectively, the "Licenses") which are required by law
and/or necessary to operate its business as conducted or proposed to be
conducted, except where the failure to have any such License would not have a
material adverse effect on the Seller. All such Licenses were validly issued and
are in full force and effect. The Seller is in compliance in all material
respects with all of its Licenses and no suspension, revocation or termination
of any License is pending or, to the knowledge of the Seller, threatened. The
execution, delivery and performance of and compliance with this Agreement and
the Exhibits thereto, and the issuance of the Securities and the Buyer's
Warrants have not resulted and will not result in any violation of, or conflict
with, or constitute a material default under, (a) the Articles of Incorporation
or By-laws of the Seller or (b) assuming the accuracy of the representations and
warranties of the Seller set forth in hereto, any applicable law, statute, rule,
regulation or License, or (c) any agreement, contract, franchise or instrument
to which the Seller is a party, and has not resulted and will not result in the
creation of, any Lien upon any of the properties or assets of the Seller.
4.10 The Seller has good and marketable title to, or valid and
continuing rights and licenses to use, all patents, patent rights, trade
secrets, trademarks, trademark rights, service marks, trade names, copyrights,
franchises, licenses, permits, inventions, customer lists, and all rights with
respect to the foregoing, which are necessary for the operation of its business
as presently conducted and now proposed to be operated (collectively, with any
application with respect to the issuance or granting of any of the foregoing,
the "Intangible Property"). To the Seller's knowledge, the conduct of business
of the Seller as now operated and as now proposed to be operated does not and
will not conflict with any valid intellectual property right of others. The
Seller has not received any notice of any claim against it that any of its
operations, activities, products or publications infringes on any patent,
trademark, trade name, copyright or other property right of a third party, or
that it is illegally or otherwise using the trade secrets or any property rights
of others. The Seller has no knowledge that any licensor of it has any disputes
with or claims against any third party for infringement by such third party of
any trade name or other Intangible Property. Each employee of the Seller has
executed a confidentiality and non-disclosure agreement in favor of the Seller.
4.11 There are no actions, suits, proceedings or investigations pending
against the Seller or its properties before any court or governmental agency
(nor, to the best of the Seller's knowledge, is there any reasonable basis
therefore or threat thereof).
4.12 To the best of the Seller's knowledge, no employee of the Seller
is in violation of any term of any employment contract, patent disclosure
agreement or any other contract or agreement relating to the relationship of
such employee with the Seller.
4.13 All agreements material to the business of the Seller ("Material
Contracts") are valid, binding and in full force and effect in all material
respects. The Seller and, to the best of the Seller's knowledge, each other
party to a Material Contract have in all material respects performed all the
obligations required to be performed by them, have received no notice of default
and are not in default under any Material Contract.
4.14 The Seller (a) has accurately prepared and timely filed all tax
returns that are required to have been filed by it with all appropriate federal,
state, county and local governmental agencies (and all such returns fairly
reflect the Seller's operations for tax purposes); and (b) has paid in full or
made adequate provision on the Financial Statements for the payment of all
taxes.
4.15 None of this Agreement (including the Exhibits and Schedules
hereto), any instrument, certificate or report furnished to the Shareholder when
read together, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they are made, not
misleading. The Seller knows of no information or fact that has and/or could
have a material adverse effect on it that has not been disclosed to the Buyer in
writing.
4.16 The Seller represents that it has not offered the Securities to
the Subscriber in the U.S. or, to the best knowledge of the Seller, to any
person in the United States or any U.S. person (as defined in Regulation S
promulgated by the United States Securities and Exchange Commission).
4.17 To the best of the knowledge of the Seller, neither the Seller nor
any person acting for the Seller has conducted any "directed selling efforts" as
that term is defined in Rule 902 of Regulation S.
5. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE BUYER.
The Buyer hereby represents and warrants to and covenants and agrees with the
Seller the following:
5.1 The Buyer represents and warrants to the Seller that (i) the Buyer
is not a "U.S. person" as that term is defined in Rule 902(o) of Regulation S;
(ii) the Securities and the Buyer's Warrants were not offered to the Buyer in
the United States and at the time of execution of this Agreement and of any
offer to buy the Securities and Buyer's Warrants hereunder the Buyer was
physically outside the United States; (iii) the Buyer is purchasing the
Securities and Buyer's Warrant for its own account and not on behalf of or for
the benefit of any U.S. person and the sale of the Securities has not been
prearranged with or on behalf of any buyer in the United States; (iv) the Buyer
and to the best knowledge of the Buyer each distributor, if any, participating
in the offering of the Securities and Buyer's Warrants, has agreed and the Buyer
hereby agrees that all offers and sales of the Securities and the Buyer's
Warrants prior to the expiration of a period commencing on the closing of all
the sale of all Debentures offered by this Agreement and ending one year
thereafter (the "Distribution Compliance Period") shall not be made to U.S.
persons or for the account or benefit of U.S. persons and shall otherwise be
made in compliance with the provisions of Regulation S. The Buyer is not a
dealer or underwriter with respect to this transaction and is a "distributor" as
defined in Regulation S.
5.2 The Purchase Price to be paid by Buyer to Seller for the Securities
and Buyer's Warrants has been determined by Buyer as fair and appropriate based
solely upon Buyer's independent investigation and due diligence of the Seller,
and neither the Seller nor any of its agents, including, without limitation, any
of their officers, directors, employees, accountants and attorneys, has made any
representations or warranties whatsoever in connection with the sale of the
Securities and Buyer's Warrants by the Seller to the Buyer, except as
specifically set forth herein. The Buyer has had sufficient opportunity in
connection with the sale of the Securities and Buyer's Warrants to review the
Seller's business and affairs (including, without limitation, the Seller's
financial statements and other information) and to inquire of the Seller's
management with respect thereto. The Buyer has had answered to its satisfaction
any questions with respect to the Seller's business and affairs. The Buyer
further has had the opportunity to obtain independent financial, legal,
accounting, business, tax and other appropriate advice with respect to the
transactions contemplated by this Agreement, and is not relying upon the Seller
or any of its agents in any manner in connection with same.
5.3 The certificates representing the Securities and the Buyer's
Warrants shall bear the first legend set forth on the first page of this
Agreement and any other legend, if such legend or legends are reasonably
required by the Seller to comply with state, federal or foreign law.
5.4 The Buyer understands and agrees with the Seller, that in the
absence of the registration of the Securities, the Buyer's Warrants and the
underlying Common Stock under the Act, the Securities, the Buyer's Warrants and
the underlying Common Stock may only be resold as provided for in Rules 903 or
904 of Regulation S, pursuant to a valid exemption from registration under the
Act, including sales under Rule 144. Rule 144, promulgated by the United States
Securities and Exchange Commission under the Act, may not be currently available
for sale of the Securities and Buyer's Warrants and underlying Common Stock in
the United States, and there is no assurance that it will be available at any
particular time in the future. Sales of Common Stock underlying the Securities
and the Buyer's Warrants may be made in reliance upon Rule 144 but only (i)
limited quantities after the completion of the Distribution Compliance Period
(for Common Stock underlying the Warrants, one year after exercise if latter),
or (ii) in unlimited quantities by non-affiliates after the first yearly
anniversary of the completion of the Distribution Compliance Period (for Common
Stock underlying the Warrants, two years after exercise if latter), in each case
in accordance with the conditions of the Rule, all of which must be met
(including the requirement, if applicable, that adequate information concerning
the Seller is then available to the public).
5.5 To the best of the knowledge of the Buyer and Seller neither the
Buyer nor any distributor, if any, participating in the offering of the
Securities and Buyer's Warrants nor any person acting for the Buyer or any such
distributor has conducted any "directed selling efforts" as that terms is
defined in Rule 902 of Regulation S.
5.6 The Buyer understands that the Securities, the Buyer's Warrants and
all underlying Common Stock have not been registered under the Act and are being
offered and sold pursuant to a "safe harbor" from registration contained in
Regulation S promulgated under the Act based in part upon the representations of
the Seller contained herein. The Seller has reviewed the terms of the Warrants
and the Buyer's Warrants and is aware of the restrictions on exercise of the
Warrants and the Buyer's Warrants by U.S. Persons, namely the following:
THE WARRANTS AND THE BUYER'S WARRANTS MAY ONLY BE EXERCISED (i) BY A PERSON
WHO IS NOT A U.S. PERSON (AS DEFINED IN REGULATION S PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED), (ii) IF NOT EXERCISED ON BEHALF OF A U.S.
PERSON, (iii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS OR BUYER'S
WARRANTS BEING EXERCISED OR THE UNDERLYING SECURITIES TO BE ISSUED UPON
EXERCISE, AND (1v) OUTSIDE THE UNITED STATES AND THE WARRANT SHARES UNDERLYING
THE WARRANTS AND THE BUYER'S WARRANTS ARE TO BE DELIVERED OUTSIDE THE UNITED
STATES. IF THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANTS AND THE BUYER'S
WARRANTS CAN BE EXERCISED ONLY IF A WRITTEN OPINION OF COUNSEL, THE FORM AND
SUBSTANCE OF WHICH IS ACCEPTABLE TO THE COMPANY, IS DELIVERED TO THE SELLER
PRIOR TO EXERCISE OF THE WARRANTS AND BUYER'S WARRANTS BEING EXERCISED THAT
REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES DELIVERED UPON
EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
5.7 The Buyer knows of no public solicitation or advertisement of an
offer in connection with the proposed issuance and sale of the Securities and
the Buyer's Warrants, the Buyer's Warrants or any underlying Common Stock.
5.8 The Buyer is acquiring the Securities to be issued and sold
hereunder (and the Common Shares issuable thereunder) as a nominee (but is
acquiring the Buyer's Warrants (and the underlying Common Stock) for its own
account for investment and not as a nominee and not with a view to the
distribution thereof). The Buyer understands that it must bear the economic risk
of this investment indefinitely unless the sale of such Securities and Buyer's
Warrants and the underlying shares of Common Stock is registered pursuant to the
Act, or an exemption from such registration is available, and that the Buyer has
no present intention of registering any such sale of the Securities, the Buyer's
Warrants and any underlying Common Stock, except as otherwise specifically
provide for herein. The Buyer represents and warrants to the Seller that it has
no present plan or intention to sell any of such Securities, the Buyer's
Warrants and the underlying Common Stock in the United States or to a United
States person pursuant to any predetermined arrangements. The Buyer covenants
that neither it not its affiliates nor any person acting on its or their behalf
has the intention of entering or will enter during the Distribution Compliance
Period, into any put option, short position, hedging transactions, equity swaps
or other similar instrument or position with respect to any of such Securities,
the Buyer's Warrants and the underlying Common Stock or securities of the same
class as any of such Securities, the Buyer's Warrants and the underlying Common
Stock in violation of the Act and neither the Buyer nor any of its affiliates or
any person acting on its or their behalf will use at any time any of such
acquired pursuant to this Agreement to settle any put option, short position,
hedging transactions, equity swaps or other similar instrument or position that
may have been entered into prior to the execution of this Agreement in violation
of the Act.
5.9 The Buyer further covenants that it will not make any sale,
transfer or other disposition of the Securities and the Buyer's Warrants or any
underlying Common Stock in violation of the Act, the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") or the rules and regulations of the
Securities and Exchange Commission (the "Commission") promulgated thereunder.
5.10 The Buyer has the full power and authority to execute, deliver and
perform this Agreement. This Agreement when executed and delivered by the Buyer
will constitute a valid and legally binding obligation of the Buyer, enforceable
in accordance with its terms except for bankruptcy and equitable remedies.
5.11 The Buyer has reviewed with his, her or its own tax advisors the
foreign, federal, state and local tax consequences of this investment, where
applicable, and the transactions contemplated by this Agreement. The Buyer is
relying solely on such advisors and not on any statements or representations of
the Seller or any of its agents and understands that the Buyer (and not the
Seller) shall be responsible for the Buyer's own tax liability that may arise as
a result of this investment or the transactions contemplated by this Agreement.
5.12 The Buyer acknowledges that it has had this Agreement and the
transactions contemplated by this Agreement reviewed by its own legal counsel.
The Buyer is relying solely on such counsel and not on any statements or
representations of the Seller or any of its agents for legal advice with respect
to this investment or the transactions contemplated by this Agreement.
5.13 The Buyer is a "distributor" as defined in Regulation S and will
send to any broker/dealer or other person receiving a commission on the sale of
the Securities, the Buyer's Warrants and the underlying Common Stock, a
confirmation or other notice stating that such person is subject to the same
restrictions on transfer to U.S. Persons or for the account of or benefit of
U.S. Persons during the Distribution Compliance Period as provided herein.
5.14 Upon any transfer of the Securities, the Buyer's Warrants or the
underlying Common Stock unless such transfer is subject to Rule 144 or is
covered by a current and effective registration statement under the Act, the
transferee must supply to the Seller with the same representations and
warranties as provided for in Section 5 hereof.
5.15 NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, THE
DEBENTURES, THE WARRANTS OR THE BUYER'S WARRANTS, THE SELLER DOES NOT HAVE TO
AND WILL NOT RECOGNIZE AND WILL TREAT AS NULL AND VOID ANY ATTEMPT TO TRANSFER
THE DEBENTURES, THE WARRANTS, THE BUYER'S WARRANTS AND THE UNDERLYING COMMON
STOCK MADE IN VIOLATION OF THIS AGREEMENT OR REGULATION S OR TO EXERCISE THE
WARRANTS AND THE BUYER'S WARRANTS OTHER THAN AS PROVIDED THEREIN.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(a) As soon as possible after this date (but in no case prior to the
Initial Funding Date), the Seller will include in an appropriate form of
registration statement filed under the Securities Act of 1933 (the "Act") for
resale by the potential holders (the "Buyer") the following shares of Common
Stock, but only Common Stock, of the Seller (collectively, the "Resale
Securities"):
(i) One hundred one hundred percent (100%) of the shares underlying the
Debentures, assuming the aggregate outstanding Principal Sum was Five Million
Dollars ($5,000,000) based on the conversion prices set forth in Section 3
above.
(ii) One hundred percent (100%) of the shares underlying the Warrants to
purchase for aggregate of One Million Dollars ($1,000,000) of the Common Stock
of the Seller based on an exercise price per share as set forth in Section 3
above.
(b) The Seller shall use its best efforts to cause the registration
statement provided for in Section 6(a) hereof to become effect under the Act no
latter than the ninetieth (90th) day after the Initial Funding Date; provided,
that if such registration statement has not been declared effective by the close
of such ninetieth (90th) day after the Initial Funding Date, then for each of
the next thirty (30) days after such ninetieth (90th) day after the Initial
Funding Date that such registration statement has not been declared effective,
the Seller shall pay the Holder an amount equal to the Principal Sum funded on
the Initial Funding Date times Nine Hundred Eighty Six One Thousands of a
percent (0.986%); provided further, that if such registration statement has not
been declared effective by the close of the one hundred twentieth (120th) day
after the Initial Funding Date, then for each day after such one hundred
twentieth (120th) day after the Initial Funding Date that such registration
statement has not been declared effective, the Seller shall pay the Holder and
amount equal to the Principal Sum funded on the Initial Funding Date times One
Thousand Six Hundred Four-four One Ten Thousands of a percent (0. 1644 %). Any
amounts due to the Holder under this Section 6(b) shall be paid by check no
later than the next business day after an amount is incurred.
(c) The following provision of this Section 6 shall also be applicable:
(i) The Buyer shall furnish the Seller with such appropriate
information (relating to the intentions of such holders with regard to the sale
of the Resale Securities included in the registration statement as the Seller
shall reasonably request in writing. Following the effective date of such
registration statement, the Seller shall upon the request of the Buyer forthwith
supply such a number of prospectuses meeting the requirements of the Act, as
shall be requested by the Buyer to permit the Buyer to make a public offering of
all the Resale Securities from time to time offered or sold to the Buyer
provided that the Buyer shall from time to time furnish the Seller with such
appropriate information (as provided for in the immediately proceeding sentence)
as the Seller shall request in writing and provided, further, that the Seller
shall keep such registration statement current and effective until the last to
occur of thirtieth (30th) day after the last to occur of (i) the Principal Sum
of the Debentures being reduced to zero or (ii) the first to occur of the
exercise or all of the Warrants and the Buyer's Warrants or the expiration of
the Warrants and the Buyer's Warrants. The Seller shall also use its best
efforts to qualify the Resale Securities for sale in New York and Florida,
provided that the Seller shall not be required to file a general consent to
service of process in any state pursuant to this sentence.
(ii) The Seller shall fill the registration statement at its own
expense and without charge to the Buyer. The Buyer shall, however, bear the fees
of his own counsel and any transfer taxes or underwriting discounts or
commissions applicable to the Resale Securities sold by it pursuant thereto.
(iii) The Seller shall indemnify and hold harmless the Buyer and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any the Buyer any Resale Securities from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in the registration statement or any
post-effective amendment thereto under the Act or any prospectus included
therein required to be filed or furnished by reason of this Section 6 or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or alleged untrue statement or omission or alleged
omission based upon information furnished or required to be furnished in writing
to the Seller by the Buyer or underwriter expressly for use therein, which
indemnification shall include each person, if any, who controls any such
underwriter within the meaning of such Act; provided, however, that the Seller
shall not be obliged so to indemnify any such underwriter or controlling person
unless such underwriter shall at the same time indemnify the Seller, its
directors, each officer signing the related registration statement and each
person, if any, who controls the Seller within the meaning of such Act, from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or any prospectus required to be filed or furnished by
reason of this Section 6 or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or alleged untrue statement or omission based
upon information furnished in writing to the Seller by any such underwriter
expressly for use therein.
(iv) The Seller's agreements with respect to the Resale Securities in
this Section 6 shall continue in effect regardless or the conversion and
surrender of the Debenture or any exercise of the Warrants or the Buyer's
Warrants. The registration rights of the Buyer under this Section 6 will inure
to the benefit and be assignable automatically to any transferee of the
Securities, the Warrants, the Buyer's Warrants or the underlying Common Stock,
except for any such underlying Common Stock sold pursuant to a registration
statement under the Act or sold pursuant to Rule 144.
7. ENTIRE AGREEMENT. This Agreement, and the Exhibits hereto, embodies
the entire agreement and understanding between the parties hereto with respect
to the subject matter hereof and supersedes all prior and contemporaneous
agreements and understandings relating to such subject matter.
8. CHOICE OF LAW AND VENUE. This Agreement shall be governed by and
construed under the laws of the Province of Alberta, Canada, without regard to
choice of laws, in force from time to time. Any proceeding arising out of this
Agreement shall be brought in Ontario, Canada.
9. ATTORNEYS' FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable costs, including, without limitation, attorneys' fees.
10. PARTIES BOUND. This Agreement is binding on and shall inure to the
benefit of the parties and their respective successors, assigns, heirs, and
legal representatives.
11. NOTICES. Except as otherwise provided herein, all notices,
instructions or other communications required or permitted hereunder shall be in
writing and sent by registered mail, postage prepaid, addressed as follows:
To Jaws Technologies Inc.
1013 17th Avenue SW
Calgary, Alberta Canada TH OA7
Fax: 403-508-5058
Voice: 403-508-5055
Attn: Robert Kubbernus
President and CEO To Thomson Kernaghan & Co. Limited:
365 Bay Street,
Toronto, Ontario Canada M5H 2V2
Fax: 416-367-8055
Voice: 416-860-8800
Attn: Robert F. Wilson
or such other address, telephone numbers or contact persons as shall be
furnished in writing by such party to the other parties hereto. Any such notice,
instruction or communication shall be deemed to have been given three (3)
business days after the date mailed by registered mail or if sent by fax, upon
electronic confirmation or receipt.
12. GENDER. Masculine nouns and pronouns shall include feminine nouns
and pronouns.
13. ARBITRATION. All disputes that may arise between the parties
regarding the interpretation or application of this Agreement and the Exhibits
thereto and the legal affect of this Agreement shall, to the exclusion of any
court of law, be arbitrated and determined by a board of arbitrators, unless the
parties can resolve the dispute by mutual agreement. Either party shall have the
right to submit any dispute to arbitration thirty (30) days after the other
party has been notified as to the nature of the dispute. If the dispute goes to
arbitration, each party shall select one arbitrator and the two arbitrators so
selected shall jointly select a third arbitrator. The arbitration shall be
governed by the arbitration rules of the International Chamber of Commerce. The
arbitration proceeding shall be governed by the statutes of the Province of
Ontario, Canada, and the proceeding shall be held in Toronto, Ontario, Canada.
Anything to the contrary contained in the above-mentioned rules and statutes
notwithstanding, the parties consent that any papers, notices, or process
necessary or proper for the institution or continuance of, or relating to any
arbitration proceeding, or for the confirmation of an award and entry of
judgment on any award made, including appeals in connection with any judgment or
award, may be served on each of the parties by registered mail addressed to the
party at the principal office of the party, or by personal service on the party
in or without the above-mentioned state. The parties recognize and consent to
the above-mentioned arbitration association's jurisdiction over each and every
one of them.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Seller: JAWS TECHNOLOGIES, INC.
By:
Its:
Buyer: THOMSON KERNAGHAN & CO. LTD.
By:
Its:
<PAGE>
EXHIBIT LIST
Exhibit A FORM OF WARRANT TO PURCHASE SHARES OF COMMON STOCK
Exhibit B 10% CONVERTIBLE DEBENTURE
Exhibit C ESCROW AGREEMENT
Exhibit D FORM OF BUYER WARRANTS
EXHIBIT 4.4
Void after 5:00 p.m. Los Angeles Time, on April 15, 2002
Warrant to Purchase Shares of Common Stock ("Expiration Date")
--------------------------------
WARRANT TO PURCHASE 1,000,000 SHARES OF COMMON STOCK
OF
JAWS TECHNOLOGIES, INC.
--------------------------------
This is to Certify That, FOR VALUE RECEIVED, BRISTOL ASSET
MANAGEMENT, LLC or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from JAWS TECHNOLOGIES, INC., ("Company"), ONE
MILLION SHARES (1,000,000) of the fully paid, validly issued and nonassessable
shares of Common Stock of the Company ("Common Stock") at any time or from time
to time during the period from the date hereof, through and including April 15,
2002, but not later than 5:00 p.m. Los Angeles Time, on April 15, 2002
("Exercise Period"). The price to be paid for each share of Common Stock shall
be $0.70 per share. The shares of Common Stock deliverable upon such exercise,
and as adjusted from time to time, are hereinafter sometimes referred to as
"Warrant Shares" and the respective exercise price of a share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price."
(a) Exercise of Warrant. The Holder may exercise this
Warrant in whole or in part, at any time or from time to time on any Business
Day on or prior to the Expiration Date, by delivering to the Company a duly
executed notice (a "Notice of Exercise") in the form of Annex A hereto, by
payment to the Company of the Exercise Price per Warrant Share in an amount
equal to the product of (i) the Exercise Price times (ii) the number of Warrant
Shares as to which this Warrant is being exercised.
As soon as practicable after the Company shall have received such
Notice of Exercise an any required payment, the Company shall execute and
deliver or cause to be executed and delivered, in accordance with such Notice of
Exercise, to the Holder at the address set forth in such Notice of Exercise a
certificate or certificates which shall not bear any legend representing the
number of shares of Common Stock specified in such Notice of Exercise. The
Warrant shall be deemed to have been exercised and such share certificate or
certificates shall be deemed to have been issued, and the Holder shall be deemed
for all
<PAGE> 2
purposes to have become a holder of record of shares of Common Stock, as of the
date that such Notice of Exercise and any required payment shall have been
received by the Company.
The Holder shall surrender this Warrant certificate of the
Company when it delivers the Notice of Exercise, and in the event of a partial
exercise of the Warrant, the Company shall execute and deliver to the Holder, at
the time the Company delivers the share certificate or certificates issued
pursuant to such Notice of Exercise, a new Warrant certificate for the
unexercised portion of the Warrant, but in all other respect identical to this
Warrant certificate.
The Company shall not be require to issue fractional shares of
Common Stock upon an exercise of the Warrant. If any fraction of a share would,
but for this restriction, be issuable upon an exercise of the Warrant, in lieu
of delivering such fractional share, the Company shall pay to the Holder, in
cash, an amount equal to the same fraction times the FMV for the Common Stock
(as defined above) immediately prior to the date of such exercise.
The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of
certificates for the Warrant Shares and any new Warrant certificates.
(b) Reservation of Shares. The Company shall at all
times reserve for issuance and/or delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of the Warrants.
(c) Fractional Shares. No fractional shares or script
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of a share, determined as
follows:
(1) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ system, the current market value shall be
the last reported sale price of the Common Stock on such exchange or system on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made (or reported) on such day, the average closing bid and asked
prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or
admitted to unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the Electronic
Bulletin Board or National Quotation Bureau, Inc. on the last business day prior
to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current market value shall be an amount, not less than book value
thereof as at the end of the most recent
-2-
<PAGE> 3
fiscal year of the Company ending prior to the date of the exercise of the
Warrant, determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
(d) Exchange, Transfer, Assignment or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. Upon surrender of this
Warrant to the Company at its principal office, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay and transfer tax, the Company
shall, without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall promptly
be canceled. This Warrant may be divided or combined with other warrants which
carry the same rights upon presentation hereof at the principal office of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt of the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by
virtue hereof, be entitled to any rights of a shareholder in the Company, either
at law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) Anti-Dilution Provisions. The respective Exercise
Price in effect at any time and the number and kind of securities purchasable
upon the exercise of the Warrants shall be subject to adjustment from time to
time upon the happening of certain events as follows:
(1) In case the Company shall (i) declare a
dividend or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
respective Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the respective Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
-3-
<PAGE> 4
(2) Whenever the respective Exercise Price
payable upon exercise of each Warrant is adjusted pursuant to Subsection (1)
above, the number of Shares purchasable upon exercise of this Warrant shall
simultaneously be adjusted by multiplying the respective number of Shares
initially issuable upon exercise of this Warrant by the respective Exercise
Price in effect on the date hereof and dividing the product so obtained by the
respective Exercise Price, as adjusted.
(3) No adjustment in the respective Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least one cent ($0.01) in such price; provided, however, that any
adjustment which by reason of this Subsection (3) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment
required to be made hereunder. All calculations under this Section (f) shall be
made to the nearest cent or to the nearest one-hundredth of a share, as the case
may be. Anything in this Section (f) to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such changes in
the respective Exercise Price, in addition to those required by this Section
(f), as it shall determine, in its sole discretion, to be advisable in order
that any dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the Company
shall not result in any Federal Income tax liability to the holders of Common
Stock or securities convertible into Common Stock (including the Warrants).
(4) In the event that at any time, as a result of
an adjustment made pursuant to Subsection (1) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the Company, other
than Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Subsections (1) to (3) inclusive above.
(5) Irrespective of any adjustments in the
respective Exercise Price or the related number or kind of share purchasable
upon exercise of this Warrant, Warrants theretofore or thereafter issued may
continue to express the same price and number and kind of shares as are stated
in the similar Warrants initially issuable pursuant to this Agreement.
(g) Officer's Certificate. Whenever the respective
Exercise Price shall be adjusted as required by the provisions of the foregoing
Section (f), the Company shall forthwith file in the custody of its Secretary or
an Assistant Secretary at its principal office, an officer's certificate showing
the adjusted respective Exercise Price determined as herein provided, setting
forth in reasonable detail the facts requiring such adjustment, including a
statement of the number of related additional shares of Common Stock, if any,
and such other facts as shall be necessary to show the reason for and the manner
of computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the holder or any holder of
a Warrant executed and delivered pursuant to
-4-
<PAGE> 5
Section (a) and the Company shall, forthwith after each such adjustment, mail a
copy by certified mail of such certificate to the Holder or any such holder.
(h) Notices to Warrant Holders. So long as this
Warrant shall be outstanding, (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (iii) if the capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder, at least fifteen days prior the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up. The failure to give such notice shall not otherwise effect the
action taken by the Company.
(i) Reclassification, Reorganization or Merger. In
case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety,
the Company shall, as a condition precedent to such transaction, cause effective
provisions to be made so that the Holder shall have the right thereafter by
exercising this Warrant at any time prior to the expiration of the Warrant, to
purchase the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, capital reorganization and other
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of this
Warrant immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section (i) shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances. In the event that in connection
with any such capital reorganization or reclassification, consolidation, merger,
sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for a
security of the Company other
-5-
<PAGE> 6
than Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Subsection (1) of Section (f) hereof.
(j) Registration or Exemption Under the Securities
Act of 1933.
This warrants and the shares of Common Stock underlying
this Warrant shall be registered under the United States Securities Act of 1933,
upon the request of the Holder, in the event that the Company files a
Registration Statement with the Securities and Exchange Commission pursuant to
Form SB-2 including the current Registration Statement, or any other applicable
form for the registration of common shares, without expense to the Holder. In
addition, to the extent that the Company is able to issue warrants or shares
pursuant to Rule 504 under Regulation D at any time, the Holder shall have the
first right to exchange the warrants or shares for freely tradeable warrants or
shares issued by the Company pursuant to the exemption provided by Rule 504. In
either instance, the Company shall provide written notice to the Holder, thirty
(30) days in advance of any proposed filing of a Registration Statement with the
SEC, or the availability of resale of common shares or warrants under Rule 504.
(k) Venue. The terms of this Agreement shall be
construed in accordance with the laws of the State of California. The exclusive
venue with respect to any claims or disputes under this Agreement shall be the
appropriate State or Federal Courts located in Los Angeles, California.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed and attested by the Undersigned, each being duly authorized, as of the
date below.
JAWS TECHNOLOGIES, INC.
By:__________________________________
Its: __________________________________
Dated: April ____, 1999
ATTEST:
____________________________________
_______________________, Secretary
-6-
<PAGE> 7
EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing Shares of Common Stock of Jaws Technologies,
Inc. at $0.70 per share.
--------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name _______________________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES, INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH.
CHECK APPROPRIATE BOX
[ ] Payment of $__________ enclosed
[ ] Cashless Exercise Option
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
------------------------------------------------------
PRINT NAME
<PAGE> 8
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________
hereby sells, assigns and transfers unto
Name ________________________________________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________________
Social Security of Federal I.D. Number: _____________________________________
the right to purchase shares of Common Stock of Jaws Technologies, Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint _____________________________________
Attorney, to transfer the same on the books of Jaws Technologies, Inc. with full
power of substitution in the premises.
Date __________ __, ______
Signature ________________________________________
(Sign exactly as your name appears on
the first page of this Warrant)
-2-
EXHIBIT 4.5
EXHIBIT A
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.
THE SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION
UNDER REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD IN THE
UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S
PROMULGATED UNDER THE ACT) UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT,
PURSUANT TO REGULATION S OR PURSUANT TO AVAILABLE EXEMPTIONS FROM THE
REGISTRATION REQUIREMENTS OF THE ACT AND THE COMPANY IS PROVIDED WITH OPINION OF
COUNSEL OR OTHER SUCH INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH EXEMPTIONS ARE AVAILABLE. FURTHER, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY BE MADE ONLY IN COMPLIANCE WITH THE ACT.
Warrant to Purchase Common Stock
of
JAWS TECHNOLOGIES INC.
This Warrant to Purchase Common Stock (this "Warrant') is
issued June 21, 1999, by Jaws Technologies Inc., a Nevada corporation (the
"Company"), to Glentel Inc. (the "Holder").
1. Issuance of Warrant Term. The Company hereby grants to Holder,
subject to the provisions hereinafter set forth, the right to purchase 834,000
shares of common stock $0.001 par value per share, of the Company (the "Common
Stock"). The shares of Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the "Shares." This Warrant shall be exercisable at
any time before 5:00 p.m. on June 30, 2001.
2. Exercise Price. The exercise price per share for which all or
any of the Shares may be purchased pursuant to the terms of this Warrant shall
be $2.25 U.S.
3. Exercise
(a) This Warrant may be exercised by Holder in whole or in part,
upon delivery of written notice of intent to the Company at the address of the
Company set forth below its signature below or such other address as the Company
shall designate in written notice to Holder, together with this Warrant and
payment (in the manner described in Section 3(b) below) for the aggregate
Exercise Price of the
<PAGE>
Shares so purchased. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable execute and deliver to Holder a certificate or
certificates for the total number of whole Shares for which this Warrant is
being exercised in such names and denominations as are requested by Holder. If
this Warrant shall be exercised with respect to less than all of the Shares,
Holder shall be entitled to receive a new Warrant covering the number of Shares
in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of this
Warrant may be made by wire transfer or by the delivery of a certified or
cashier's check payable to the Company for the aggregate Exercise Price of the
Shares to be purchased.
4. Covenants and Conditions. The above provisions are subject to
the following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired by the Holder
for investment purposes and not with a view to distribution or resale, and the
Shares may not be made subject to a security interest, pledged, hypothecated,
sold or otherwise transferred without an effective registration statement
therefor under the Act and such applicable Blue Sky Laws or an opinion of
counsel (which opinion and counsel rendering same shall be reasonably acceptable
to the Company) that the registration is not required under the Act and under
any applicable Blue Sky Laws. certificates representing the Warrants shall bear
substantially the following legend:
THE WARRANTS MAY ONLY BE EXERCISED (i) BY A PERSON WHO IS NOT A U.S. PERSON (AS
DEFINED IN REGULATION S PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED), AND (ii) IF NO U.S. PERSON HAS ANY INTEREST IN THE WARRANTS EXERCISED
OR THE UNDERLYING SECURITIES TO BE ISSUED UPON EXERCISE, AND (iii) THE COMMON
SHARES UNDERLYING THE WARRANTS SHALL BE DELIVERED OUTSIDE THE UNITED STATES. IF
THE ABOVE CANNOT BE COMPLIED WITH, THEN THE WARRANTS CAN BE EXERCISED ONLY IF A
WRITTEN OPINION OF COUNSEL, THE FORM AND SUBSTANCE OF WHICH IS ACCEPTABLE TO THE
COMPANY, IS DELIVERED TO THE COMPANY PRIOR TO EXERCISE OF THE WARRANTS BEING
EXERCISED THAT REGISTRATION IS NOT REQUIRED, OR THE UNDERLYING SECURITIES
DELIVERED UPON EXERCISE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
Other legends as required by applicable federal and state laws
may be placed on such certificates. Holder and the Company agree to execute such
documents and instruments as counsel for the Company reasonably deems necessary
to effect
<PAGE>
compliance of the issuance of this Warrant and any Shares issued upon exercise
hereof with applicable federal and state securities laws.
(b) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable.
5. Warrantholder not Stockholder. This Warrant does not confer
upon Holder any voting rights or other rights as a stockholder
of the Company.
6. Certain Adjustments.
a) Capital Reorganizations, Mergers, Consolidations or Sales of
Assets. If at any time there shall be a capital reorganization (other than a
combination or subdivision of Common Stock otherwise provided for herein), a
share exchange (subject to and duly approved by the stockholders of the Company)
or a merger or consolidation of the Company with or into another corporation, or
the sale of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, share
exchange, merger, consolidation or sale, lawful provision shall be made so that
Holder shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified in this Warrant and upon payment of the Exercise
Price, the number of shares of stock or other securities or property of the
Company or the successor corporation resulting from such reorganization, share,
exchange, merger, consolidation or sale, to which Holder would have been
entitled under the provisions of the agreement in such reorganization, share
exchange, merger, consolidation or sale if this Warrant had been exercised
immediately before that reorganization, share exchange, merger, consolidation or
sale. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of Holder
after the reorganization, share exchange, merger, consolidation or sale to the
end that the provisions of this Warrant (including Adjustment of the Exercise
Price then in effect and the number of the Shares) shall be applicable after
that event, as near as reasonably may be, in relation to any shares or other
property deliverable after that event upon exercise of this Warrant.
b) Splits and Subdivisions. If the Company at any time or from time
to time fixes a record date for the effectuation of a split or subdivision of
the outstanding shares of Common Stock or the determination of the holders of
Common Stock entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as the "Common Stock
Equivalents") without payment of any consideration by such holder for the
additional shares of Common Stock or Common Stock Equivalents, then, as of such
record date (or the date of such distribution, split or subdivision if no record
date is fixed), the Exercise Price shall (i) in the case of a split or
subdivision, be appropriately decreased and the number of the Shares shall be
<PAGE>
appropriately increased in proportion to such increase of outstanding shares and
(ii) in the case of a dividend or other distribution, the holder of the warrant
shall have the right to acquire without additional consideration, upon exercise
of the warrant, such property or cash as would have been distributed in respect
of the shares of Common Stock for which the warrant was exercisable had such
shares of Common Stock been outstanding on the date of such distribution.
c) Combination of Shares. If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by a combination or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be appropriately increased and the number of the Shares shall be
appropriately decreased in proportion to such decrease in outstanding shares.
d) Adjustments for Other Distributions. In the event the Company
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by the Company or other persons, assets (excluding cash
dividends) or options or rights not referred to in Section 6.2, upon exercise of
this Warrant, Holder shall be entitled to a proportionate share of any such
distribution as though Holder was the holder of the number of shares of Common
Stock of the Company into which this Warrant may be exercised as of the record
date fixed for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
e) Certificate as to Adjustments. In the case of each adjustment
or readjustment of the Exercise Price pursuant to this Section 6, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to Holder. The Company will, upon the
written request at any time of Holder, furnish or cause to be furnished to
Holder a certificate setting forth:
(i) Such adjustment and readjustments;
(ii) The Exercise Price at the time in effect; and
(iii) The number of Shares and the amount, if any, of other property
at the time receivable upon the exercise of the Warrant.
f) Notices of Record Date, etc. In the event of:
(i) Any taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividends or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right; or
<PAGE>
(ii) Any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all of the assets of the Company to any other person or any
consolidation, share exchange or merger involving the Company; or
(iii) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the Company will mail to Holder at least 20 days
prior to the earliest date specified herein, a notice specifying:
A. The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
B. The date on which any such reorganization, reclassification,
transfer, consolidation, share exchange, merger, dissolution, liquidation or
winding up is expected to become effective and the record date for determining
stockholders entitled to vote thereon.
7. Call of Warrant. This Warrant may be called and canceled by the
Company at its election at any time following the date upon which (i) a
registration statement covering the Warrants has been declared effective and is
effective and (ii) the closing price of the Common Stock on its principal U.S.
trading market has been at or above $ 8.50 U.S. per share for a period of 20
consecutive trading days (all as determined in good faith by the Company's Board
of Directors) at a price equal to $.0l per share of Common Stock for which this
Warrant shall be exercisable on the Call Date (as defined below). The Company
shall give the holder of this Warrant at least 30 days prior written notice of
any such call of this Warrant, which notice shall certify the foregoing
condition for such call and set forth the date upon which the call shall occur
(the "Call Date"). The holder of this Warrant shall, however, be entitled to
exercise this Warrant, in whole or in part, prior to the Call Date and, in that
event, the Company's right to call this Warrant shall be limited to the extent
to which the Warrant remains unexercised on the Call Date. If, at the Call Date,
the trading price on the principal U.S. trading market is less than $8.50 U.S.
this Warrant may not be called at the Call Date.
8. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of this Warrant, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the exercise of this Warrant, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
exercise of the entire Warrant, in addition to such other remedies as shall be
available to the holder of this Warrant, the Company will use commercially
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
<PAGE>
9. Split-Up, Combination, Exchange and Transfer of Warrants.
Subject to and limited by the provisions of Section 4(a) hereof, this Warrant
may be split up, combined or exchanged for another Warrant or Warrants
containing the same terms and entitling the Holder to purchase a like aggregate
number of Shares. If the Holder desires to split up, combine or exchange this
Warrant, the Holder shall make such request in writing delivered to the Company
and shall surrender to the Company this Warrant and any other Warrants to be so
split up, combined or exchanged. Upon any such surrender for a split-up,
combination or exchange, the Company shall execute and deliver to the person
entitled thereto a Warrant or Warrants, as the case may be, as so requested. The
Company shall not be required to effect any split-14p, combination or exchange
which will result in the issuance of a Wan-ant entitled the Warrantholder to
purchase upon exercise a fraction of a share of Common Stock or a fractional
Warrant. The Company may require such Holder to pay a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
split-up, combination or exchange of Warrants.
10. Successors and Assigns. All the covenants and provisions of
this Warrant shall bind and inure to the benefit of the Company's successors and
assigns, and the heirs, legatees, devisees, executors, administrators, personal
and legal representatives, and successors and permitted assigns of Holder.
11. Governing Law. This Warrant shall be governed by and construed
in accordance with the laws of the State of California. The Buyer hereby
consents to and agrees to submit to jurisdiction solely in Los Angeles,
California, pursuant to arbitration under the rules of the American Arbitration
Association in effect.
JAWS TECHNOLOGIES INC.
/s/Vikki Robinson
By:________________________
Name:Vikki Robinson
Title:Corporate Secretary
Exhibit 4.6
-----------
Investors Receiving Warrants in Form Set Forth in Exhibit 4.5
The following entities received warrants in a private placement of
securities on June 21, 1999, pursuant to warrant certificates substantially to
the form set forth in Exhibit 4.5. The differences between these agreements was
the entity receiving warrants and the amount of warrants received.
Warrant Holder Number of Warrants
-------------- ------------------
Thomas E. Skidmore 57,546
A. Allan Skidmore 57,546
Arthur Skidmore 8,340
Brian Skidmore 6,255
Cary Skidmore 8,340
Garry Skidmore 6,255
Beverly Droulis 417
Margrit Hartman 7,506
Margaret Alexis Kennedy 7,089
Suzanne Lowndes 7,506
913539.1
EXHIBIT 4.7
Form of Warrant Certificate
THE SECURITIES EVIDENCED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL
TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
Void after 2:00 p.m. New York Time, on the earlier of (i) the three-year
anniversary date of the effectiveness of the Registration Statement (as defined
herein), or (ii) December __, 2009 (the "Expiration Date")
Warrant to Purchase Shares of Common Stock
JAWS TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Warrant No. ___ _____________ WARRANTS(1)
This is to Certify That, FOR VALUE RECEIVED,________________ or assigns
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from JAWS TECHNOLOGIES, INC., ("Company"),____________________ of the fully
paid, validly issued and nonassessable shares of common stock, par value $.001
per share, of the Company ("Common Stock") at any time or from time to time
during the period from the date hereof, on or before the earlier of (i) the
three-year anniversary date of the effectiveness of the Registration Statement
(as defined herein), or (ii) December __, 2009 (the "Expiration Date"), but not
later than 2:00 p.m. New York Time, on the applicable Expiration Date ("Exercise
Period"). The price to be paid for each share of Common Stock shall be U.S.$6.50
per share. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as"Warrant
Shares" and the respective exercise price of a share of Common Stock in effect
at any time and as adjusted from time to time is hereinafter sometimes referred
to as the "Exercise Price."
a. Exercise of Warrant. The Holder may exercise this Warrant in whole or
in part, at any time or from time to time on any Business Day on or
prior to the Expiration Date, by
- --------
1 Each Warrant will entitle the holder to acquire 1/2 of a share of Common
Stock.
1
897438.7
<PAGE>
delivering to the Company a duly executed notice (a "Notice of
Exercise") in the form of Annex A hereto, by payment to the Company of
the Exercise Price per Warrant Share in an amount equal to the product
of (i) the Exercise Price times (ii) the number of Warrant Shares as to
which this Warrant is being exercised.
(i) As soon as practicable after the Company shall have received
such Notice of Exercise and any required payment, the Company
shall execute and deliver or cause to be executed and
delivered, in accordance with such Notice of Exercise, to the
Holder at the address set forth in such Notice of Exercise a
certificate or certificates representing the number of shares
of Common Stock specified in such Notice of Exercise. The
Warrant shall be deemed to have been exercised and such share
certificate or certificates shall be deemed to have been
issued, and the Holder shall be deemed for all purposes to
have become a holder of record of shares of Common Stock, as
of the date that such Notice of Exercise and any required
payment shall have been received by the Company.
(ii) The Holder shall surrender this Warrant certificate of the
Company when it delivers the Notice of Exercise, and in the
event of a partial exercise of the Warrant, the Company shall
execute and deliver to the Holder, at the time the Company
delivers the share certificate or certificates issued pursuant
to such Notice of Exercise, a new Warrant certificate for the
unexercised portion of the Warrant, but in all other respect
identical to this Warrant certificate.
(iii) The Company shall not be require to issue fractional shares of
Common Stock upon an exercise of the Warrant. If any fraction
of a share would, but for this restriction, be issuable upon
an exercise of the Warrant, in lieu of delivering such
fractional share, the Company shall pay to the Holder, in
cash, an amount equal to the same fraction times the Current
Market Value (as defined in Sections c.(1), c.(2), and c.(3)
below, as applicable) for the Common Stock immediately prior
to the date of such exercise. The Company shall pay all
expenses, taxes and other charges payable in connection with
the preparation, issuance and delivery of certificates for the
Warrant Shares and any new Warrant certificates.
b. Reservation of Shares. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of
shares of its Common Stock as shall be required for issuance and
delivery upon exercise of the Warrants.
c. Fractional Shares. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant.
With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the Current Market Value of a share, which
shall have the following meaning:
2
897438.7
<PAGE>
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such
exchange or included for quotation on the NASDAQ system, the
Current Market Value shall be the last reported sale price of
the Common Stock on such exchange or automated quotation
system on the last business day prior to the date of exercise
of this Warrant or if no such sale is made (or reported) on
such day, the average closing bid and asked prices for such
day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the Current Market Value shall be the mean
of the last reported bid and asked prices reported by the
Electronic Bulletin Board or National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so
reported, the Current Market Value shall be an amount, not
less than book value thereof as at the end of the most recent
fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner
as may be prescribed by the Board of Directors of the Company
(the "Board").
d. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other warrants of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable
hereunder. Upon surrender of this Warrant to the Company at its
principal office, with the Assignment Form annexed hereto duly executed
and funds sufficient to pay any transfer tax, the Company shall,
without charge, execute and deliver a new Warrant in the name of the
assignee named in such instrument of assignment and this Warrant shall
promptly be canceled. This Warrant may be divided or combined with
other warrants which carry the same rights upon presentation hereof at
the principal office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term"Warrant" as used
herein includes any warrants into which this Warrant may be divided or
exchanged. Upon receipt of the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Warrant,
if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the
Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
e. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are
3
897438.7
<PAGE>
limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein.
f. Anti-Dilution Provisions. The respective Exercise Price in effect at
any time and the number and kind of securities purchasable upon the
exercise of the Warrants shall be subject to adjustment from time to
time upon the happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its
outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify its outstanding shares
of Common Stock into a smaller number of shares, the
respective Exercise Price in effect at the time of the record
date for such dividend or distribution or of the effective
date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined
by multiplying the respective Exercise Price by a fraction,
the denominator of which shall be the number of shares of
Common Stock Outstanding (as defined below) after giving
effect to such action, and the numerator of which shall be the
number of shares of Common Stock Outstanding immediately prior
to such action. Such adjustment shall be made successively
whenever any event listed above shall occur.
(2) In the event that the Company shall distribute to all holders
of shares of Common Stock (including any such distribution
made to the shareholders of the Company in connection with a
consolidation or merger in which the Company is the surviving
or continuing corporation) evidences of its indebtedness, cash
or assets (other than distributions and dividends payable in
Shares of Common Stock), or rights, options or warrants to
subscribe for or purchase shares of Common Stock or securities
convertible or exchangeable into shares of Common Stock, then,
in each case, the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to
the record date for the determination of shareholders entitled
to receive such distribution by a fraction, the numerator of
which shall be the Current Market Value of a share of Common
Stock for the twenty (20) days ending on the seventh trading
day proceeding such distribution on such record date, less the
fair market value (as determined by the Board) of the portion
of the evidences of indebtedness or assets to be distributed,
or of such rights, options or warrants or convertible or
exchangeable securities, or the amount of such cash,
applicable to one share of Common Stock Outstanding on such
record date and the denominator of which shall be such Current
Market Value per share. Such adjustment shall become effective
at the close of business on such record date.
(3) In the event that the Company shall sell or issue at any time
after the date hereof shares of Common Stock (other than the
Excluded Stock, as defined below) at a consideration per share
less than the Current Market Value in effect immediately
4
897438.7
<PAGE>
prior to the time of such sale or issuance, then, upon such
sale or issuance, the Exercise Price shall be reduced to an
adjusted price (calculated to the nearest cent) determined by
dividing (i) the sum of (A) the total number of shares of
Common Stock Outstanding (as defined below) immediately prior
to such sale or issuance multiplied by the then-existing
Exercise Price, plus (B) the aggregate of the amount of all
consideration, if any, received by the Company upon such sale
or issuance, by (ii) the total number of shares of Common
Stock Outstanding immediately after such sale or issuance;
provided, however, that the Exercise Price shall not be
reduced unless the issuance is at a per share price below the
Current Market Value and is also below the greater of (i) the
lesser of (A) US $6.50, and (B) eighty percent (80%) of the
Current Market Value per share of the shares of Common Stock
for the twenty (20) days ending on the seventh trading day
preceding the date of the Company's issuance of such shares of
Common Stock, and (ii) US $4.25; provided, further, however,
that if the Exercise Price is reduced pursuant to the
foregoing provision, it shall be reduced only to the extent of
the difference between the applicable per share amount
calculated pursuant to the preceding clauses (i) and (ii) and
the applicable issuance price per share.
Notwithstanding anything herein to the contrary, the Exercise
Price shall not be adjusted pursuant to Section f(3) by virtue
of the issuance and/or sale of "Excluded Stock" which shall
mean the following: (i) shares of Common Stock, Options (as
defined below), or Convertible Securities (as defined below)
to be issued and/or sold to employees, advisors, directors or
officers of, or consultants to, the Company or any of its
subsidiaries pursuant to a stock grant, stock option plan,
restricted stock agreements, stock purchase plan, pension or
profit sharing plan or other stock agreement or arrangement,
(ii) shares of Common Stock, Options and/or Convertible
Securities to be issued pursuant to Options and/or Convertible
Securities outstanding as of the date of this Warrant, (iii)
shares of Common Stock and/or Options to be issued pursuant to
the placement agency agreement, to be entered into, by and
between the Company and SmallCaps Online LLC or the placement
agency agreement, to be entered into, by and between the
Company and Thomson Kernaghan & Co. Limited, and (iv) shares
of Common Stock, Options or Convertible Securities to be
issued and/or sold in connection with any acquisition by the
Company of any assets or capital stock of any other person or
entity involved in the information security business. For
purposes of this Section f, all shares of Excluded Stock shall
be deemed to have been issued for an amount of consideration
per share equal to the initial Exercise Price (subject to
adjustment in the manner set forth herein.
(4) Whenever the respective Exercise Price payable upon exercise
of each Warrant is adjusted pursuant to Section f(1), f(2) or
f(3) above, the number of Shares purchasable upon exercise of
this Warrant shall be adjusted simultaneously by multiplying
the respective number of Shares issuable upon exercise of this
Warrant
5
897438.7
<PAGE>
immediately prior thereto by the respective Exercise Price in
effect on the date hereof and dividing the product so obtained
by the respective Exercise Price, as adjusted.
(5) No adjustment in the respective Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least one cent ($0.01) in such price; provided,
however, that any adjustment which by reason of this Section
f(5) is not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this Section f. shall
be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be. Anything in this Section f. to
the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the
respective Exercise Price, in addition to those required by
this Section f., as it shall determine, in its sole
discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities
convertible into Common Stock (including the Warrants).
(6) In the event that at any time, as a result of an adjustment
made pursuant to Section f(1) to f(3) above, the Holder of
this Warrant thereafter shall become entitled to receive any
shares of the Company, other than Common Stock, thereafter the
number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in Sections f(1) to f(3) inclusive above.
(7) Irrespective of any adjustments in the respective Exercise
Price or the related number or kind of share purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(8) For purposes of Section f(3), the following definitions shall
apply:
(i) "Convertible Securities" shall mean any indebtedness
or equity securities convertible into or exchangeable
for shares of Common Stock.
(ii) "Common Stock Outstanding" shall mean the aggregate
of all shares of Common Stock outstanding and all
shares issuable upon exercise of all outstanding
Options and conversion of all outstanding Convertible
Securities.
6
897438.7
<PAGE>
(iii) "Options" shall mean any rights, warrants or options
to subscribe for or purchase shares of Common Stock
or Convertible Securities.
(9) For purposes of Section f(3), the following provisions shall
also be applicable:
(i) Cash Consideration. In the event of the sale or
issuance (otherwise than conversion or exchange of
Convertible Securities) of additional shares of
Common Stock, Options or Convertible Securities for
cash, the consideration received by the Company
therefor shall be deemed to be the amount of cash
received by the Company for such securities (or, if
such securities are offered by the Company for
subscription, the subscription price, or, if such
securities are sold to underwriters or dealers for
public offering without a subscription offering, the
public offering price), without deducting therefrom
any compensation or discount paid or allowed to
underwriters or dealers or others performing similar
services or for any expenses incurred in connection
therewith.
(ii) Non-Cash Consideration. In the event of the sale or
issuance (otherwise than upon conversion or exchange
of Convertible Securities) of additional shares of
Common Stock, Options or Convertible Securities for
consideration other than cash or consideration a part
of which shall be other than cash, the fair value of
such consideration as determined by the Board in the
good faith exercise of its business judgment,
irrespective of the accounting treatment thereof,
shall be deemed to be the value, for purposes of
Section f(3), of the consideration other than cash
received by the Company for such securities.
(iii) Options and Convertible Securities. In the event the
Company shall in any manner issue or grant any
Options or any Convertible Securities, the total
maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such
Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable
shall (as of the date of issue or grant of such
Options or, in the case of the sale or issue of
Convertible Securities (other that where the same are
issuable upon the exercise of Options), as of the
date of such sale or issue) be deemed to be issued
and to be outstanding for the purpose of Section f(3)
and to have been issued for the sum of the amount (if
any) paid for such Options or Convertible Securities
and the amount (if any) payable upon the exercise of
such Options or upon conversion or exchange of such
Convertible Securities at the time such Convertible
Securities first became convertible or exchangeable;
provided that, subject to the provisions of Section
f(10), no further adjustment of the Exercise Price
shall be made upon the actual
7
897438.7
<PAGE>
issuance of any such Shares or Convertible Securities
or upon the conversion or exchange of any such
Convertible Securities.
(10) In the event that the purchase price provided for in any
Option referred to in Section f(9)(iii) or the rate at which
any Convertible Securities referred to in Section f(9)(iii)
are convertible into or exchangeable for shares of Common
Stock shall change at any time or any additional consideration
shall be payable in connection with the exercise of any Option
or the conversion or exchange of any Convertible Securities
(other than under or by reason of provisions designed to
protect against dilution upon the occurrence of events of the
type described in this Section f), then, for purposes of any
adjustment required by Section f(3), the Exercise Price in
effect at the time of such event shall forthwith be readjusted
to the Exercise Price that would have been in effect at such
time had such Options or Convertible Securities still
outstanding provided for such changed purchase price,
conversion rate or additional consideration, as the case may
be, at the time initially granted, issued or sold; provided,
that if such readjustment is an increase in the Exercise
Price, such readjustment shall not exceed the amount (as
adjusted by Section f(1), f(2) or f(3)) by which the Exercise
Price was decreased pursuant to Section f(3) upon the issuance
of the Option or Convertible Securities.
(11) In the event of the termination or expiration of any right to
purchase shares of Common Stock under any Option granted after
the date of this Warrant or of any right to convert or
exchange Convertible Securities issued after the date of this
Warrant, the Exercise Price shall, upon such termination or
expiration, be readjusted to the Exercise Price that would
have been in effect at the time of such termination or
expiration had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or
termination, never been issued, and the Share issuable
thereunder shall no longer be deemed to be Common Stock
Outstanding; provided, that if such readjustment is an
increase in the Exercise Price, such readjustment shall not
exceed the amount (as adjusted by Section f(1), f(2) or f(3))
by which the Exercise Price was decreased pursuant to Section
f(3) upon the issuance of the Option or Convertible
Securities. The termination or expiration of any right to
purchase shares of Common Stock under any Option granted prior
to the date of this Warrant or of any right to convert or
exchange Convertible Securities issued prior to the date of
this Warrant shall not trigger any adjustment to the Exercise
Price, but the shares of Common Stock issuable under such
Options or Convertible Securities shall no longer be counted
in determining the number of shares of Common Stock
Outstanding on the date of issuance of this Warrant for
purposes of subsequent calculations under Section f(3).
(12) Whenever there shall be adjustment as provided in this Section
f, the Company shall within 30 days thereafter cause written
notice thereof to be sent by registered mail, postage prepaid,
to the Holder, at its address as it shall appear in the
Warrant
8
897438.7
<PAGE>
Register, which notice shall be accompanied by an officer's
certificate setting forth the adjusted number of Warrant
Shares issuable hereunder and the exercise price thereof after
such adjustment and setting forth a brief statement of the
facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of
the correctness of any such adjustment absent manifest error.
g. Officer's Certificate. Whenever the respective Exercise Price shall be
adjusted as required by the provisions of the foregoing Section f, the
Company shall forthwith file in the custody of its Secretary or an
Assistant Secretary at its principal office, an officer's certificate
showing the adjusted respective Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of related additional
shares of Common Stock, if any, and such other facts as shall be
necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at
all reasonable times for inspection by the holder or any holder of a
Warrant executed and delivered pursuant to Section a. and the Company
shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
h. Notices to Warrant Holders. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer
to the holders of Common Stock for subscription or purchase by them any
share of any class or any other rights or (iii) if the capital
reorganization of the Company, reclassification of the capital stock of
the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially
all of the property and assets of the Company to another corporation,
or voluntary or involuntary dissolution, liquidation or winding up of
the Company shall be effected, then in any such case, the Company shall
cause to be mailed by certified mail to the Holder, at least fifteen
days prior the date specified in (x) or (y) below, as the case may be,
a notice containing a brief description of the proposed action and
stating the date on which (x) action is to be taken for the purpose of
such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to
be fixed, as of which the holders of Common Stock or other securities
shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up. The failure to give such notice
shall not otherwise effect the action taken by the Company.
i. Reclassification, Reorganization or Merger. Incase of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company, or in case of any consolidation
or merger of the Company with or into another corporation (other than a
merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or
9
897438.7
<PAGE>
other change of outstanding shares of Common Stock of the class
issuable upon exercise of this Warrant) or in case of any sale, lease
or conveyance to another corporation of the property of the Company as
an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder
shall have the right thereafter by exercising this Warrant at any time
prior to the expiration of the Warrant, to purchase the kind and amount
of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of
this Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Warrant.
The foregoing provisions of this Section i. shall similarly apply to
successive reclassifications, capital reorganizations and changes of
shares of Common Stock and to successive consolidations, mergers, sales
or conveyances. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or
conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for
a security of the Company other than Common Stock, any such issue shall
be treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section f hereof.
j. Call Rights on Warrants. If at any time following the effectiveness of
the registration statement that is filed in connection with the
underlying shares of Common Stock, the last reported sale price per
share of Common Stock exceeds $9.75 for any consecutive thirty day
trading period, then the Company may, at any time upon thirty days'
notice, call and repurchase these Warrants at a call price of $.001 per
Warrant. The Company shall exercise the call right specified herein by
delivery of written notice (the "Call Notice") to the Warrant holders,
specifying the payment date for the purchase thereof by the Company
(which payment date shall not be prior to thirty (30) days from the
date of such notice), and certifying that the conditions precedent to
the call right have been satisfied. Upon receipt of a Call Notice, the
Warrant holder shall be required to surrender to the Company this
Warrant certificate, at the address specified in the Call Notice,
against the Company's payment of the applicable call price, without
interest thereon, by certified check. Upon delivery of the Call Notice
and until so surrendered, this Warrant certificate shall be deemed, for
all corporate purposes, to evidence only the right to receive the
applicable call price, without interest, upon surrender of this Warrant
certificate, and the Warrant holder shall cease to have all rights
associated herewith, except as otherwise set forth in this paragraph j.
k. Registration Rights and Adjustment to Exercise Price. Pursuant to the
terms of the Subscription Agreement, by and between the Company and the
holder of this Warrant, the Company has agreed to file a registration
statement (the "Registration Statement"), to register, among other
things, the Warrant Shares issuable upon exercise of this Warrant. This
10
897438.7
<PAGE>
Warrant shall expire if not exercised on or before the earlier of (i)
the three-year anniversary date of the effectiveness of the
Registration Statement, or (ii) December __, 2009. In the event that
the Company does not have a Registration Statement registering the
Warrant Shares effective within 90 days after the date hereof: (i) if
the Registration Statement covering the Warrant Shares is not declared
effective within 90 days, but prior to 180 days, following the date
hereof, the exercise price of the Warrants shall be reduced by US$0.25
per month, or a pro rated amount thereof for partial months, until a
Registration Statement covering such shares is so declared effective;
(ii) if a Registration Statement covering the Warrant Shares is not
declared effective within 190 days following the date hereof, the
exercise price of the Warrants shall be reduced by US$0.50 per month,
or a pro rated amount thereof for partial months, until a Registration
Statement covering such Warrant Shares is so declared effective.
Notwithstanding anything herein to the contrary, in no event shall the
Exercise Price of the Warrants be reduced to a price lower than US$3.75
per share.
l. Venue. The terms of this Agreement shall be construed in accordance
with the laws of the State of New York. The exclusive venue with
respect to any claims or disputes under this Agreement shall be the
appropriate State or Federal Courts located in New York, New York.
[Signature page follows]
11
897438.7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by the Undersigned, each being duly authorized, as of the date
below.
JAWS TECHNOLOGIES, INC.
By: __________________________________
Its: __________________________________
Dated:
ATTEST:
_____________________________
__________________, Secretary
12
<PAGE>
EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing Shares of Common Stock of Jaws Technologies,
Inc. at $______ per share (an aggregate of $______).
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name: ____________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES, INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH.
Payment of $__________ enclosed
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
13
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________hereby sells,
assigns and transfers unto
Name _______________________________ _______________________
(Please typewrite or print in block letters) Address
Social Security of Federal I.D. Number: _________________________
the right to purchase shares of Common Stock of Jaws Technologies, Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint _______________________________
Attorney, to transfer the same on the books of Jaws Technologies, Inc. with full
power of substitution in the premises.
Date:
Signature ________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
14
Exhibit 4.8
-----------
Subscribers Receiving Warrants in Form Set Forth in Exhibit 4.7
The following subscribers received warrants in a private placement of
securities on December 31, 1999, pursuant to Warrant certificates that were
substantially similar to the form set forth in exhibit 4.7. The sole material
difference between these Warrants was the Warrant holder and the amount of
Warrants purchased.
Name Number of Warrants
---- ------------------
BPI Canadian Small Companies Fund...................... 117,647.5
956872 Ontario Ltd..................................... 18,000
Interward Capital Corporation.......................... 20,000
Rockhaven Holdings Ltd................................. 10,000
YMG Capital Management Inc............................. 23,529
Acuity Investment Management Inc....................... 235,295
Beluga NV.............................................. 117,647.5
Pinetree Capital Corp.................................. 20,000
Fallingbrook Investments Ltd........................... 17,647.5
Glentel Inc............................................ 934,000
Scott Leckie........................................... 12,500
Frank Fini............................................. 12,500
Crothers Leasing Limited............................... 12,500
Moise Afriat........................................... 12,500
Lionel K. Conacher..................................... 12,500
Kehler International Equities (1990) Inc............... 11,765
Jean Gevaert........................................... 23,530
Ron Kaulbach........................................... 12,500
Andrew Parsons......................................... 12,500
Eldon Guay............................................. 12,500
David J. Grand......................................... 18,000
Murdoch & Co........................................... 137,500
Robert F. Wilson....................................... 117,647.5
Thomson Kernaghan & Co. Limited........................ 217,642
913564.1
EXHIBIT 4.9
Placement Agent Warrant Certificate
-----------------------------------
THE SECURITIES EVIDENCED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"),
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (III) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL
TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
Void after 2:00 p.m. New York Time, on the earlier of (i) the three-year
anniversary date of the effectiveness of the Registration Statement (as defined
herein), or (ii) December 31, 2009 (the "Expiration Date")
Warrant to Purchase Shares of Common Stock
JAWS TECHNOLOGIES, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Warrant No. 1A 217,642 WARRANTS
This is to Certify That, FOR VALUE RECEIVED, Thompson Kernaghan & Co.
Limited or assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Warrant, from JAWS TECHNOLOGIES, INC., ("Company"), 217,642
of the fully paid, validly issued and nonassessable shares of common stock, par
value $.001 per share, of the Company ("Common Stock") at any time or from time
to time during the period from the date hereof, on or before the earlier of (i)
the three-year anniversary date of the effectiveness of the Registration
Statement (as defined herein), or (ii) December 31, 2009 (the "Expiration
Date"), but not later than 2:00 p.m. New York Time, on the applicable Expiration
Date ("Exercise Period"). The price to be paid for each share of Common Stock
shall be U.S.$4.25 per share (the "Exercise Price"). The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the respective
exercise price of a share of Common Stock in effect at any time and as adjusted
from time to time is hereinafter sometimes referred to as the "Exercise Price."
a. Exercise of Warrant. The Holder may exercise this Warrant in whole or in
part, at any time or from time to time on any Business Day on or prior to
the Expiration Date, by delivering to the Company a duly executed notice
(a "Notice of Exercise") in the form of Annex A hereto, by payment to the
Company of the Exercise Price per Warrant Share in
903053.4
1
<PAGE>
an amount equal to the product of (i) the Exercise Price times (ii) the
number of Warrant Shares as to which this Warrant is being exercised.
(i) As soon as practicable after the Company shall have received such
Notice of Exercise and any required payment, the Company shall
execute and deliver or cause to be executed and delivered, in
accordance with such Notice of Exercise, to the Holder at the
address set forth in such Notice of Exercise a certificate or
certificates representing the number of shares of Common Stock
specified in such Notice of Exercise. The Warrant shall be deemed to
have been exercised and such share certificate or certificates shall
be deemed to have been issued, and the Holder shall be deemed for
all purposes to have become a holder of record of shares of Common
Stock, as of the date that such Notice of Exercise and any required
payment shall have been received by the Company.
(ii) The Holder shall surrender this Warrant certificate of the Company
when it delivers the Notice of Exercise, and in the event of a
partial exercise of the Warrant, the Company shall execute and
deliver to the Holder, at the time the Company delivers the share
certificate or certificates issued pursuant to such Notice of
Exercise, a new Warrant certificate for the unexercised portion of
the Warrant, but in all other respect identical to this Warrant
certificate.
(iii) The Company shall not be require to issue fractional shares of
Common Stock upon an exercise of the Warrant. If any fraction of a
share would, but for this restriction, be issuable upon an exercise
of the Warrant, in lieu of delivering such fractional share, the
Company shall pay to the Holder, in cash, an amount equal to the
same fraction times the Current Market Value (as defined in Sections
c.(1), c.(2), and c.(3) below, as applicable) for the Common Stock
immediately prior to the date of such exercise. The Company shall
pay all expenses, taxes and other charges payable in connection with
the preparation, issuance and delivery of certificates for the
Warrant Shares and any new Warrant certificates.
b. Reservation of Shares. The Company shall at all times reserve for issuance
and/or delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issuance and delivery upon exercise
of the Warrants.
c. Fractional Shares. No fractional shares or script representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to
any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction
multiplied by the Current Market Value of a share, which shall have the
following meaning:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or included
for quotation on the
903053.4
2
<PAGE>
NASDAQ system, the Current Market Value shall be the last reported
sale price of the Common Stock on such exchange or automated
quotation system on the last business day prior to the date of
exercise of this Warrant or if no such sale is made (or reported) on
such day, the average closing bid and asked prices for such day on
such exchange or system; or
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the Current Market Value shall be the mean of the last
reported bid and asked prices reported by the Electronic Bulletin
Board or National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the Current
Market Value shall be an amount, not less than book value thereof as
at the end of the most recent fiscal year of the Company ending
prior to the date of the exercise of the Warrant, determined in such
reasonable manner as may be prescribed by the Board of Directors of
the Company (the "Board").
d. Exchange, Transfer, Assignment or Loss of Warrant. This Warrant is
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company for other warrants
of different denominations entitling the holder thereof to purchase
in the aggregate the same number of shares of Common Stock
purchasable hereunder. Upon surrender of this Warrant to the Company
at its principal office, with the Assignment Form annexed hereto
duly executed and funds sufficient to pay any transfer tax, the
Company shall, without charge, execute and deliver a new Warrant in
the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided
or combined with other warrants which carry the same rights upon
presentation hereof at the principal office of the Company, together
with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof.
The term"Warrant" as used herein includes any warrants into which
this Warrant may be divided or exchanged. Upon receipt of the
Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated,
the Company will execute and deliver a new Warrant of like tenor and
date. Any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
e. Rights of the Holder. The Holder shall not, by virtue hereof, be entitled
to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant
and are not enforceable against the Company except to the extent set forth
herein.
903053.4
3
<PAGE>
f. Anti-Dilution Provisions. The respective Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise
of the Warrants shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller
number of shares, the respective Exercise Price in effect at the
time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification
shall be adjusted so that it shall equal the price determined by
multiplying the respective Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock
Outstanding (as defined below) after giving effect to such action,
and the numerator of which shall be the number of shares of Common
Stock Outstanding immediately prior to such action. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(2) In the event that the Company shall distribute to all holders of
shares of Common Stock (including any such distribution made to the
shareholders of the Company in connection with a consolidation or
merger in which the Company is the surviving or continuing
corporation) evidences of its indebtedness, cash or assets (other
than distributions and dividends payable in Shares of Common Stock),
or rights, options or warrants to subscribe for or purchase shares
of Common Stock or securities convertible or exchangeable into
shares of Common Stock, then, in each case, the Exercise Price shall
be adjusted by multiplying the Exercise Price in effect immediately
prior to the record date for the determination of shareholders
entitled to receive such distribution by a fraction, the numerator
of which shall be the Current Market Value of a share of Common
Stock for the twenty (20) days ending on the seventh trading day
proceeding such distribution on such record date, less the fair
market value (as determined by the Board) of the portion of the
evidences of indebtedness or assets to be distributed, or of such
rights, options or warrants or convertible or exchangeable
securities, or the amount of such cash, applicable to one share of
Common Stock Outstanding on such record date and the denominator of
which shall be such Current Market Value per share. Such adjustment
shall become effective at the close of business on such record date.
(3) In the event that the Company shall sell or issue at any time after
the date hereof shares of Common Stock (other than the Excluded
Stock, as defined below) at a consideration per share less than the
Current Market Value in effect immediately prior to the time of such
sale or issuance, then, upon such sale or issuance, the Exercise
Price shall be reduced to an adjusted price (calculated to the
nearest cent)
903053.4
4
<PAGE>
determined by dividing (i) the sum of (A) the total number of shares
of Common Stock Outstanding (as defined below) immediately prior to
such sale or issuance multiplied by the then-existing Exercise
Price, plus (B) the aggregate of the amount of all consideration, if
any, received by the Company upon such sale or issuance, by (ii) the
total number of shares of Common Stock Outstanding immediately after
such sale or issuance; provided, however, that the Exercise Price
shall not be reduced unless the issuance is at a per share price
below the Current Market Value and is also below the greater of (i)
the lesser of (A) US $6.50, and (B) eighty percent (80%) of the
Current Market Value per share of the shares of Common Stock for the
twenty (20) days ending on the seventh trading day preceding the
date of the Company's issuance of such shares of Common Stock, and
(ii) US $4.25; provided, further, however, that if the Exercise
Price is reduced pursuant to the foregoing provision, it shall be
reduced only to the extent of the difference between the applicable
per share amount calculated pursuant to the preceding clauses (i)
and (ii) and the applicable issuance price per share.
Notwithstanding anything herein to the contrary, the Exercise Price
shall not be adjusted pursuant to Section f(3) by virtue of the
issuance and/or sale of "Excluded Stock" which shall mean the
following: (i) shares of Common Stock, Options (as defined below),
or Convertible Securities (as defined below) to be issued and/or
sold to employees, advisors, directors or officers of, or
consultants to, the Company or any of its subsidiaries pursuant to a
stock grant, stock option plan, restricted stock agreements, stock
purchase plan, pension or profit sharing plan or other stock
agreement or arrangement, (ii) shares of Common Stock, Options
and/or Convertible Securities to be issued pursuant to Options
and/or Convertible Securities outstanding as of the date of this
Warrant, (iii) shares of Common Stock and/or Options to be issued
pursuant to the placement agency agreement, to be entered into, by
and between the Company and SmallCaps Online LLC or the placement
agency agreement, to be entered into, by and between the Company and
Thomson Kernaghan & Co. Limited, and (iv) shares of Common Stock,
Options or Convertible Securities to be issued and/or sold in
connection with any acquisition by the Company of any assets or
capital stock of any other person or entity involved in the
information security business. For purposes of this Section f, all
shares of Excluded Stock shall be deemed to have been issued for an
amount of consideration per share equal to the initial Exercise
Price (subject to adjustment in the manner set forth herein.
(4) Whenever the respective Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Section f(1), f(2) or f(3) above,
the number of Shares purchasable upon exercise of this Warrant shall
be adjusted simultaneously by multiplying the respective number of
Shares issuable upon exercise of this Warrant immediately prior
thereto by the respective Exercise Price in effect on the date
903053.4
5
<PAGE>
hereof and dividing the product so obtained by the respective
Exercise Price, as adjusted.
(5) No adjustment in the respective Exercise Price shall be required
unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such price; provided, however, that any
adjustment which by reason of this Section f(5) is not required to
be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All
calculations under this Section f. shall be made to the nearest cent
or to the nearest one-hundredth of a share, as the case may be.
Anything in this Section f. to the contrary notwithstanding, the
Company shall be entitled, but shall not be required, to make such
changes in the respective Exercise Price, in addition to those
required by this Section f., as it shall determine, in its sole
discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by
the Company shall not result in any Federal Income tax liability to
the holders of Common Stock or securities convertible into Common
Stock (including the Warrants).
(6) In the event that at any time, as a result of an adjustment made
pursuant to Section f(1) to f(3) above, the Holder of this Warrant
thereafter shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
the Common Stock contained in Sections f(1) to f(3) inclusive above.
(7) Irrespective of any adjustments in the respective Exercise Price or
the related number or kind of share purchasable upon exercise of
this Warrant, Warrants theretofore or thereafter issued may continue
to express the same price and number and kind of shares as are
stated in the similar Warrants initially issuable pursuant to this
Agreement.
(8) For purposes of Section f(3), the following definitions shall apply:
(i) "Convertible Securities" shall mean any indebtedness or equity
securities convertible into or exchangeable for shares of
Common Stock.
(ii) "Common Stock Outstanding" shall mean the aggregate of all
shares of Common Stock outstanding and all shares issuable
upon exercise of all outstanding Options and conversion of all
outstanding Convertible Securities.
903053.4
6
<PAGE>
(iii) "Options" shall mean any rights, warrants or options to
subscribe for or purchase shares of Common Stock or
Convertible Securities.
(9) For purposes of Section f(3), the following provisions shall also be
applicable:
(i) Cash Consideration. In the event of the sale or issuance
(otherwise than conversion or exchange of Convertible
Securities) of additional shares of Common Stock, Options or
Convertible Securities for cash, the consideration received by
the Company therefor shall be deemed to be the amount of cash
received by the Company for such securities (or, if such
securities are offered by the Company for subscription, the
subscription price, or, if such securities are sold to
underwriters or dealers for public offering without a
subscription offering, the public offering price), without
deducting therefrom any compensation or discount paid or
allowed to underwriters or dealers or others performing
similar services or for any expenses incurred in connection
therewith.
(ii) Non-Cash Consideration. In the event of the sale or issuance
(otherwise than upon conversion or exchange of Convertible
Securities) of additional shares of Common Stock, Options or
Convertible Securities for consideration other than cash or
consideration a part of which shall be other than cash, the
fair value of such consideration as determined by the Board in
the good faith exercise of its business judgment, irrespective
of the accounting treatment thereof, shall be deemed to be the
value, for purposes of Section f(3), of the consideration
other than cash received by the Company for such securities.
(iii) Options and Convertible Securities. In the event the Company
shall in any manner issue or grant any Options or any
Convertible Securities, the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of
such Convertible Securities at the time such Convertible
Securities first become convertible or exchangeable shall (as
of the date of issue or grant of such Options or, in the case
of the sale or issue of Convertible Securities (other that
where the same are issuable upon the exercise of Options), as
of the date of such sale or issue) be deemed to be issued and
to be outstanding for the purpose of Section f(3) and to have
been issued for the sum of the amount (if any) paid for such
Options or Convertible Securities and the amount (if any)
payable upon the exercise of such Options or upon conversion
or exchange of such Convertible Securities at the time such
Convertible Securities first became convertible or
exchangeable; provided that, subject to the provisions of
Section f(10), no further adjustment of the Exercise Price
shall be made upon the actual
903053.4
7
<PAGE>
issuance of any such Shares or Convertible Securities or upon
the conversion or exchange of any such Convertible Securities.
(10) In the event that the purchase price provided for in any Option
referred to in Section f(9)(iii) or the rate at which any
Convertible Securities referred to in Section f(9)(iii) are
convertible into or exchangeable for shares of Common Stock shall
change at any time or any additional consideration shall be payable
in connection with the exercise of any Option or the conversion or
exchange of any Convertible Securities (other than under or by
reason of provisions designed to protect against dilution upon the
occurrence of events of the type described in this Section f), then,
for purposes of any adjustment required by Section f(3), the
Exercise Price in effect at the time of such event shall forthwith
be readjusted to the Exercise Price that would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, conversion
rate or additional consideration, as the case may be, at the time
initially granted, issued or sold; provided, that if such
readjustment is an increase in the Exercise Price, such readjustment
shall not exceed the amount (as adjusted by Section f(1), f(2) or
f(3)) by which the Exercise Price was decreased pursuant to Section
f(3) upon the issuance of the Option or Convertible Securities.
(11) In the event of the termination or expiration of any right to
purchase shares of Common Stock under any Option granted after the
date of this Warrant or of any right to convert or exchange
Convertible Securities issued after the date of this Warrant, the
Exercise Price shall, upon such termination or expiration, be
readjusted to the Exercise Price that would have been in effect at
the time of such termination or expiration had such Option or
Convertible Securities, to the extent outstanding immediately prior
to such expiration or termination, never been issued, and the Share
issuable thereunder shall no longer be deemed to be Common Stock
Outstanding; provided, that if such readjustment is an increase in
the Exercise Price, such readjustment shall not exceed the amount
(as adjusted by Section f(1), f(2) or f(3)) by which the Exercise
Price was decreased pursuant to Section f(3) upon the issuance of
the Option or Convertible Securities. The termination or expiration
of any right to purchase shares of Common Stock under any Option
granted prior to the date of this Warrant or of any right to convert
or exchange Convertible Securities issued prior to the date of this
Warrant shall not trigger any adjustment to the Exercise Price, but
the shares of Common Stock issuable under such Options or
Convertible Securities shall no longer be counted in determining the
number of shares of Common Stock Outstanding on the date of issuance
of this Warrant for purposes of subsequent calculations under
Section f(3).
(12) Whenever there shall be adjustment as provided in this Section f,
the Company shall within 30 days thereafter cause written notice
thereof to be sent by registered mail, postage prepaid, to the
Holder, at its address as it shall appear in the Warrant
903053.4
8
<PAGE>
Register, which notice shall be accompanied by an officer's
certificate setting forth the adjusted number of Warrant Shares
issuable hereunder and the exercise price thereof after such
adjustment and setting forth a brief statement of the facts
requiring such adjustment and the computation thereof, which
officer's certificate shall be conclusive evidence of the
correctness of any such adjustment absent manifest error.
g. Officer's Certificate. Whenever the respective Exercise Price shall be
adjusted as required by the provisions of the foregoing Section f, the
Company shall forthwith file in the custody of its Secretary or an
Assistant Secretary at its principal office, an officer's certificate
showing the adjusted respective Exercise Price determined as herein
provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of related additional
shares of Common Stock, if any, and such other facts as shall be necessary
to show the reason for and the manner of computing such adjustment. Each
such officer's certificate shall be made available at all reasonable times
for inspection by the holder or any holder of a Warrant executed and
delivered pursuant to Section a. and the Company shall, forthwith after
each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
h. Notices to Warrant Holders. So long as this Warrant shall be outstanding,
(i) if the Company shall pay any dividend or make any distribution upon
the Common Stock or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class
or any other rights or (iii) if the capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or
transfer of all or substantially all of the property and assets of the
Company to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then in any
such case, the Company shall cause to be mailed by certified mail to the
Holder, at least fifteen days prior the date specified in (x) or (y)
below, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) action is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the
date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon
such reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up. The failure to give such notice
shall not otherwise effect the action taken by the Company.
i. Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock of the Company, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or
903053.4
9
<PAGE>
other change of outstanding shares of Common Stock of the class issuable
upon exercise of this Warrant) or in case of any sale, lease or conveyance
to another corporation of the property of the Company as an entirety, the
Company shall, as a condition precedent to such transaction, cause
effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration
of the Warrant, to purchase the kind and amount of shares of stock and
other securities and property receivable upon such reclassification,
capital reorganization and other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for
in this Warrant. The foregoing provisions of this Section i. shall
similarly apply to successive reclassifications, capital reorganizations
and changes of shares of Common Stock and to successive consolidations,
mergers, sales or conveyances. In the event that in connection with any
such capital reorganization or reclassification, consolidation, merger,
sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for a
security of the Company other than Common Stock, any such issue shall be
treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section f hereof.
j. Call Rights on Warrants. If at any time following the effectiveness of the
registration statement that is filed in connection with the underlying
shares of Common Stock, the last reported sale price per share of Common
Stock exceeds $9.75 for any consecutive thirty day trading period, then
the Company may, at any time upon thirty days notice, call and repurchase
these Warrants at a call price of $.001 per Warrant. The Company shall
exercise the call right specified herein by delivery of written notice
(the "Call Notice") to the Warrant holders, specifying the payment date
for the purchase thereof by the Company (which payment date shall not be
prior to thirty (30) days from the date of such notice), and certifying
that the conditions precedent to the call right have been satisfied. Upon
receipt of a Call Notice, the Warrant holder shall be required to
surrender to the Company this Warrant certificate, at the address
specified in the Call Notice, against the Company's payment of the
applicable call price, without interest thereon, by certified check. Upon
delivery of the Call Notice and until so surrendered, this Warrant
certificate shall be deemed, for all corporate purposes, to evidence only
the right to receive the applicable call price, without interest, upon
surrender of this Warrant certificate, and the Warrant holder shall cease
to have all rights associated herewith, except as otherwise set forth in
this paragraph j.
k. Registration Rights and Adjustment to Exercise Price. Pursuant to the
terms of the Subscription Agreement, by and between the Company and the
holder of this Warrant, the Company has agreed to file a registration
statement (the "Registration Statement"), to register, among other things,
the Warrant Shares issuable upon exercise of this Warrant.
903053.4
10
<PAGE>
This Warrant shall expire if not exercised on or before the earlier of (i)
the three-year anniversary date of the effectiveness of the Registration
Agreement, or (ii)December 31, 2009.
l. Venue. The terms of this Agreement shall be construed in accordance with
the laws of the State of New York. The exclusive venue with respect to any
claims or disputes under this Agreement shall be the appropriate State or
Federal Courts located in New York, New York.
[Signature page follows]
903053.4
11
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by the Undersigned, each being duly authorized, as of the date below.
JAWS TECHNOLOGIES, INC.
By:__________________________________
Its: __________________________________
Dated:
ATTEST:
____________________________
__________________, Secretary
12
<PAGE>
EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing Shares of Common Stock of Jaws Technologies, Inc. at
$______ per share (an aggregate of $______).
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name: __________________________________________________
(Please typewrite or print in block letters)
Address ____________________________________________________
Social Security of Federal I.D. Number: __________________________
THE UNDERSIGNED REPRESENTS AND WARRANTS TO JAWS TECHNOLOGIES, INC. THAT THE
CONDITIONS FOR EXERCISE OF THE WITHIN WARRANT SET FORTH IN THE FIRST SENTENCE OF
THE FIRST PARAGRAPH ABOVE HAVE BEEN FULLY COMPLIED WITH.
Payment of $__________ enclosed
Signature _____________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
13
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, __________________________________________hereby sells,
assigns and transfers unto
Name ___________________________________________ _______________________
(Please typewrite or print in block letters) Address
Social Security of Federal I.D. Number: _________________________
the right to purchase shares of Common Stock of Jaws Technologies, Inc.
represented by this Warrant as to which such right is exercisable and does
hereby irrevocably constitute and appoint ________________________________
Attorney, to transfer the same on the books of Jaws Technologies, Inc. with full
power of substitution in the premises.
Date:
Signature ________________________________________
(Sign exactly as your name appears on the first page of this Warrant)
14
EXHIBIT 4.10
CERTIFICATE OF THE DESIGNATION, VOTING POWER,
PREFERENCE AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS OF THE SPECIAL SERIES A PREFERRED VOTING STOCK OF
JAWS TECHNOLOGIES, INC.
The undersigned hereby certify that they are the duly elected and
acting President and Secretary of JAWS TECHNOLOGIES, INC., a Nevada corporation
(the "Corporation"), and pursuant to Nev. Rev. Stat. Section 78.1955, DO HEREBY
CERTIFY:
WHEREAS, pursuant to authority conferred upon the Board of
Directors by ARTICLE VI of the Articles of Incorporation (the "Articles"), the
Board of Directors of the Corporation by unanimous written consent dated
November 30, 1999 adopted the following resolution creating one series of
Preferred Stock designated as "Special Series A Preferred Voting Stock" of the
Corporation;
RESOLVED, that pursuant to the authority expressly vested in the
Board of Directors of the Corporation in accordance with the provisions of the
Articles, one series of Preferred Stock of the Corporation, par value $0.001, be
and it is hereby, created and that the designation and amount thereof and the
voting powers, preferences, and relative rights of the shares of such series,
and the limitations and restrictions thereof, are as follows:
Section 1. Designation and Amount. A series of Preferred Stock,
consisting of one share of such stock, is hereby designated as "Special Series A
Preferred Voting Stock." The outstanding share of Special Series A Preferred
Voting Stock shall be entitled at any relevant date to the number of votes
(including for purposes of determining the presence of a quorum) determined in
accordance with the terms and conditions of each of the following:
(a) the rights, privileges, restrictions and conditions attached to
the Exchangeable Shares in the capital of Jaws Acquisition Corp.
("JAC"), a corporation incorporated under the laws of the
Province of Alberta;
(b) the Support Agreement dated effective November 30, 1999 between
the Corporation and JAC; and
(c) the Voting and Exchange Trust Agreement dated effective November
30, 1999 among the Corporation, JAC and the Montreal Trust
Company of Canada;
on all matters presented to the holders of Common Stock of the Corporation, with
the Special Series A Preferred Voting Stock and Common Stock voting together as
a single class. The Special Series A Preferred Voting Stock shall have no other
voting rights except as required by law. No dividend shall be paid to the holder
of Special Series A Preferred Voting Stock. The share of Special Series A
Preferred Voting Stock shall be entitled to $0.001 on liquidation of the
Corporation in preference to any shares of Common Stock of the Corporation, but
only after the liquidation preference of any other shares of Preferred Stock of
the Corporation has been paid in
922525.1
<PAGE>
-2-
full. The Special Series A Preferred Voting Stock is not convertible into any
other class or series of the capital stock of the Corporation or into cash,
property or other rights, and may not be redeemed, except pursuant to the last
sentence of this Section 1. The share of Special Series A Preferred Voting Stock
purchased or otherwise acquired by the Corporation shall be deemed retired and
shall be canceled and may not thereafter be reissued or otherwise disposed of by
the Corporation. So long as any Exchangeable Shares in the capital of JAC shall
be outstanding, the number of shares comprising the Special Series A Preferred
Voting Stock shall not be increased or decreased and no other term of the
Special Series A Preferred Voting Stock shall be amended, except upon the
approval of the holder of the outstanding share of Special Series A Preferred
Voting Stock. At such time as no Exchangeable Shares in the capital of JAC shall
be outstanding, the Special Series A Preferred Voting Stock shall automatically
be redeemed, with the $0.001 liquidation preference due and payable upon such
redemption.
Section 2. Restriction. So long as the share of Special Series A
Preferred Voting Stock is outstanding, the Corporation shall (a) fully comply
with all terms of the Exchangeable Shares in the capital of JAC and with all
contractual obligations of the Corporation associated with such Exchangeable
Shares and (b) not amend, alter, change or repeal this Section 2 except upon the
written approval of the holder of the outstanding share of Special Series A
Preferred Voting Stock.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Designation to be duly executed in its corporate name on this 30th day of
November, 1999.
JAWS TECHNOLOGIES, INC.
By: /s/ Robert J. Kubbernus
----------------------------
Robert J. Kubbernus
President
By: /s/Vikki Robinson
----------------------------
Vikki Robinson
Secretary
This instrument was acknowledged before me on November 30, 1999 by
Robert J. Kubbernus, as President of JAWS TECHNOLOGIES, INC., and by Vikki
Robinson as Secretary of JAWS TECHNOLOGIES, INC.
Seal /s/ Debbie E. Bryden
--------------------------------
A Notary Public in and for DEBBIE E.
BRYDEN
the Province of Alberta
922525.1
<PAGE>
EXHIBIT 4.11
JAWS TECHNOLOGIES, INC.
STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purpose.............................................................................1
2. Incentive and Non-Qualified Stock Options...........................................1
3. Definitions.........................................................................1
3.1 Board......................................................................1
3.2 Code.......................................................................1
3.3 Common Stock...............................................................1
3.4 Company....................................................................1
3.5 Disabled or Disability.....................................................1
3.6 Fair Market Value..........................................................1
3.7 Incentive Stock Option.....................................................2
3.8 Non-Qualified Stock Option.................................................2
3.9 Optionee...................................................................2
3.10 Plan.......................................................................2
3.11 Plan Administrator.........................................................2
3.12 Stock Option or Option.....................................................2
4. Administration......................................................................2
4.1 Administration by Board....................................................2
4.2 Administration by Committee................................................3
5. Eligibility.........................................................................3
6. Shares Subject to Options...........................................................3
7. Terms and Conditions of Options.....................................................4
7.1 Number of Shares Subject to Option.........................................4
7.2 Option Price...............................................................4
7.3 Notice and Payment.........................................................4
7.4 Term of Option.............................................................5
7.5 Exercise of Option.........................................................5
7.6 No Transfer of Option......................................................5
7.7 Limit on Incentive Stock Options...........................................6
7.8 Restriction on Issuance of Shares..........................................6
7.9 Investment Representation..................................................6
7.10 Rights as a Shareholder or Employee........................................6
7.11 No Fractional Shares.......................................................7
7.12 Exercisability in the Event of Death.......................................7
7.13 Recapitalization or Reorganization of Company..............................7
</TABLE>
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<TABLE>
<S> <C> <C>
7.14 Modification, Extension, and Renewal of Options............................8
7.15 Other Provisions...........................................................8
8. Termination or Amendment of the Plan................................................8
9. Indemnification.....................................................................8
10. Effective Date and Term of Plan.....................................................8
</TABLE>
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<PAGE> 4
JAWS TECHNOLOGIES, INC.
STOCK OPTION PLAN
1. PURPOSE. The purpose of this JAWS Technologies, Inc. Stock Option
Plan ("Plan") is to further the growth and development of JAWS Technologies,
Inc. (the "Company") by providing, through ownership of stock of the Company, an
incentive to officers, other key employees and directors who are in a position
to contribute materially to the prosperity of the Company, to increase such
persons' interests in the Company's welfare, to encourage them to continue their
services to the Company or its subsidiaries, and to attract individuals of
outstanding ability to enter the employment of the Company or its subsidiaries,
to remain or become directors of the Company and to provide valuable services to
the Company or its subsidiaries.
2. INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. Two types of Stock Options
(referred to herein as "Options" without distinction between such two types) may
be granted under the Plan: Options intended to qualify as Incentive Stock
Options under Section 422 of the Code and Non-Qualified Stock Options not
specifically authorized or qualified for favorable income tax treatment by the
Code.
3. DEFINITIONS. The following definitions are applicable to the Plan:
3.1 BOARD. The Board of Directors of the Company.
3.2 CODE. The Internal Revenue Code of 1986, as amended from time to
time.
3.3 COMMON STOCK. The shares of the $.01 par value per share common
stock of the Company.
3.4 COMPANY. JAWS Technologies, Inc., a Delaware corporation.
3.5 DISABLED OR DISABILITY. For the purposes of Section 7.4, a
disability of the type defined in Section 22(e)(3) of the Code. The
determination of whether an individual is Disabled or has a Disability is
determined under procedures established by the Plan Administrator for purposes
of the Plan.
3.6 FAIR MARKET VALUE. For purposes of the Plan, the "fair market
value" per share of Common Stock of the Company at any date shall be (a) if the
Common Stock is listed on an established stock exchange or exchanges or the
NASDAQ National Market System, the closing price per share on the last trading
day immediately preceding such date on the principal exchange on which it is
traded or as reported by NASDAQ, or (b) if the Common Stock is not then listed
on an exchange or the NASDAQ National Market System, the closing price per share
on the last trading day immediately preceding such date reported by
<PAGE> 5
NASDAQ, or if sales are not reported by NASDAQ, the average of the closing bid
and asked prices per share for the Common Stock in the over-the-counter market
as quoted on NASDAQ on the last trading day immediately preceding such date, or
(c) if the Common Stock is not then listed on an exchange, the NASDAQ National
Market System or quoted on NASDAQ, an amount determined in good faith by the
Plan Administrator.
3.7 INCENTIVE STOCK OPTION. Any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
3.8 NON-QUALIFIED STOCK OPTION. Any Stock Option that is not an
Incentive Stock Option.
3.9 OPTIONEE. The recipient of a Stock Option.
3.10 PLAN. The JAWS Technologies, Inc. Stock Option Plan, as amended
from time to time.
3.11 PLAN ADMINISTRATOR. The Board or the Compensation Committee
designated pursuant to Section 4.2 hereof to administer, construe and interpret
the terms of the Plan.
3.12 STOCK OPTION OR OPTION. Any option to purchase shares of Common
Stock granted pursuant to Section 7 hereof.
4. ADMINISTRATION.
4.1 ADMINISTRATION BY BOARD. Subject to Section 4.2 hereof, the Plan
Administrator shall be the Board of Directors of the Company (the "Board")
during such periods of time as all members of the Board are "outside directors"
as defined in Treas. Regs. '1.162-27(e)(3) ("outside directors"). Anything to
the contrary notwithstanding, the requirement that all members of the Board be
outside directors shall not apply for any period of time during which the
Company's Common Stock is not registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended. Subject to the provisions of the
Plan, the Plan Administrator shall have authority to construe and interpret the
Plan, to promulgate, amend, and rescind rules and regulations relating to its
administration, from time to time to select from among the eligible employees
and directors (as determined pursuant to Section 5) of the Company and its
subsidiaries those employees and directors to whom Stock Options will be
granted, to determine the timing and manner of the grant of the Options, to
determine the exercise price, the number of shares covered by and all of the
terms of the Stock Options, to determine the duration and purpose of leaves of
absence which may be granted to Stock Option holders without constituting
termination of their employment for purposes of the Plan, and to make all of the
determinations necessary or advisable for administration of the Plan. The
interpretation and construction by the Plan Administrator of any provision of
the Plan, or of any agreement issued and executed under the Plan, shall be final
and binding upon all
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<PAGE> 6
parties. No member of the Board shall be liable for any action or determination
undertaken or made in good faith with respect to the Plan or any agreement
executed pursuant to the Plan.
4.2 ADMINISTRATION BY COMMITTEE. The Board may, in its sole
discretion, delegate any or all of its duties as Plan Administrator and, subject
to the provisions of Section 4.1 of the Plan, at any time the Board includes any
person who is not an outside director, the Board shall delegate all of its
duties as Plan Administrator during such period of time to a compensation
committee (the "Committee") of not fewer than two (2) members of the Board, all
of the members of which Committee shall be persons who, in the opinion of
counsel to the Company, are outside directors and "non-employee directors"
within the meaning of Rule 16b-3(b)(3)(i) promulgated by the Securities and
Exchange Commission, to be appointed by and serve at the pleasure of the Board.
Anything to the contrary notwithstanding, the requirement that all members of
the Committee be non-employee directors and outside directors shall not apply
for any period of time during which the Company's Common Stock is not registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. Those
provisions of the Plan that make express reference to Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, shall apply only to reporting
persons. From time to time, the Board may increase or decrease (to not less than
two members) the size of the Committee, and add additional members to, or remove
members from, the Committee. The Committee shall act pursuant to a majority
vote, or the written consent of a majority of its members, and minutes shall be
kept of all of its meetings and copies thereof shall be provided to the Board.
Subject to the provisions of the Plan and the directions of the Board, the
Committee may establish and follow such rules and regulations for the conduct of
its business as it may deem advisable. No member of the Committee shall be
liable for any action or determination undertaken or made in good faith with
respect to the Plan or any agreement executed pursuant to the Plan.
5. ELIGIBILITY. Any employee or director (including any officer or
director who is an employee) of the Company or any of its subsidiaries shall be
eligible to receive Options under the Plan; provided, however, that no person
who owns stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or any of its parent or subsidiary
corporations shall be eligible to receive an Incentive Stock Option under the
Plan unless at the time such Incentive Stock Option is granted the Option price
(determined in the manner provided in Section 7.2 hereof) is at least 110% of
the Fair Market Value of the shares subject to the Option and such Option by its
terms is not exercisable after the expiration of five years from the date such
Option is granted. An Optionee may receive more than one Option under the Plan.
However, non-employee directors are not eligible to receive an Incentive Stock
Option under the Plan.
6. SHARES SUBJECT TO OPTIONS. The stock available for grant of Options
under the Plan shall be shares of the Company's authorized but unissued, or
reacquired, Common Stock. The aggregate number of shares which may be issued
pursuant to exercise of Options granted under the Plan, as amended, shall not
exceed 20% of all outstanding common shares (subject to adjustment as provided
in Section 7.13 hereof), including shares previously issued under the Plan. The
maximum number of shares with respect to which options may be
-3-
<PAGE> 7
granted to any employee in any one calendar year shall be 500,000 shares. In the
event that any outstanding Option under the Plan for any reason expires, or is
terminated, the shares of Common Stock allocable to the unexercised portion of
the Option shall again be available for Options under the Plan as if no Option
had been granted with respect to such shares.
7. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan shall
be evidenced by agreements (which need not be identical) in such form and
containing such provisions which are consistent with the Plan as the Plan
Administrator shall from time to time approve. Such agreements may incorporate
all or any of the terms hereof by reference and shall comply with and be subject
to the following terms and conditions:
7.1 NUMBER OF SHARES SUBJECT TO OPTION. Each Option agreement shall
specify the number of shares subject to the Option.
7.2 OPTION PRICE. The purchase price for the shares subject to any
Option shall be determined by the Plan Administrator at the time of grant, but
shall not be less than par value per share. Anything to the contrary
notwithstanding, the purchase price for the 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 Stock 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 any of its parent or subsidiary corporations, the Option
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.
7.3 NOTICE AND PAYMENT. Any exercisable portion of a Stock Option may
be exercised only by:
(a) delivery of a written notice to the Company, prior to the
time when such Stock Option becomes unexercisable under Section 7.4 hereof,
stating the number of shares being purchased and complying with all applicable
rules established by the Plan Administrator;
(b) payment in full of the exercise price of such Option by, as
applicable, (i) cash or check for an amount equal to the aggregate Option
exercise price for the number of shares being purchased, (ii) in the discretion
of the Plan Administrator, upon such terms as the Plan Administrator shall
approve, a copy of instructions to a broker directing such broker to sell the
Common Stock for which such Option is exercised, and to remit to the Company the
aggregate exercise price of such Options (a "cashless exercise"), or (iii) in
the discretion of the Plan Administrator, upon such terms as the Plan
Administrator shall approve, the Optionee may pay all or a portion of the
purchase price for the number of shares being purchased by tendering shares of
the Company's Common Stock owned by the Optionee, duly endorsed for transfer to
the Company, with a Fair Market Value on the date of delivery equal to the
aggregate purchase price of the shares with respect to which such Stock Option
or portion is thereby exercised (a "stock-for-stock exercise");
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<PAGE> 8
(c) payment of the amount of tax required to be withheld (if any)
by the Company or any parent or subsidiary corporation as a result of the
exercise of a Stock Option. At the discretion of the Plan Administrator, upon
such terms as the Plan Administrator shall approve, the Optionee may pay all or
a portion of the tax withholding by (i) cash or check payable to the Company,
(ii) cashless exercise, (iii) stock-for-stock exercise, or (iv) a combination of
one or more of the foregoing payment methods; and
(d) delivery of a written notice to the Company requesting that
the Company direct the transfer agent to issue to the Optionee (or to his
designee) a certificate for the number of shares of Common Stock for which the
Option was exercised or, in the case of a cashless exercise, for any shares that
were not sold in the cashless exercise.
Notwithstanding the foregoing, the Company may extend and maintain, or arrange
for the extension and maintenance of, credit to any Optionee to finance the
Optionee's purchase of shares pursuant to exercise of any Stock Option, on such
terms as may be approved by the Plan Administrator, subject to applicable
regulations of the Federal Reserve Board and any other laws or regulations in
effect at the time such credit is extended.
7.4 TERM OF OPTION. No Option shall be exercisable after the
expiration of the earliest of (a) ten years after the date the Option is
granted, (b) three months after the date the Optionee's employment with the
Company and its subsidiaries terminates if such termination is for any reason
other than Disability or death, (c) one year after the date the Optionee's
employment with the Company and its subsidiaries terminates if such termination
is a result of death or Disability; provided, however, that the Option agreement
for any Option may provide for shorter periods in each of the foregoing
instances. 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 any of its parent or subsidiary corporations,
the term set forth in (a), above, shall not be more than five years after the
date the Option is granted.
7.5 EXERCISE OF OPTION. No Option shall be exercisable during the
lifetime of an Optionee by any person other than the Optionee. Subject to the
foregoing, the Plan Administrator shall have the power to set the time or times
within which each Option shall be exercisable and to accelerate the time or
times of exercise. Unless otherwise provided by the Plan Administrator, each
Option granted under the Plan shall become exercisable on a cumulative basis as
to one-third (1/3) of the total number of shares covered thereby at any time
after one year from the date the Option is granted and an additional one-third
(1/3) of such total number of shares at any time after the end of each
consecutive one-year period thereafter until the Option has become exercisable
as to all of such total number of shares. To the extent that an Optionee has the
right to exercise an Option and purchase shares pursuant thereto, the Option may
be exercised from time to time by written notice to the Company, stating the
number of shares being purchased and accompanied by payment in full of the
exercise price for such shares.
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<PAGE> 9
7.6 NO TRANSFER OF OPTION. No Option shall be transferable by an
Optionee otherwise than by will or the laws of descent and distribution.
7.7 LIMIT ON INCENTIVE STOCK OPTIONS. The aggregate fair market value
(determined at the time the Option is granted) of the stock with respect to
which Incentive Stock Options granted after 1986 are exercisable for the first
time by an Optionee during any calendar year (under all Incentive Stock Option
plans of the Company and its subsidiaries) shall not exceed $100,000. To the
extent that the aggregate Fair Market Value (determined at the time of the Stock
Option is granted) of the Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year (under all Incentive Stock Option plans of the Company and any parent or
subsidiary corporations) exceeds $100,000, such Stock Options shall be treated
as Non-Qualified Stock Options. The determination of which Stock Options shall
be treated as Non-Qualified Stock Options shall be made by taking Stock Options
into account in the order in which they were granted.
7.8 RESTRICTION ON ISSUANCE OF SHARES. The issuance of Options and
shares shall be subject to compliance with all of the applicable requirements of
law with respect to the issuance and sale of securities, including, without
limitation, any required qualification under the California Corporate Securities
Law of 1968, as amended, or other state securities laws. If an Optionee acquires
shares of Common Stock pursuant to the exercise of an Option at a time when the
shares are not registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, the Plan Administrator, in its sole discretion, may require
as a condition of issuance of shares covered by the Option that the shares of
Common Stock shall be subject to restrictions on transfer. The Company may place
a legend on the certificates evidencing the shares, reflecting the fact that
they are subject to restrictions on transfer pursuant to the terms of this
Section. In addition, the Optionee may be required to execute a shareholders'
agreement in favor of the Company, its designee and/or other shareholders with
respect to all or any of the shares so acquired. In such event, the terms of
such agreement shall apply to such shares.
7.9 INVESTMENT REPRESENTATION. Each Option shall contain and any
Optionee may be required, as a condition of the grant of the Option and the
issuance of shares covered by his or her Option, to represent that the Option
and the shares to be acquired pursuant to exercise of the Option will be
acquired for investment and without a view to distribution thereof; and in such
case, the Company may place a legend on the certificate evidencing the shares
reflecting the fact that they were acquired for investment and cannot be sold or
transferred unless registered under the Securities Act of 1933, as amended, or
unless counsel for the Company is satisfied that the circumstances of the
proposed transfer do not require such registration.
7.10 RIGHTS AS A SHAREHOLDER OR EMPLOYEE. An Optionee or transferee
of an Option shall have no right as a shareholder of the Company with respect to
any shares covered by any Option until the date of the issuance of a share
certificate for such shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether cash,
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<PAGE> 10
securities, or other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued, except as
provided in Section 7.13. Nothing in the Plan or in any Option agreement shall
confer upon any employee any right to continue in the employ of the Company or
any of its subsidiaries or interfere in any way with any right of the Company or
any subsidiary to terminate the Optionee's employment at any time.
7.11 NO FRACTIONAL SHARES. In no event shall the Company be required
to issue fractional shares upon the exercise of an Option.
7.12 EXERCISABILITY IN THE EVENT OF DEATH. In the event of the death
of the Optionee, any Option or unexercised portion thereof granted to the
Optionee, to the extent exercisable by him or her on the date of death, may be
exercised by the Optionee's personal representatives, heirs, or legatees subject
to the provisions of Section 7.4 hereof.
7.13 RECAPITALIZATION OR REORGANIZATION OF COMPANY. Except as
otherwise provided herein, appropriate and proportionate adjustments shall be
made in the number and class of shares subject to the Plan, to the Option rights
granted under the Plan, including the any formula grants or automatic grant
authorizations, and the exercise price of such Option rights, in the event that
the number of shares of Common Stock of the Company are increased or decreased
as a result of a stock dividend (but only on Common Stock), stock split, reverse
stock split, recapitalization, reorganization, merger, consolidation,
separation, or like change in the corporate or capital structure of the Company.
In the event there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or other
securities into which such common stock shall have been changed, or for which it
shall have been exchanged, whether by reason of a complete liquidation of the
Company or a merger, reorganization, or consolidation of the Company with any
other corporation in which the Company is not the surviving corporation or the
Company becomes a wholly-owned subsidiary of another corporation, then if the
Plan Administrator shall, in its sole discretion, determine that such change
equitably requires an adjustment to shares of Common Stock currently subject to
Options under the Plan, or to prices or terms of outstanding Options, such
adjustment shall be made in accordance with such determination.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Plan
Administrator, the determination of which in that respect shall be final,
binding, and conclusive. No right to purchase fractional shares shall result
from any adjustment of Options pursuant to this Section. In case of any such
adjustment, the shares subject to the option shall be rounded down to the
nearest whole share. Notice of any adjustment shall be given by the Company to
each Optionee whose Options shall have been so adjusted and such adjustment
(whether or not notice is given) shall be effective and binding for all purposes
of the Plan.
In the event of a complete liquidation of the Company or a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, any unexercised Options
theretofore granted under the Plan
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<PAGE> 11
shall be deemed cancelled unless the surviving corporation in any such merger,
reorganization, or consolidation elects to assume the Options under the Plan or
to issue substitute Options in place thereof; provided, however, that,
notwithstanding the foregoing, if such Options would be cancelled in accordance
with the foregoing, the Optionee shall have the right, exercisable during a
ten-day period ending on the fifth day prior to such liquidation, merger, or
consolidation, to exercise such Option in whole or in part without regard to any
installment exercise provisions in the Option agreement.
7.14 MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan, the Plan
Administrator may modify, extend, or renew outstanding Options granted under the
Plan, and accept the surrender of outstanding Options (to the extent not
theretofore exercised). The Plan Administrator shall not, however, modify any
outstanding Incentive Stock Option in any manner which would cause the Option
not to qualify as an Incentive Stock Option within the meaning of Section 422 of
the Code. Notwithstanding the foregoing, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights of the Optionee
under the Option. However, a termination of the Option in which the Optionee
receives a cash payment equal to the difference between the Fair Market Value
and the exercise price for all shares subject to exercise under any outstanding
Option shall not alter or impair any rights of the Optionee.
7.15 OTHER PROVISIONS. Each Option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be determined
by the Plan Administrator.
8. TERMINATION OR AMENDMENT OF THE PLAN. The Board may at any time
terminate or amend the Plan; provided that, without approval of the holders of a
majority of the shares of Common Stock of the Company represented and voting at
a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum) or by the
written consent of a majority of the outstanding shares of Common Stock, there
shall be, except by operation of the provisions of Section 7.13, no increase in
the total number of shares covered by the Plan, no change in the class of
persons eligible to receive Options granted under the Plan, and no extension of
the term of the Plan beyond ten (10) years after the earlier of the date the
Plan is adopted or the date the Plan is approved by the Company's shareholders;
and provided further that, without the consent of the Optionee or as provided by
Section 7.14 hereof, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof.
9. INDEMNIFICATION. To the extent permitted by law, the Certificate of
Incorporation of the Company, the Bylaws of the Company and any indemnity
agreements between the Company and its directors or employees, the Company shall
indemnify each member of the Board and of the Plan Administrator, and any other
employee of the Company with duties under the Plan, against expenses (including
any amount paid in settlement) reasonably incurred by him in connection with any
claims against him by reason of his conduct in the performance of his duties
under the Plan.
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<PAGE> 12
10. EFFECTIVE DATE AND TERM OF PLAN. This Plan shall become effective
(the "Effective Date") on July 1, 1998. No options granted under the Plan will
be effective unless the Plan is approved by shareholders of the Company within
12 months of the date of adoption. Unless sooner terminated by the Board in its
sole discretion, the Plan will expire on June 30, 2008.
Dated: _________, 1998
JAWS TECHNOLOGIES, INC.
By:___________________________________
Robert Kubbernus, President
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EXHIBIT 10.1
THIS AGREEMENT made the ___ day of July, 1998.
B E T W E E N:
ARTHUR WONG, of Atherton, in the State of California,
(hereinafter referred to as "Arthur Wong")
OF THE FIRST PART;
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JAW TECHNOLOGIES INC. a corporation incorporated pursuant to
the laws of the State of Nevada,
(hereinafter referred to as the "Corporation")
OF THE SECOND PART.
AND WHEREAS the Corporation wishes to retain the services of
Arthur Wong to provide Services to the Corporation, as and when requested by the
Directors of the Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of
the mutual covenants and conditions hereinafter contained, the parties agree as
follows:
ARTICLE 1.00 - APPOINTMENT AND TERM
1.1 Appointment. The Corporation hereby retains Arthur Wong to act as a director
of the Corporation effective July 21,1998. The Corporation will make press
releases and other appropriate announcements upon this appointment. This
appointment are subject to approval by the shareholders of the Corporation.
Arthur Wong agrees to perform the duties and exercise such powers consistent
with his position and such additional powers as may from time to time be
assigned or vested in his by the by-laws of the Corporation or by the
resolutions of the Board of Directors of the Corporation. In particular, Arthur
Wong shall, without limiting the foregoing:
(a) provide advice with respect to the targeting and structuring of
acquisitions of other businesses by the Corporation;
(b) assist in the development of the profile of the Corporation with the
general public and with the financial community; and
(c) introduce the Corporation and its executive officers to contacts of
Arthur Wong who would be of assistance to the Corporation in obtaining
funds for proposed acquisitions as well as the day to day financing
requirements of the Corporation;
<PAGE> 2
2
all such duties being hereinafter referred to as the "Services". Arthur Wong
agrees that he shall perform the Services faithfully and to the best of his
abilities. While the role of external director is not a full-time position,
Arthur Wong agrees to devote such time and attention as is reasonably necessary
for the fulfilment of the Services and is consistent with standards for external
directors.
1.2 Term. Arthur Wong is retained hereunder for a term commencing on the date
hereof and continuing for eighteen (18) months (the "Term") unless earlier
terminated in accordance with the terms hereof.
ARTICLE 2.00 - COMPENSATION
2.1 Initial Compensation. As initial compensation for the Services performed
pursuant to this Agreement, the Corporation shall pay to Arthur Wong a fee of
stock or cash equal to $60,000.00 within twelve (12) months of execution of this
agreement. Arthur Wong shall also be compensated as a director of the
Corporation in the same manner as other members of the Board of Directors in
performing their roles as directors of the Corporation. Arthur Wong shall also
be entitled to be reimbursed for his reasonable expenses incurred while
performing the Services on behalf of the Corporation including entertainment,
meals, travel and accommodation expenses, outside of Calgary.
ARTICLE 3.00 - TERMINATION
3.1 Termination by Corporation. This Agreement may only be terminated by the
Corporation for cause prior to the expiration of the Term if Arthur Wong is in
default in the performance of the Services and such default continues for a
period of thirty (30) days after notice thereof or upon the death or disability
of Arthur Wong. Disability shall occur if Arthur Wong is unable to attend to his
duties due to medical reasons for a continuous period of 30 days during the
Term.
3.2 Termination by Arthur Wong. This Agreement may only be terminated by Arthur
Wong, by resignation, prior to the expiration of the Term if the Corporation is
in default in the performance of any of its covenants, obligations or agreements
herein contained and such default shall continue for a period of thirty (30)
days following notice thereof.
3.3 Termination by Mutual Agreement. It is acknowledged that this Agreement may
be terminated at any time upon the mutual agreement of the parties hereto.
ARTICLE 4.00 - STOCK OPTION
4.1 The Corporation hereby grants to Arthur Wong options to purchase a total of
200,000 shares of the Corporation at a strike price of $0.48 per share until
August 1, 2000. Option A is for 50,000 shares and vests immediately upon
execution of this agreement. Option B is for 150,000 shares and vests one year
after the execution of this agreement.
<PAGE> 3
3
ARTICLE 5.00 - CONFIDENTIALITY AND NON-DISCLOSURE
5.1 In this Article, the following words have the following meanings:
(a) "Business Secrets" means confidential or sensitive business information,
including without limitation, data, business strategies, plans, contracts,
financial records and budgets, marketing techniques, pricing policies, costing
information, and information relating to or pertaining to targeted acquisitions
of the Corporation;
(b) "Contractors" of the Corporation means customers, suppliers, partners,
co-venturers and other contractors of the Corporation and also includes
potential customers of the Corporation in respect of whom access to Business
Secrets has been obtained for the purpose of evaluating proposed projects or for
submitting of tenders, bids or proposals.
(c) "Corporation", in this Article 5.00 only, shall mean the Corporation and any
and all affiliated or related corporations.
(c) "Documentation" means all materials constituting or containing Technology or
Business Secrets, including electronic storage media.
(d) "Technology" means all computer program, protocols, product technical
specifications including installation, performance and maintenance
specifications, patents, designs, drawings, manuals and generally all knowledge,
know-how, expertise and information of a technical nature, whether or not
protected under patent, design, copyright or other intellectual property laws,
and includes any and all future changes, modifications, additions, improvements
and enhancements thereof.
5.2 Arthur Wong will not divulge Technology or Business Secrets belonging to the
Corporation or Contractors of the Corporation to any persons whatsoever, other
than to:
(a) employees of Corporation;
(b) persons to whom Arthur Wong is authorized and directed to release
such Technology or Business Secrets, and only then to the extent
of such authorization.
5.3 Arthur Wong shall always:
(a) exercise reasonable care and diligence to protect the
confidentiality and integrity of Technology or Business Secrets
belonging to the Corporation or its Contractors; and
(b) strictly adhere to all policies, procedures and directions of the
Corporation relating to the protection and custody of Technology
and Business Secrets of the Corporation or its Contractors.
5.4 All Technology and Business Secrets belonging to the Corporation will be
assumed by Arthur Wong to be confidential.
<PAGE> 4
4
5.5 Arthur Wong will only use Technology and Business Secrets belonging to the
Corporation in performance of his duties hereunder and for no other use
whatsoever.
5.6 The obligation of confidentiality in this Article shall apply unless Arthur
Wong can establish that he reasonably believed that such Technology or Business
Secrets were generally known in the industry.
5.7 Upon any termination of this agreement for any reason, Arthur Wong shall
forthwith return to the Corporation all Documentation relating to the Technology
and Business Secrets of either the Corporation or its Contractors, and if any
such information is electronically copied and stored by Arthur Wong, upon
request he shall destroy such electronically stored copies.
5.8 The obligations of Arthur Wong set out in this Article shall continue in
full force and effect after termination of this agreement regardless of the
reason or cause of such termination.
5.9 Arthur Wong agrees that he will not, during the term hereof and for a period
of two years following termination of this agreement, be a party to or abet any
solicitation of customers, clients or Contractors of the Corporation, to
transfer business from the Corporation to any other person, or seek in any way
to persuade or entice any employee, officer or director of the Corporation to
leave their office or employment or to be a party to or abet such action.
ARTICLE 6.00 - GENERAL PROVISIONS
6.1 Notices. All notices, requests, demands or other communications required or
desired to be given or made by one party to another shall be given in writing by
personal delivery or prepaid registered mail or by facsimile transmission or
other means of instantaneous transmission in regular commercial usage at such
time, verified by a transmission report, as follows:
to the Corporation: JAWS Technologies Inc.
Suite 380, 603 - 7 Avenue SW
Calgary, Alberta
T2P 2T5
to Arthur Wong of Atherton, California
or at such other address as may be given by any of them to the others. Any
notice or other communication so given or made shall be conclusively deemed to
have been given and received when delivered personally, if delivered personally,
provided that if it is delivered on a day which is not a Business Day then the
notice or communication shall be deemed to have been given and received on the
next business day following such date, or on the fifth (5th) business day
following the date of mailing, if mailed by prepaid registered mail, except in
the event of disruption of mail services in which event any notice shall be
delivered personally.
<PAGE> 5
5
6.2 Time of the Essence. Time is of the essence of this Agreement and every part
of this Agreement and no extension or variation of this Agreement shall operate
as a waiver of this provision.
6.3 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Alberta, and the laws of Canada
applicable therein, and the parties hereto attorn to the non-exclusive
jurisdiction of the courts of such Province.
6.4 Entire Agreement: This Agreement and the terms hereof constitute the entire
agreement between the parties hereto with respect to all of the matters herein
and its execution has not been induced by, nor do any of the parties hereto rely
upon or regard as material, any representations or writings not incorporated
herein and made a part hereof and this Agreement shall not be amended or altered
or qualified except by memorandum in writing signed by both of the parties.
6.5 Severability. If any of the provisions contained in this Agreement are, for
any reason, held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision or provisions had never been contained in
this Agreement unless the deletion of such provision or provisions would result
in such a material change as to cause the completion of the transactions
contemplated in this Agreement to be unreasonable.
6.6 Further Assurances. The parties covenant and agree to execute such further
and other documents and undertake such other actions as may be reasonably
required to give effect to the terms and intent of the transactions contemplated
in this Agreement.
6.7 Enurement. The provisions hereof, where the context permits, shall enure to
the benefit of and be binding upon the heirs, executors, administrators or other
legal representatives of Arthur Wong and the successors and assigns of the
Corporation. With respect to Arthur Wong, this Agreement, being personal, may
not be assigned.
6.8 Time Periods. When calculating the period of time within which or following
which any act is to be done or step taken pursuant to this Agreement, the date
which is the reference day in calculating such period shall be excluded.
6.9 Extended Meanings. In this Agreement, where the context requires, the
singular number includes the plural and vice versa, the masculine gender
includes the feminine and neuter genders and vice versa and the word person is
not limited to an individual but includes any entity recognized by law.
6.10 Entire Agreement. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter of this Agreement and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter of this
Agreement except as specifically set out in this Agreement. No supplement,
modification, waiver or termination of this Agreement shall be binding, unless
executed in writing by the party or parties to be bound thereby.
<PAGE>
6
6.11 Headings. All headings are included solely for convenience of reference and
are not intended to be full or accurate descriptions of the contents thereof.
6.12 Recitals. Each of the parties acknowledges that the recitals of this
Agreement, so far as they relate to such party, are true and correct in
substance and in fact.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the date first above written.
JAWS TECHNOLOGIES INC.
Per: /s/Robert Kubbernus
------------------------------------
Robert Kubbernus
/s/Cameron Chell
------------------------------------
Cameron Chell
/s/Arthur Wong
- - ---------------------------- ----------------------------------
WITNESS Arthur Wong
Exhibit 10.2
Director's Agreement between Jaws and Julie Johnson-Same form as Exhibit 10.1.
Exhibit 10.3 - Page 1
EXHIBIT 10.3
[JAWS TECHNOLOGIES, INC. LETTERHEAD]
August 10, 1999
Letter of intent
Arrow Communications
#204 34314 Marshall Road
Abbotsford, BC
V2S 1L9
Attention: Mr. Gilles Lepage
In response to our conversation on August 10, 1999I am forwarding to you our
formal considerations towards our arrangements to work with, and contribute to
your proposed Web box sales promotions. JAWS Technologies Inc. references this
account as OSM project (OSM990810mtdr).
Following is a statement of the terms agreed upon in our last meeting and your
signature below will formalize this document to be the first contractual step in
our partnering arrangement.
(1) Develop a long-term strategy that would provide Arrow
Communications with value-added services (auditing services, personal or
corporate data protection systems and messaging programs )to offer / distribute
to their client base. I.e. Var. opportunities
(2) For the first half million users of Apexmail web-boxes, Jaws
Technologies Inc. will provide the xmail solution free of charge as a value
added relationship offer. For each user added above that JAWS Technologies Inc.
would receive 1.5 cents per month per user from Arrow Communications. Jaws
Technologies Inc. will account the user base by measurement of the keys count as
they are registered on the JAWS key server.
This document outlines the structured process as discussed with you, as well it
is our undertaking to further explore the potential alliance avenues available
to Arrow Communications and Jaws Technologies Inc. and to ensure both parties
benefit from and create the best possible synergy. JAWS Technologies Inc. is
committed to developing with all of our business partners a business case that
allows clear understanding of all relevant offers and requirements so as to
serve as the foundation of a profitable and lasting relationship for both
organizations. In this circumstance joint or promotional marketing efforts are
to be developed to the mutual benefit of both organizations and this plan can be
developed over the next 90 days as the relationship evolves.
Please indicate acceptance with your signature in the appropriate areas below.
Best Regards,
/s/Mitch Tarr
- - --------------
Mitch Tarr
VP of Alliances
JAWS TECHNOLOGIES INC.
ARROW COMMUNICATIONS INC. JAWS TECHNOLOGIES INC.
Gilles Lepage President / CEO Tej Minhas
President/COO
/s/Gilles Lepage /s/Tej Minhas
- - ----------------- --------------
Date: _______________ Date: ______________
Exhibit 10.4 - Page 2
EXHIBIT 10.4
September 28, 1999
Apexmail.net
#204 34314 Marshall Road
Abbotsford, BC
V2S 1L9
Attention: Mr. Gilles Lepage
Within is the addendum information to our Letter of Intent as already agreed
upon for your perusal. Please sign and acknowledge agreement with the
information as laid our within the addendum and we will proceed.
Apexmail.Net agrees to the following:
Joint marketing of this solution
1) To integrate all current corporate users to the advanced version
upon completion of implementation.
2) To issue a payout monthly from Apexmail.net to Jaws Technologies
Inc. a royalty free of $.50 per Corporate user account as calculated by the key
residence on the JAWS server.
3) To permit a Jaws assessment on the Web based server so that JAWS can
certify the said server.
4) To host a jaws certified logo on the Apexmail.net homepage that also
services as a free download link for Jaws Download Page.
5) To provide to Jaws Technologies Inc. an Apexmail.net media kit for
JAWS marketing purposes.
Jaws Technologies Inc. agrees to the following:
1) To perform Joint marketing of the Corporate Webmail Solution through
its present & future client base where a solution of its type is required.
2) To provide an Xmail technology solution and required support with
implementation on or by November 15,1999.
3) To give an exclusive technology time stamp for 6 months
internationally on the Corporate Web based solution model. *This condition is
valid only for this time frame and only on the condition that Apexmail.net shows
ongoing due diligence in its marketing efforts and abilities as deemed by user
numbers.
4) To provide Apexmail.net with all available or relevant marketing
info or statistics on web based or secure email in the Jaw's knowledge banks.
5) To co-train the JAWS marketing & sales force on the benefits and
technology of this joint solution.
6) To provide Apexmail.net with a FAQ on Jaw's Xmail to be hosted on the
Apexmail.net site.
Please acknowledge below that this agreement between Jaws Technologies Inc. and
Apexmail.net is as agreed upon. We will continue to explore the potential
alliance avenues available to Apexmail.net and Jaws Technologies Inc. and to
ensure both parties benefit from and create the best possible synergy. JAWS
Technologies Inc. is committed to developing with all of our business partners a
business case that allows clear understanding of all relevant offers and
requirements so as to serve as the foundation of a profitable and lasting
relationship for both organizations. In this circumstance joint or promotional
marketing efforts are to be developed to the mutual benefit of both
organizations.
Acknowledgement and Acceptance is indicated with your signature in the
appropriate areas below.
Best Regards,
/s/Donna Rougeau
- - -----------------
Ms. Donna Rougeau
Director of Biometrics and Tokens
JAWS Technologies Inc.
APEXMAIL.NET JAWS TECHNOLOGIES INC.
Gilles Lepage President / CEO Tej Minhas
President/COO
/s/Gilles Lepage /s/Tej Minhas
- - ----------------- --------------
Date: _______________ Date: ______________
Exhibit 10.5 - Page 2
EXHIBIT 10.5
ASSIGNMENT
WHEREAS, the undersigned, JAMES L. A. MORRISON, having an address of 1625
11th Avenue SW, Unit #101, Calgary, Alberta T3C 0N3, Canada (hereinafter termed
Assignor) has invented certain new and useful improvements in an invention
entitled DATA ENCRYPTION AND DECRYPTION SOFTWARE; the undersigned Assignor
hereby authorizes and requests that the serial number and filing date of said
patent application be entered herein by the attorney in charge of the
application, as soon as such information is known:
Serial No. 09/169,377
Filed: October 9, 1998
WHEREAS, JAWS TECHNOLOGIES INC., a corporation of Alberta, having an
address of 603-7 Avenue SW, Suite 380, Calgary, Alberta T2P 2T5, Canada
(hereinafter termed Assignee) is desirous of acquiring the entire right, title
and interest in and to said application and said inventions and improvements
thereon, and in and to Letters Patent thereon when granted in the Unites States
and foreign countries;
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) and for
other good and valuable consideration received by said Assignor from said
Assignee, the receipt and sufficiency of which in full are hereby acknowledged
by said Assignor:
1. Said Assignor does hereby sell, assign, transfer and convey unto said
Assignee, the entire right, title and interest in and to said application and
said invention and in and to any and all improvements on said invention
heretofore or hereafter made of acquired by said Assignor; and in and to any and
all Letters Patent on said invention and/or said improvements that may be
granted in the United States of any foreign country, including each and every
Letters Patent granted n any application which is a division,
continuation-in-part of any of said application specifically identified herein,
and in and to each and every reissue or extension of said Letters Patent
2. Said Assignor hereby covenants and agrees to cooperate with said Assignee
whereby said Assignee may enjoy to the fullest extent the right, title and
interest herein conveyed. Such cooperation shall include (a) prompt execution
of all papers (prepared at the expense of Assignee) which are deemed necessary
or desirable by Assignee to perfect in it the right, title and interest herein
conveyed; (b) prompt execution of all petitions, oaths, specifications or other
papers (prepared at the expense of Assignee) which are deemed necessary or
desirable by Assignee for prosecuting said application, for filing and
prosecuting divisional, continuation, substitution, renewal,
continuation-in-part, or additional applications in the United States and/or
foreign countries covering said invention and/or said improvements, for filing
and prosecuting applications for reissuance of Letters Patent included herein,
or for interference proceedings involving said invention and/or said
improvements; (c) prompt assistance and cooperation in the prosecution of
interference proceedings involving said invention and/or said improvements and
in the adjudication of said Letters Patent, particularly by the disclosure of
facts and the production of evidence relating to said invention and/or said
improvements, provided the expenses which may be incurred by said Assignor in
lending such assistance and cooperation shall be paid by the Assignee.
3. The terms, covenants and conditions of this assignment shall inure to the
benefit of said Assignee, its successors, assigns and/or other legal
representatives, and shall be binding upon said Assignor, his heirs, legal
representatives and assigns.
4. Said Assignor hereby warrants and represents that he has not entered into
any assignment, contract or understanding in conflict herewith.
<PAGE>
IN WITNESS WHEREOF, this said Assignor has executed and delivered this
instrument this 8th day of October 1998.
/s/James L.A. Morrison
- - ------------------------
JAMES L. A. MORRISON
Exhibit 10.6 - Page 1
EXHIBIT 10.6
UNITED STATES DEPARTMENT OF COMMERCE
Patent and Trademark Office
Assistant Secretary and Commissioner
OF PATENTS AND TRADEMARKS
Washington, D.C. 20231
Code Number: *100908317A
MARCH 15, 1999
LAW OFFICES OF THOMAS SCHNECK
THOMAS SCHNECK
P.O. BOX 2-E
SAN JOSE, CALIFORNIA 95109 -0005
UNITED STATES PATENT AND TRADEMARK OFFICE
NOTICE OF RECORDATION OF ASSIGNMENT DOCUMENT
THE ENCLOSED DOCUMENT HAS BEEN RECORDED BY THE ASSIGNMENT DIVISION OF THE U.S.
PATENT AND TRADEMARK OFFICE. A COMPLETE MICROFILM COPY IS AVAILABLE AT THE
ASSIGNMENT SEARCH ROOM ON THE REEL AND FRAME NUMBER REFERENCED BELOW.
PLEASE REVIEW ALL INFORMATION CONTAINED ON THIS NOTICE. THE INFORMATION
CONTAINED ON THIS RECORDATION NOTICE REFLECTS THE DATA PRESENT IN THE PATENT
AND TRADEMARK ASSIGNMENT SYSTEM. IF YOU SHOULD CONTACT THE EMPLOYEE WHOSE NAME
APPEARS ON THIS NOTICE AT 703 - 308 - 9723. PLEASE SEND REQUEST FOR CORRECTION
TO : U.S. PATENT AND TRADEMARK OFFICE, ASSIGNMENT DIVISION, BOX ASSIGNMENTS, CG
- - - 4, 1213 JEFFERSON DAVIS HWY, SUITE 320, WASHINGTON, D.C. 20231.
RECORDATION DATE: 11/16/1998 REEL/FRAME: 9595/ 0813
NUMBER OF PAGES: 5
BRIEF: ASSIGNMENT OF ASSIGNOR'S INTEREST (SEE DOCUMENT FOR DETAILS).
ASSIGNOR:
MORRISON, JAMES L.A. DOC DATE: 10/08/1998
ASSIGNEE:
JAWS TECHNOLOGIES INC.
603 - 7 AVENUE SW, SUITE 380
CALGARY, ALBERTA T2P 2T5, CANADA
SERIAL NUMBER: 09169377 FILIING DATE: 10/09/1998
PATENT NUMBER: ISSUE DATE:
SEDLEY PYNE, PARALEGAL
ASSIGNMENT DIVISION
OFFICE OF PUBLIC RECORDS
EXHIBIT 10.7
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 Julia L. Johnson (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
2
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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:/s/Julia L. Johnson
-------------------------------------
INDEMNITEE
- ----------------------------------------
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 Arthur Wong (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
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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.
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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
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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.
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<PAGE>
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
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<PAGE>
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
/s/Arthur Wong
- ----------------------------------------
EXHIBIT 10.9
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made June 21, 1999, by and among Jaws
Technologies Inc., a Nevada corporation ("Company"), with offices at 1013 17
Avenue SW, Calgary, Alberta, Jaws Technologies Inc., an Alberta, Canada
corporation ("Jaws Canada"), with offices at 1013 17 Avenue SW, Calgary,
Alberta, and the PURCHASER LISTED ON SCHEDULE 1 attached hereto (the
"Purchaser").
RECITALS
A. Company is in the business of providing electronic security
solutions.
B. Purchaser desires to invest in Company pursuant to the terms and
conditions of this Agreement.
AGREEMENT
In consideration of the mutual promises and covenants contained in this
Agreement and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. Company has, or on or before the Closing (as
defined in Section 2 below) will have, duly authorized the issuance and sale of
up to 1,000,000 shares of its Common Stock, $0.001 par value (the "Common
Stock"), having the rights, restrictions, privileges, and preferences set forth
in the Terms of the Capital Stock of Company attached hereto as Exhibit A (the
"Stock Terms") and 834,000 purchase warrants, each warrant entitling the holder
to purchase one share Common Stock at any time prior to June 30, 2001 for US
$2.25 per share subject to the forced exercise clause in the Investors' Rights
Agreement (the "Warrants").
1.2 Sale of Shares. Subject to the terms and conditions of this
Agreement, at the Closing the Company will sell and issue to Purchaser, and
Purchaser will acquire, the number of shares of Common Stock set forth opposite
the Purchaser's name on Schedule 1 attached hereto for the consideration set
forth thereon. The Company will issue .834 Warrants to Purchaser for each share
of Common Stock purchased by the Purchaser the consideration set forth thereon.
Purchaser will receive the numbers of Warrants set forth opposite the
Purchaser's name on Schedule 1 attached hereto. All shares of Common Stock
issued and sold under this Agreement and all Warrants issued under this
Agreement are referred to as the "Shares."
1.3 Use of Proceeds.
(a) Working Capital. Company will use the proceeds, after
paying commissions and finders fees from the sale of the Shares for the growth
of Company through investment in marketing, general and administrative overhead
expenses, capital expenditures,
<PAGE>
research and development, and general working capital purposes. Pending such
use, Company shall place such proceeds in one or more demand deposit accounts.
2. The Closing.
2.1 The Closing. The closing (the "Closing") of the sale,
purchase and issuance of the Shares under this Agreement at 6:00 p.m. (Mountain
Standard Time) on June 21, 1999, or at such other time, date and place as are
mutually agreeable to Company and Purchaser (the "Closing Date"). Following the
Closing, the Purchaser shall deliver to the law firm of Bishop & McKenzie, in
trust, the amounts set forth in Schedule 1 attached hereto. Following the
delivery to Purchaser of a certificate or certificates for the number of shares
of Common Stock and Warrants set forth on Schedule 1 attached hereto and the
receipt by the Purchaser of the legal opinion to be attached hereto as Exhibit D
and the Purchasers confirmation of satisfaction with same the funds shall be
released.
2.2 Conditions. If at the Closing any of the applicable
conditions specified in Section 5 hereof shall not have been fulfilled,
Purchaser shall, at its election, be relieved of its obligations to purchase
Shares at the Closing without thereby waiving any other rights it may have by
reason of such failure or such non-fulfillment.
3. Representations of Company. Subject to and except as disclosed
by Company in Exhibit B attached hereto, Company both on behalf of itself and on
behalf of its subsidiary Jaws Canada (as defined below) hereby represents and
warrants to Purchaser as follows:
3.1 Organization and Standing.
(a) Company. Company is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Nevada and
has full corporate power and authority to conduct its business as presently
conducted and as proposed to be conducted by it, to enter into and perform this
Agreement, and to carry out the transactions contemplated by this Agreement.
Company is duly qualified to do business as a foreign corporation in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on Company's operations or financial condition. Company has furnished to
Purchaser (or its legal counsel) true and complete copies of its Articles of
Incorporation and bylaws, each as amended to date and presently in effect.
(b) Jaws Canada is the Company's only subsidiary, and the
Company owns 100% of the capital stock of Jaws Canada. Jaws Canada is duly
organized, validly existing, and in good standing under the laws of the Province
of Alberta and has full power and authority to conduct its business as presently
conducted and as proposed to be conducted by it, to enter into and perform this
Agreement, and to carry out the transactions contemplated by this Agreement.
Jaws Canada is duly qualified to do business in every other jurisdiction in
which the failure to so qualify would have a material adverse effect on Jaws
Canada's operations or financial condition. Jaws Canada has furnished to
Purchaser (or its legal counsel) true and complete copies of its Articles of
Organization and operating agreement, each as amended to date and presently in
effect.
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<PAGE>
3.2 Capitalization. The authorized capital stock of Company
(immediately prior to the Closing) will consist of:
(a) Common Stock. 95 million shares of common stock, $0.001
par value (the "Common Stock"); and
(b) Preferred Stock. 5 million shares of Preferred, $0.001
par value, none of which is issued and outstanding.
All of the issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as otherwise provided in this Agreement or as set forth in the Exhibits
of this Agreement, (i) no subscription, warrant, option, convertible security,
or other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of Company is authorized or outstanding, (ii) there is not any
commitment of Company to issue any subscription, warrant, option, convertible
security, or other such right or to issue or distribute to holders of any shares
of its capital stock any evidences of indebtedness or assets of Company, and
(iii) Company has no obligation (contingent or otherwise) to purchase, redeem,
or otherwise acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any other distribution in respect thereof. Except as
otherwise provided in this Agreement or as set forth on the exhibits hereto, no
person or entity is entitled to (i) any preemptive or similar right with respect
to the issuance of any capital stock of Company or (ii) any rights with respect
to the registration of any capital stock of Company under the Securities Act of
1933, as amended (the "Securities Act"). All of the issued and outstanding
shares of Common Stock have been offered, issued, and sold by Company in
compliance with applicable foreign, federal and state securities laws. Except as
contemplated herein or as set forth in Exhibit B hereto, to the best of
Company's knowledge, no stockholder of Company has granted options or other
rights to purchase any shares of Common Stock from such stockholder.
3.3 Subsidiaries. The Company has no subsidiaries nor owns or
controls, directly or indirectly, any other corporation, association or business
entity, except for Jaws Canada, which is wholly owned by Company.
3.4 Debtholders' and Stockholders' List and Stockholders'
Agreements. Attached as Exhibit C and Exhibit F is a true and complete list of
the debtholders (other than vendors and trade payables) and stockholders of
Company, showing the amount of debt instruments and the number of shares of
Common Stock or other securities of Company held by each debtholder and
stockholder as of the date of this Agreement and the consideration paid to
Company, if any, for such instruments and shares. Except as contemplated by this
Agreement, there are no agreements, written or oral, between Company and any
holder of its capital stock, or, to the best of Company's knowledge, among any
holders of its capital stock, relating to the acquisition, disposition, or
voting of Company's capital stock.
3.5 Issuance of Shares. The issuance, sale, and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Warrants, have been or
will be, on or prior to the Closing, duly authorized and reserved for issuance,
as the case may be, by all necessary corporate action on the
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<PAGE>
part of Company, and the Shares when so issued, sold, and delivered against
payment therefor in accordance with the provisions of this Agreement, and the
shares of Common Stock issuable upon conversion of the Warrants, when issued
upon such conversion, will be duly and validly issued, fully paid, and
nonassessable.
3.6 Authority for Agreement. The execution, delivery, and
performance by Company (and Jaws Canada) of this Agreement and all other
agreements required to be entered into pursuant to this Agreement have been or
will be, on or prior to the Closing, duly authorized by all necessary corporate
action, and duly executed and delivered by Company (and Jaws Canada). This
Agreement and such other agreements constitute valid and binding obligations of
Company (and Jaws Canada) enforceable in accordance with their respective terms.
Except as set forth on Exhibit B hereto, the execution of and performance of the
transactions contemplated by this Agreement and such other agreements to be
executed and delivered by Company (and Jaws Canada) hereunder and compliance
with their provisions by Company (and Jaws Canada) will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default under, its
Articles of Incorporation or bylaws, any indenture, lease, agreement, or other
instrument to which Company or Jaws Canada is a party or by which it or any of
its properties is bound, or any decree, judgment, order, statute, rule or
regulation applicable to Company (or Jaws Canada).
3.7 Governmental Consents. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any governmental authority is required on the part of Company (or
Jaws Canada) in connection with the execution and delivery of this Agreement,
the offer, issue, sale and delivery of the Shares, or the other transactions to
be consummated at the applicable Closing, as contemplated by this Agreement. The
offer and sale of the Shares to Purchaser will be exempt from registration under
applicable foreign, federal and state securities laws.
3.8 Litigation. Except as set forth on Exhibit B, there is no
action, suit, proceeding, or investigation pending, or, to the best of Company's
(or Jaws Canada's) knowledge, any basis therefor or overt threat in writing
thereof, against Company (or Jaws Canada) which questions the validity of this
Agreement or Company's (or Jaws Canada's) right to enter into it, or which is
likely to result, either individually or in the aggregate, in any material
adverse change in Company's (or Jaws Canada's) assets, condition (financial or
otherwise), business, or prospects, nor is there any litigation pending, or, to
the best of Company's (or Jaws Canada's) knowledge, any basis therefor or overt
threat in writing thereof, against Company (or Jaws Canada) by reason of the
past employment relationships, the proposed activities of Company (or Jaws
Canada), or negotiations by Company (or Jaws Canada) with possible investors in
Company (or Jaws Canada).
3.9 Financial Statements; Absence of Liabilities. On or before
the date hereof, Company has furnished to Purchaser a complete and correct copy
of Amendment No. 2 to Form SB-2 filed by the Company with the Securities and
Exchange Commission ("SEC") on April 30, 1999 Commission File No. 333-65583 (the
"SB-2") a copy of which is attached to this Agreement as Exhibit F. The balance
sheets of Company and Jaws Canada (the "Balance Sheets"), the income statement
of Company and Jaws (the "Income Statements"), the statement of loss and deficit
and cash flows of the Company and of Jaws Canada (the "Cash Flows") as set
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<PAGE>
out in the SB-2 (collectively, the "Financial Statements") are all complete and
correct, are in accordance with the books and records of Company and Jaws Canada
and present fairly the financial condition and results of operations of Company
and Jaws Canada, as of the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the SEC in all material respects. Company and Jaws
Canada did not have, at the date of the SB-2, any material liabilities of any
type (other than liabilities incurred in the ordinary course of business),
whether absolute or contingent, which were not fully reflected in the SB-2, and,
since the date of the SB-2, no material change to Company and Jaws Canada's net
worth or Financial Statements has occurred and the Company and Jaws Canada have
not incurred or otherwise become subject to any such liabilities or obligations
except in the ordinary course of business and in connection with and as
disclosed in this Agreement.
3.10 Taxes. Company and Jaws Canada have set aside
sufficient funds for the payment of all accrued and unpaid federal, state,
provincial, county, local, and foreign taxes for all current and prior periods.
Company and Jaws Canada have filed or have obtained presently effective
extensions with respect to all federal, state, provincial, county, local, and
foreign tax returns which are required to be filed by it, such returns are true
and correct and all taxes due have been timely paid. No United States federal
income tax return of Company and no Canadian tax return of Jaws Canada has been
audited by the Internal Revenue Service or Revenue Canada, and no controversy
with respect to taxes of any type is pending or, to Company's or Jaws Canada's
knowledge, threatened.
3.11 Property and Assets. Each of Company and Jaws Canada
has good title to all of its material properties and assets, including all
material properties and assets reflected in the Balance Sheet, except those
disposed of in the ordinary course of business, and none of such properties or
assets is subject to any mortgage, pledge, lien, security interest, lease,
charge, or encumbrance other than those encumbrances described in Exhibit B or
the Balance Sheet, if any.
3.12 Patents and Trademarks. Except as set forth on Schedule
B, Company or Jaws Canada owns good title, free and clear of all liens, claims
and encumbrances, to all of the patents, trademarks, service marks, trade names,
copyrights, proprietary rights, trade secrets, processes, data and know-how and
licenses or rights to the foregoing, including but not limited to its encryption
algorithm (collectively, the "Intellectual Property") necessary for the conduct
of Company's and Jaws Canada's business as conducted and as proposed to be
conducted. The Company or Jaws Canada is not aware of any facts that would
invalidate or render any Intellectual Property unenforceable. All copyrightable
materials created by the Company and Jaws Canada are entitled to protections
under applicable United States and Canadian laws, and all trade secrets of
Company and Jaws Canada are entitled to protection under applicable United
States and Canadian laws. All Intellectual Property owned by the Company and
Jaws Canada and all trade secrets used by Company and Jaws Canada consist of
original material or property developed by Company or Jaws Canada or was
acquired by the Company or Jaws Canada from the proper and lawful owner thereof.
There are no licenses now outstanding or other rights granted to third parties
with respect to any Intellectual Property and neither the Company or Jaws Canada
is a party to any agreement or understanding with respect to any Intellectual
Property. Except as set forth on Schedule B, none of the Company, Jaws Canada or
any business or activity conducted or proposed to be conducted by either (i) has
infringed upon or violated, (ii) is
-5-
<PAGE>
infringing upon or violates or (iii) will infringe upon or violate any of the
patents, trademarks, service marks, trade names, copyrights, licenses, trade
secrets or other proprietary rights of any other person or entity, and no other
person is infringing upon or violating any of the Intellectual Property owned by
the Company and Jaws Canada. All filings or record actions necessary or
appropriate to protect the interest of Company and Jaws Canada in any
Intellectual Property have been duly made and are in full force and effect. No
employee or consultant of Company and Jaws Canada owns any right in any
Intellectual Property or any intellectual property directly or indirectly
competitive with any Intellectual Property of Jaws Canada or derived from or in
connection with the conduct of their business.
3.13 Insurance. Each of Company and Jaws Canada maintains
valid policies of insurance with respect to its properties and business of the
kinds and in amounts not less than is customarily obtained by corporations or
entities of established reputation engaged in the same or similar business and
similarly situated, including, without limitation, insurance against loss,
damage, fire, theft, public liability, and employment-related accidents of
Company and Jaws Canada's employees.
3.14 Material Contracts and Obligations. Company has
disclosed in the SB-2 a list of all material agreements of any nature to which
Company and Jaws Canada is a party or by which it is bound, including, without
limitation, (a) each agreement which requires future expenditures by Company or
Jaws Canada in excess of $40,000 annually in the aggregate (other than
client/customer agreements entered into in the ordinary course of business), (b)
all employment and consulting agreements, employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase, and similar plans and
arrangements, and distributor and sales representative agreements, with annual
compensation in excess of $100,000 per annum, and (c) other than the lease for
the premises located at a1013 17 Avenue SW, Calgary, Alberta, any agreement to
which any stockholder, officer, or director of Company and Jaws Canada, or any
"affiliate" or "associate" of such persons (as such terms are defined in the
rules and regulations promulgated under the Securities Act), is presently a
party, including any agreement or other arrangement providing for the furnishing
of services by, rental of real or personal property from, or otherwise requiring
payments to, any such person or entity. All of such agreements and contracts are
valid, binding and in full force and effect.
3.15 Compliance. To Company's and Jaws Canada's knowledge,
Company and Jaws Canada have, in all material respects, complied with all laws,
regulations, and orders applicable to their respective and proposed businesses
and have all material permits and licenses required thereby. There is no term or
provision of any material mortgage, indenture, contract, agreement, or
instrument to which Company or Jaws Canada is a party or by which either is
bound, or, to the knowledge of Company and Jaws Canada, of any provision of any
state, provincial, federal or foreign judgment, decree, order, statute, rule, or
regulation applicable to or binding upon Company or Jaws Canada, which
materially and adversely affects or, so far as Company and Jaws Canada may now
foresee, in the future is reasonably likely to materially and adversely affect,
the business, prospects, condition, affairs, or operations of Company and Jaws
Canada or any of their respective properties or assets.
3.16 Absence of Changes. Except as set forth in Exhibit B,
since the date of the SB-2 there has been no material adverse change in the
condition, financial or otherwise, net
-6-
<PAGE>
worth, or results of operations of Company or Jaws Canada, other than changes
occurring in the ordinary course of business, which changes have not,
individually or in the aggregate, had a material adverse effect on the business,
prospects, properties, or condition, financial or otherwise, of Company or Jaws
Canada.
3.17 Employees. Neither Company nor Jaws Canada is aware
that any employee of either is obligated under any contract (including any
license, covenant, or commitment of any nature), or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of Company
and Jaws Canada or would conflict with Company and Jaws Canada's business as
proposed to be conducted. To Company's and Jaws Canada's knowledge, no prior
employer of any employee of Company or Jaws Canada has any right to or interest
in any inventions, improvements, discoveries, or other information assigned to
Company or Jaws Canada by such employee. All non-management employees of Company
and Jaws Canada who have access to confidential or proprietary information of
Company or Jaws Canada have executed and delivered proprietary information
agreements with nondisclosure and assignment of invention provisions, and all of
such agreements are in full force and effect.
3.18 Books and Records. To the Company's and Jaws Canada's
knowledge the minute books of Company and Jaws Canada contain complete and
accurate records of all official meetings and other corporate actions of their
respective stockholders and Boards of Directors and committees thereof for all
activities before March 1'st, 1998. The minute books of Company and Jaws Canada
contain complete and accurate records of all official meetings and other
corporate actions of their respective stockholders and Boards of Directors and
committees thereof for all activities after March 1, 1998. The stock ledger of
Company and Jaws Canada is complete and reflects all issuances, transfers,
repurchases and cancellations of shares of Company's and Jaws Canada's capital
stock.
3.19 Year 2000 Issues. Company and Jaws have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
risk that certain computer applications used by Company or Jaws (or any of their
respective material suppliers, customers of vendors) may be unable to recognize
and perform properly date-sensitive functions involving dates prior to and after
December 31, 1999 (the "Year 2000 Problem"). All products and software sold by
Company or Jaws been fully tested and the Year 2000 Problem will have no impact
on any product or software sold by Company or Jaws. The Year 2000 Problem will
have no impact on any product or software sold by Company or Jaws. The Year 2000
Problem is not reasonably expected to have a material adverse effect upon the
business, properties, operations or financial condition of Company or Jaws.
3.20 Disclosures. Neither this Agreement nor any exhibit
hereto, the SB-2, and certain historical financial data furnished to Purchaser
in connection with the transactions contemplated by this Agreement, when read
together, contains or will contain any material misstatement of fact or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein not misleading. Company and Jaws Canada knows of no
information or fact which has or would have a material adverse effect on the
financial condition, business or prospects of Company or Jaws Canada which has
not been disclosed to Purchaser.
-7-
<PAGE>
Notwithstanding the foregoing, there can be no assurance that any of the
projections, targets, or goals set forth in the Plan will be attained.
3.21 Broker or Finders Fee. The Company and Jaws Canada
represent and warrant to Purchaser that it shall pay no more than $105,000 in
the aggregate for any and all consulting fees or brokerage or finders' fees or
commissions that the Company and Jaws Canada may become liable to pay as a
result of the completion of the transactions contemplated by this Agreement.
4. Representations of Purchaser. Purchaser represents and warrants
to Company as follows:
4.1 Investment. Purchaser is acquiring the Shares for its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same. Except as contemplated by this Agreement and the exhibits
hereto, Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness, or commitment providing for the
disposition thereof.
4.2 Authority. Purchaser has full power and authority to
enter into and perform this Agreement in accordance with its terms. Purchaser
has not been organized specifically for the purpose of investing in Company.
4.3 Brokers or Finders. Purchaser has not retained any
broker, finder or consultant, nor is it aware of any broker, finder, consultant
who may have a claim for compensation as a result of this transaction.
5. Conditions to the Obligations of Purchaser. The obligations of
Purchaser to purchase the Shares at the Closing is subject to the fulfillment,
or the waiver by Purchaser, of the following conditions on or before the Closing
Date (except as expressly provided herein):
5.1 Accuracy of Representations and Warranties. Each
representation and warranty contained in Section 3 shall be true on and as of
the Closing Date with the same effect as though such representation and warranty
had been made on and as of the Closing Date.
5.2 Performance. Company and Jaws Canada shall have
substantially performed and complied with all agreements and conditions
contained in this Agreement required to be performed or complied with by Company
or Jaws Canada prior to or at the Closing.
5.3 Opinion of Counsel. Purchaser shall have received an
opinion from Jeffer, Mangels, Butler & Marmaro LLP, counsel for Company, dated
the Closing Date, addressed to Purchaser, and in substantially the form and
substance attached hereto as Exhibit D.
5.4 Investors' Rights Agreement. The Investors' Rights
Agreement attached hereto as Exhibit E (the "Investors' Rights Agreement") shall
have been executed and delivered by Company and Purchaser.
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<PAGE>
5.5 Certificates and Documents. All corporate and other
proceedings required to be taken on the part of Company to authorize and carry
out this Agreement shall have been taken, and Company shall have delivered to
legal counsel of Purchaser:
(a) Articles of Incorporation. The Articles of
Incorporation of the Company and Jaws Canada (including all certificates of
designation in respect of any preferred stock of the Company or Jaws Canada), as
amended and in effect on or immediately prior to the Closing Date, certified as
true and correct by the Secretary of the Company and the President of Jaws
Canada respectively.
(b) Good Standing Certificates. Certificates, as of the
most recent practicable date prior to the Closing, issued by the Secretary of
State of the State of Nevada for Company and the appropriate provincial
authority for Alberta, Canada for Jaws Canada, and the appropriate authority of
any other jurisdiction in which the failure to qualify Company or Jaws Canada to
do business as a foreign corporation would have a material adverse affect on the
operations or financial condition of Company or Jaws Canada, confirming the
corporate good standing of each of Company and Jaws Canada on or immediately
prior to the Closing Date; and
(c) Resolutions. Resolutions of the Board of Directors
(and, where required, the stockholders) of Company and Jaws, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by an officer of Company and Jaws, respectively,
as of the Closing Date.
5.6 Other Matters. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to Purchaser and its legal counsel, and
Purchaser and its legal counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
5.7 SB-2. Company shall have delivered to Purchaser a copy of
the SB-2.
6. Conditions to the Obligations of Company. The obligations of
Company under this Agreement are subject to fulfillment, on or before the
Closing Date, of each of the following conditions:
6.1 Accuracy of Representations and Warranties. The
representations and warranties of Purchaser contained in Section 4 shall be true
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date.
6.2 Performance. Purchaser shall have substantially performed
and complied with all agreements and conditions contained in this Agreement
required to be performed or complied with by Purchaser prior to or at the
Closing.
7. Affirmative Covenants of Company.
7.1 Financial Statements and Other Information.
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<PAGE>
(a) Financial Statements and Budgets. Company and Jaws
Canada will deliver to Glentel Inc. ("Glentel") upon request:
(i) Within 90 days after the end of each fiscal year of
Company and Jaws Canada, a balance sheet of Company and Jaws Canada as of the
end of such year and statements of income and of changes in financial condition
of Company and Jaws Canada for such year (A) prepared in accordance with
generally accepted accounting principles consistently applied, (B) audited by an
independent accounting firm acceptable to Purchaser (the Purchaser hereby agrees
to accept any of Canada's top 4 accounting firms, by number of employees, for
such audit), and (C) including such other information as is necessary to verify
the financial condition of Company and Jaws Canada;
(i) Within 30 days after the end of each calendar month
(other than a calendar month during which any fiscal year of Company and Jaws
Canada ends), an unaudited balance sheet of Company and Jaws Canada as of the
end of such month and unaudited statements of income and of changes in financial
condition of Company and Jaws Canada for such month and for the current fiscal
year to the end of such month; and
(ii) As soon as available, but in any event within 30
days after commencement of each new fiscal year, a business plan that shall
contain projected quarterly and annual financial statements and quarterly and
annual operating and capital budgets for such fiscal year, which such plan shall
be submitted to Company and Jaws Canada's Board of Directors for approval within
such time.
In addition, the Company and Jaws Canada will deliver to Glentel,
with reasonable promptness, such other information and financial data concerning
Company and Jaws Canada as Glentel may reasonably request, including, without
limitation, quarterly and annual budgets and summaries of financial plans.
(b) Preparation and Delivery. The foregoing financial
statements shall be prepared on a consolidated basis if Company then has any
subsidiaries and shall be accompanied by a certificate of an officer of Company
that, to the best knowledge of such officer, Company is in compliance with the
covenants in this Section 7. The financial statements delivered pursuant to
clause (ii) of paragraph (a) also shall be accompanied by a certificate of an
officer of Company that, to the best knowledge of such officer, such statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied (except as noted), and fairly present the financial
condition of Company at the date thereof and for the periods covered thereby,
subject to changes to reflect year-end adjustments.
7.3 Material Changes and Litigation. With respect to events
of which Company or Jaws Canada has knowledge, Company and Jaws Canada promptly
will notify Purchaser of any material adverse change in the business,
properties, assets, or condition, financial or otherwise, of Company or Jaws
Canada and of any litigation or governmental proceeding or investigation pending
or, to Company or Jaws Canada's knowledge, overtly threatened in writing against
Company or Jaws Canada, or against any officer, director, key employee, or
principal stockholder of Company or Jaws Canada materially and adversely
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<PAGE>
affecting or which, if adversely determined, would materially and adversely
affect its present or proposed business, properties, assets, or condition taken
as a whole.
7.4 Nondisclosure Agreements. Company and Jaws Canada will
require all persons now or hereafter employed by Company or Jaws Canada who have
access to confidential or proprietary information of Company or Jaws Canada to
enter into Non-Disclosure Agreements, unless the Board of Directors of Company,
by unanimous vote, elects to waive such requirement of an employee of Company or
Jaws Canada.
7.5 Observer Rights. In addition to any director nominated by
Purchaser pursuant to its rights under the terms of the Common Stock, Company
will permit one authorized representative from Glentel to attend all meetings of
Company's Board of Directors. Such representative shall execute an appropriate
agreement to maintain the confidentiality of all financial, confidential, and
proprietary information of Company acquired by him or her in exercising such
right.
7.6 Transactions with Affiliates. Except as specifically
acknowledged and consented to in this Agreement, Company will not, and will not
permit any subsidiary of Company to, directly or indirectly enter into any
transaction or group of related transactions with any affiliate of Company
except pursuant to the reasonable requirements of Company's or the subsidiary's
business and upon fair and reasonable terms no less favorable to Company or the
subsidiary than would be obtainable in a comparable arm's-length transaction.
For purposes of this Section 7.6, (a) a person that directly or indirectly
controls, is controlled by, or is under common control with another person is an
"affiliate" of such other person, (b) the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and (c) a corporation or other entity, a
majority of the voting stock or equity interests having voting rights of which
is owned or controlled by Company, is a "subsidiary" of Company.
7.7 Post-Closing Blue Sky Filings. Company agrees to timely
make all required post-closing filings, if any, with United States state blue
sky authorities and all Canadian authorities.
8. Successors and Assigns. Except as provided in Section 9, the
provisions of this Agreement shall be binding upon, and inure to the benefit of,
the respective successors, assigns, heirs, executors and administrators of the
parties hereto. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
9. Confidentiality. Purchaser agrees that it will keep confidential and
will not disclose or divulge any confidential, proprietary, or secret
information which Purchaser may obtain from Company pursuant to financial
statements, reports, and other materials submitted by Company to Purchaser
pursuant to this Agreement, unless such information is known, or until such
information becomes known through no fault of Purchaser, to the public.
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<PAGE>
10. Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
11. Expenses. Each party shall pay all its own legal and other expenses
with respect to the transaction.
12. Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be delivered by hand or
mailed by first class certified or registered mail, return receipt requested,
postage prepaid, or by facsimile, receipt confirmed:
If to Purchaser, at the address set forth on Schedule 1, or at such
other address or facsimile number as may have been furnished to Company
in writing by Purchaser, with a copy to such Purchaser's legal counsel,
if any, as set forth on Schedule 1;
If to Company, at 1013 17 Avenue SW, Calgary, Alberta, T2T 0A7,
Attention: Riaz Mamdani, Chief Financial Officer or at such other
address or facsimile number as may have been furnished to Purchaser in
writing by Company, with a copy to: Jeffer, Mangels, Butler & Marmaro
LLP, Tenth Floor, 212 Avenue of the Stars, Los Angeles, California,
90067-5010, Attention: Jeffrey E. Sultan;
If to Jaws Canada at 1013 17 Avenue SW, Calgary, Alberta, T2T 0A7,
Attention: Riaz Mamdani, Chief Financial Officer or at such other
address or facsimile number as may have been furnished to Purchaser in
writing by Company, with a copy to: Jeffer, Mangels, Butler & Marmaro
LLP, Tenth Floor, 212 Avenue of the Stars, Los Angeles, California,
90067-5010, Attention: Attention: Jeffrey E. Sultan;
Notices provided in accordance with this Section 12 shall be deemed delivered
upon personal delivery, three days after deposit in the mail, or upon facsimile
delivery.
13. Brokers. The Company will indemnify and save the Purchaser harmless
from and against any and all claims, liabilities, or obligations with respect to
consulting fees or brokerage or finders' fees or commissions in connection with
the transactions contemplated by this Agreement asserted by any person on the
basis of any statement or representation alleged to have been made by the
Company.
14. Compliance and Further Assurances. Each party to this Agreement
agrees to execute and deliver, or cause to be executed and delivered, all
certificates, instruments, agreements, and other documents contemplated to be
executed and delivered on or before the Closing Date and such other documents
and instruments as may be requested by such other party to consummate the
transactions contemplated by this Agreement.
15. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
16. Amendments and Waivers. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this
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<PAGE>
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) with the written consent of Company and the
holders of at least a majority of the Shares. Any amendment or waiver effected
in accordance with this Section 17 shall be binding upon each holder of any
Shares (including shares of Common Stock into which such Shares have been
converted), each future holder of all such securities, and Company. No waivers
of or exceptions to any term, condition, or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition, or provision.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Headings; Exhibits. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement. The exhibits attached hereto are
incorporated herein by reference and part and parcel of this Agreement.
19. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
20. Equitable Remedies. The rights and remedies of any of the parties
hereto shall not be mutually exclusive (i.e., the exercise of one or more of the
provisions hereof shall not preclude the exercise of any other provision
hereof). Each party acknowledges and confirms that its breach or threatened
breach of this Agreement may cause irreparable injury to the one or more of the
other parties for which damages at law (i.e., monetary damages) may be an
inadequate remedy and agrees that, in such event, the respective rights and
obligations hereunder shall be enforceable by specific performance, injunction,
or other equitable remedy; provided, however, that nothing herein contained is
intended to, nor shall it, limit or affect any right or rights at law or by
statute or otherwise of any party aggrieved as against the other for a breach or
threatened breach of any provision hereof, it being the intention hereof to make
clear the agreement of the parties that the respective rights and obligations of
the parties hereunder shall be enforceable in equity as well as at law or
otherwise.
21. Interpretation.
21.1 Directly or Indirectly. Any provision of this Agreement
which refers to an action which may be taken by a party hereto, or which a party
hereto is prohibited from taking, shall include any such action taken directly
or indirectly by or on behalf of such party, including by or on behalf of any
affiliate or agent of such party.
21.2 No Presumption. In the event any claim is made by either
party hereto relating to any conflict, omission, or ambiguity in this Agreement,
no presumption or burden of proof or persuasion shall be implied by virtue of
the fact that this Agreement was prepared by or at the request of a particular
party or its counsel.
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<PAGE>
21.3 References to this Agreement. References to numbered or
lettered articles, sections, and subsections refer to articles, sections and
subsections, respectively, of this Agreement unless otherwise expressly stated.
21.4 Person. Except as otherwise expressly provided in this
Agreement, all references to the word "person" in this Agreement include
individuals, partnerships, corporations, limited liability companies, trusts,
and any other legal entities or associations.
22. Governing Law. This Agreement, the rights and obligations of the
parties hereto and their successors and assigns hereunder, shall be interpreted,
construed, and enforced in accordance with the laws of the Province of Alberta,
Canada, excluding any conflict-of-laws rule or principle that might refer the
governance or construction of this Agreement to the law of another jurisdiction.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
COMPANY:
JAWS TECHNOLOGIES, INC.
By: _______________________________________
Name:__________________________________
Title:________________________________
JAWS CANADA:
JAWS TECHNOLOGIES, INC.
By: _________________________________
Name:____________________________
Title:___________________________
PURCHASER:
GLENTEL, INC
By:___________________________________
Name:______________________________
Title:_____________________________
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
SCHEDULE 1
- ---------------------------------------------------------------------------------------------
INVESTOR NUMBER OF SHARES OF NUMBER OF
COMMON STOCK WARRANTS CONSIDERATION
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Glentel Inc. 1,000,000 834,000 $1,500,008.34
Suite 2700
4710 Kingsway Court ($1.5 per Share and
Burnaby, British Columbia $.00001 per Warrant)
V5H 4M2
Attention: Thomas E. Skidmore
Legal Counsel
Blackwell Sanders Peper Martin LLP
2300 Main Street, Suite 1000
Kansas City, Missouri 64108
Attention: James A. Ash, Esq.
- ---------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT A
Terms of the Capital Stock of Company
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<PAGE>
EXHIBIT B
Exceptions to Company's Representations
-17-
<PAGE>
EXHIBIT C
Stockholder List
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<PAGE>
EXHIBIT D
Legal Opinion
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<PAGE>
EXHIBIT E
Investors' Rights Agreement
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<PAGE>
EXHIBIT F
SB-2
-21-
Exhibit 10.10
-------------
Purchasers of Common Stock Pursuant to Form of
Stock Purchase Agreement Set Forth
in Exhibit 10.9
The following entities purchased common stock in a private placement of
securities on June 21, 1999, pursuant to Stock Purchase Agreements substantially
to the form set forth in Exhibit 10.11. The differences between these agreements
was purchaser and the amount of common stock purchased.
Shares of Common Stock
----------------------
Name Purchased
---- ---------
Thomas E. Skidmore................ 69,000
A. Allan Skidmore................. 69,000
Arthur Skidmore................... 10,000
Brian Skidmore.................... 7,500
Cary Skidmore..................... 10,000
Garry Skidmore.................... 7,500
Beverly Droulis................... 500
Margrit Hartman................... 9,000
Margaret Alexis Kennedy........... 8,500
Suzanne Lowndes................... 9,000
913570.1
EXHIBIT 10.11
INVESTOR' RIGHTS AGREEMENT
THIS INVESTOR' RIGHTS AGREEMENT is made as of June 21, 1999, by and
among Jaws Technologies, Inc., a Nevada corporation, with offices at 1013 17
Avenue SW, Calgary, Alberta, (the "Company") and the INVESTOR LISTED ON SCHEDULE
1 attached hereto.
RECITALS
A. The Company proposes to sell and issue 1,000,000 shares of its
Common Stock (the "Common Stock") and 834,000 Warrants exercisable for Shares of
Common Stock pursuant to that certain Stock Purchase Agreement of even date
herewith (the "Purchase Agreement").
B. As a condition of entering into the Purchase Agreement, the Investor
has requested that the Company grant to him certain rights (including, without
limitation, registration rights) as set forth below.
AGREEMENT
In consideration of the premises hereof, the mutual promises made
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
1. Registration Rights.
-------------------
1.1 Certain Definitions. As used in this Section 1 and elsewhere in
this Agreement, the following terms shall have the following respective
meanings:
"Board" means the Company's board of directors, as it may exist
from time to time.
"Commission" means the Securities and Exchange Commission, or any
other United States federal agency at the time administering the Securities Act
(as defined below).
"Common Stock" has the meaning set forth in the Recitals.
"Conversion Shares" means shares of Common Stock issued or
issuable upon exercise of the Warrants.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar United States federal statute, and the rules and
regulations of the Commission issued under such Act, as they each may, from time
to time, be in effect.
"Glentel" means Glentel, Inc., a Canadian corporation.
<PAGE>
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other similar form, or any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation).
"Registration Expenses" means the expenses described in Section
1.6.
"Registrable Shares" means (a) the Shares, (b) the Warrants, (c)
any Conversion Shares, and (d) any other shares of Common Stock issued in
respect of the shares of Common Stock described in subparagraphs (a), (b), and
(c) above (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock or Warrants which are Registrable Shares shall cease to be Registrable
Shares upon any public sale pursuant to a Registration Statement, Section 4(1)
of the Securities Act, or Rule 144 under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" means shares of the Company's Common Stock which are
issued pursuant to the Purchase Agreement.
"Shareholder" means the Investor and any persons or entities to
whom the rights granted under this Section 1 are transferred pursuant to Section
3 hereof.
"Warrants" means the warrants to purchase shares of the Company's
Common Stock which are issued pursuant to the Purchase Agreement.
1.2 Sale or Transfer of Shares; Legend.
----------------------------------
(a) Restriction.
----------------
(1) Registrable Shares Owned by Glentel. The Registrable
Shares (other than the Warrants and the Conversion Shares) owned by Glentel and
securities issued in respect of the Registrable Shares (other than the Warrants
and the Conversion Shares) owned by Glentel shall not be sold or transferred for
one year after the date of this Agreement without the prior written consent of
the Company. After the first anniversary of this Agreement, the Registrable
Shares (other than Warrants and the Conversion Shares) owned by Glentel and
securities issued in respect of Registrable Shares (other than Warrants and the
Conversion Shares) owned by Glentel will not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act and
under any applicable state securities or blue sky laws or (ii) the Company first
shall have been furnished with an opinion of legal counsel, satisfactory to the
Company, to the effect that such sale or transfer is exempt from such
registration requirements.
<PAGE>
(2) Warrants and Conversion Shares. Warrants and the
Conversion Shares owned by any Shareholder, including Glentel, may be sold or
transferred at any time so long as the Shareholder complies with clause (i) or
(ii) in subparagraph (1) above.
(b) Exceptions. Notwithstanding the foregoing, no registration or
opinion of counsel shall be required for (i) a transfer by the Investor to an
affiliate or relative of the Investor if the transferee agrees in writing to be
subject to the terms of this Section 1 to the same extent as if he, she, or it
were the Investor hereunder or (ii) a transfer made in accordance with Rule 144
under the Securities Act.
(c) Legend. Each certificate representing the Registrable Shares
and shares issued in respect of the Registrable Shares shall bear a legend
substantially in the following form:
"THE SHARES OR WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE BEEN
OFFERED FOR SALE ONLY OUTSIDE THE UNITED STATES IN RELIANCE UPON
REGULATION S UNDER THE UNITED STATES SECURITES ACT OF 1933, AS
AMENDED ("THE ACT"). THE SHARES OR WARRANTS HAVE NOT BEEN
REGISTERED UNDER THE ACT AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER
TRANSFERRED OR DISPOSED OF WITHIN THE UNITED STATES OR TO OR FOR
THE ACCOUNT OR BENEFIT OF A U.S. PERSON (AS SUCH DEFINITION IS
DEFINED IN REGULATION S UNDER THE ACT), UNLESS THE SECURITIES ARE
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE ACT IS AVAILABLE. NO HEDGING TRANSACTIONS MAY
BE MADE WITH RESPECT TO THESE SECURITIES WXCEPT AS PERMITTED UNDER
THE ACT"
The foregoing legend shall be removed from the certificates
representing any Registrable Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act.
(d) Regulation S Compliance. The offer and sale of the Common Stock,
Conversion Shares, and Warrants ("Securities") are exempt from registration
under the United States Securities Act of 1933 ("Act") pursuant to the exemption
provided therefrom under Regulation S. In accordance with Regulation S, the
Investor represents as follows:
(1) That Investor is not a "U.S. person" as defined in Rule 902(k)
of Regulation S.
<PAGE>
(2) Investor has been apprised that the Securities have not been
registered under the Securities Act and may not be offered or sold in the United
States or to U.S. persons unless the Securities are registered under the Act or
an exemption from the registration requirements of the Securities Acts
available. Hedging transactions involving the securities may not be conducted
unless in compliance with the act.
(3) No offers to purchase the Securities were made to the Investor
in the United States and at the time that the Investor buy order was originated,
the Investor was outside the United States.
(4) The Company represents that there have been no directed
selling efforts for purposes of conditioning the market in the United States for
any of the securities being offered herein including the placing of an
advertisement in a publication with a general circulation in the United States
that refers to the offering of Securities being made in reliance upon Regulation
S.
(5) Investor agrees to resell the Securities only in accordance
with the provisions of this Regulation S, pursuant to registration under the
Securities Act or pursuant to an available exemption from registration and
agrees not to engage in hedging transaction with respect to such securities
unless in compliance with the Securities Act.
(6) The Investor is aware that the Company will refuse to register
any transfer of securities not made in accordance with the provisions of
Regulation S, pursuant to registration under the Securities Act or pursuant to
an available exemption from regulation.
(7) The securities may not be transferred during a distribution
compliance period ending one year after the completion of this offering unless
the purchases of the securities certifies that it is not U.S. person and is not
acquiring the securities for the account or benefit of any U.S. person or is a
U.S. person who purchased securities in a transaction that did not require
registration under the Securities Act.
(8) In connection with the exercise of a Warrant, the Investor
will be required to provide a written certification that it is not a U.S. person
and the warrant is not being exercised on behalf of the U.S. person.
1.3 Required Registration. The Company agrees that it will file a
Registration Statement with the Commission to register all of the Registrable
Shares owned by all of the Shareholder within 270 calendar days from the date of
this Agreement.
1.4 Incidental Registration.
-----------------------
(a) Notice by Company. Whenever the Company proposes to file a
Registration Statement (other than pursuant to Section 1.3 or an amendment to a
Registration Statement that was filed before the date of this Agreement) that
contemplates the sale or issuance of securities, including a Registration
Statement to register securities owned by another security holder of the
<PAGE>
Company and, for the purposes of this Section 1.4 only, a Registration Statement
on a Form S-8), it will, prior to such filing, give written notice to the
Shareholder of its intention to do so and, upon the written request of the
Shareholder given within 10 days after the Company provides such notice, the
Company shall use its best efforts (including filing a Registration Statement on
a separate form, if necessary) to cause all Registrable Shares that Shareholder
has requested the Company to register to be registered under the Securities Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of the
Shareholder. Notwithstanding the foregoing, the Company is not required to
register any Shares that the Shareholder owns at the time it files the first new
Registration Statement after the date of this Agreement (including a
Registration Statement on a Form S-8) filed after the date of this Agreement if
in the Company's belief, inclusion of such Shares would materially and adversely
affect the success of the offering.
(b) Underwriter's Cut-back. In connection with any offering under
subsection 1.4(a) involving an underwriting, the Company shall not be required
to include any Registrable Shares in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it, and then only in such quantity as will not,
in the opinion of the underwriters, materially jeopardize the success of the
offering by the Company. If in the opinion of the managing underwriter the
registration of all, or part of, the Registrable Shares which the holders have
requested to be included would materially and adversely affect such public
offering, then the Company shall be required to include in the underwriting only
that number of Registrable Shares, if any, which the managing underwriter
believes may be sold without causing such material adverse effect, provided,
however, that in no event will the amount of Registrable Shares included in the
offering be reduced below the greater of (1) 10% of the total amount of
securities included in the offering or (2) all of the Registrable Shares then
owned by the Shareholder.
1.5 Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to file a Registration Statement or to use
reasonable commercial efforts to effect the registration of any of the
Registrable Shares under the Securities Act, the Company shall:
(a) Filing. File with the Commission a Registration Statement with
respect to such Registrable Shares and use reasonable commercial efforts to
cause that Registration Statement to become and remain effective;
(b) Amendments. As expeditiously as possible prepare and file with
the Commission any amendments and supplements to the Registration Statement and
the prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective for a period of not less than 60 days
from the effective date;
(c) Furnish Copies. As expeditiously as possible furnish to each
selling Shareholder such reasonable numbers of copies of the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as the selling Shareholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by the selling Shareholder;
-5-
<PAGE>
(d) Blue Sky Registration. As expeditiously as possible use its
best efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or blue sky laws of such states as
the selling Shareholder shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the selling Shareholder
to consummate the public sale or other disposition of the Registrable Shares
owned by the selling Shareholder; provided, however, that the Company shall not
be required in connection with this paragraph (d) to qualify as a foreign
corporation in any jurisdiction, execute a general consent to service of process
in any jurisdiction, or subject itself to taxation in any jurisdiction; and
(e) List on Exchange. Use reasonable commercial efforts to cause
the Registrable Shares to be listed on the principal securities exchange on
which similar securities of the Company are then listed, if any, if the listing
of such shares is then permitted under the rules of such exchange.
If the Company has delivered preliminary or final prospectuses to the selling
Shareholder and after having done so the prospectus is amended to comply with
the requirements of the Securities Act, the Company shall promptly notify the
selling Shareholder and, if requested, the selling Shareholder shall immediately
cease making offers of Registrable Shares and return all prospectuses to the
Company. The Company shall promptly provide the selling Shareholder with revised
prospectuses and, following receipt of the revised prospectuses and compliance
with any related requirements of the Securities Act and any applicable state
securities or blue sky laws, the selling Shareholder shall be free to resume
making offers of the Registrable Shares.
1.6 Allocation of Expenses. The Company will pay all Registration
Expenses of all registrations under this Agreement; provided, however, that if a
registration is withdrawn at the request of the Shareholder requesting such
registration (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Shareholder after
the date on which such registration was requested, the requesting Shareholder
shall pay the Registration Expenses of such registration pro rata in accordance
with the number of their Registrable Shares included in such registration. For
purposes of this Section 1.6, the term "Registration Expenses" shall mean all
expenses incurred by the Company in complying with this Section 1, including,
without limitation, all registration and filing fees, exchange listing fees,
printing expenses, fees of accountants for the Company, fees and disbursements
of counsel for the Company, state securities or blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration, but excluding underwriting discounts, selling commissions or any
other brokerage or underwriting fees and expenses, and the fees and expenses.
1.7 Indemnification.
---------------
(a) By Company. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages, or liabilities, joint or
several, to which such seller, underwriter, or controlling person may become
subject under the
-6-
<PAGE>
Securities Act, the Exchange Act, state securities or blue sky laws, or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus, or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage, or liability
arises out of or is based upon (i) any untrue statement or omission made in such
Registration Statement, preliminary prospectus, or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter, or controlling person specifically for use in the preparation
thereof or (ii) the failure of such seller to deliver copies of the prospectus
in the manner required by the Securities Act.
(b) By Seller. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares, severally (and not jointly or jointly and
severally), will indemnify and hold harmless the Company, each of its directors
and officers, each underwriter, if any, and each person, if any, who controls
the Company or any such underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities, joint or
several, to which the Company, such directors and officers, underwriter, or
controlling person may become subject under the Securities Act, Exchange Act,
state securities or blue sky laws, or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus, or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment, or supplement; provided, however, that the
obligations of a Shareholder hereunder shall be limited to an amount equal to
the proceeds to the Shareholder arising from the sale of Registrable Shares as
contemplated herein where any such losses, claims, damages, or liabilities are
not determined to be caused at least primarily by any untrue statement of
material fact made by, or any omission to state a material fact by, such
Shareholder.
(c) Notice. Each party entitled to indemnification under this
Section 1.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") within a reasonable period of
time after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom; provided,
-7-
<PAGE>
however, that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be withheld unreasonably). The Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between the Indemnified Party and
any other party represented by such counsel in such proceeding. No Indemnifying
Party in the defense of any such claim or litigation shall, except with the
prior written consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party.
1.8 Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to subsection 1.3(a), the Company agrees to enter
into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
1.9 Information by Holder. Each Shareholder whose Registrable Shares
are included in any registration shall furnish to the Company such information
regarding such Shareholder and the distribution proposed by such Shareholder as
the Company may request in writing if it is required in connection with any
registration, qualification, or compliance referred to in this Section 1.
1.10 Limitations on Subsequent Registration Rights. From and after the
date hereof until the first anniversary of such date, the Company shall not,
without the prior written consent of the Shareholder, enter into any agreement
with any holder or prospective holder of any securities of the Company giving
such holder or prospective holder any registration rights, the terms of which
are more favorable than the registration rights granted herein, unless the
Company shall offer such more favorable terms to the Shareholder.
1.11 Rule 144 Requirements. At all times after the date hereof, the
Company agrees to:
(a) Public Information. Make and keep public information
available, as those terms are understood and defined in Rule 144 under the
Securities Act;
(b) Reports. To file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(c) Compliance Statement. Furnish to any holder of Registrable
Shares upon request a written statement by the Company as to its compliance with
the reporting requirements of Rule 144, and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly reports of the
Company, and such other reports and documents of the Company as such
-8-
<PAGE>
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
2. Pre-Emptive Right.
------------------
2.1 Pre-Emptive Right. Any time the Company proposes to issue New
Securities (as defined in Section 2.2) in an amount which, in any 90 day period,
exceeds 10% of the number of such outstanding securities at the beginning of
such 90 day period, Glentel will have the right to purchase a pro rata portion
of those New Securities (the "Pre-Emptive Right"). Glentel's pro rata share for
purposes of this Pre-Emptive Right is the ratio of the number of shares of
Common Stock owned by Glentel (on an as-converted basis) immediately prior to
the issuance of New Securities, to the total number of shares of Common Stock
outstanding immediately prior to the issuance of New Securities, assuming full
conversion of all securities and full exercise of all outstanding rights,
options and warrants to acquire Common Stock of the Company. This Pre-Emptive
Right shall be subject to the following provisions of this Section 2 or shall
expire on the transfer(s) of grater than 50% of the Common Stock owned by
Glentel.
2.2 New Securities. "New Securities" shall mean any capital stock of
the Company whether now authorized or not and rights options or warrants to
purchase such capital stock, and securities of any type whatsoever that are, or
may become, convertible into capital stock; provided that the term "New
Securities" does not include (i) any advances already made under the Thomson
Kernaghan Debenture Acquisition Agreement dated September 25, 1998 and amended
April 27, 1999 (ii) securities purchased under the Purchase Agreement; (iii)
securities issuable upon conversion or exercise of the securities purchased
under the Purchase Agreement; (iv) securities issued pursuant to the acquisition
of another business entity or business segment of any such entity by the Company
by merger, purchase of substantially all the assets or other reorganization
whereby the Company will own more than fifty percent (50%) of the voting power
of such business entity or business segment of any such entity; (iv) any
borrowing, direct or indirect, from financial institutions or other persons by
the Company, whether or not currently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such borrowing does
not have any equity features including warrants, options or other rights to
purchase capital stock and are not convertible into capital stock of the
Company; (v) securities issued to employees, consultants, officers or directors
of the Company pursuant to any stock option, stock purchase or stock bonus plan,
agreement or arrangement approved by the Board of Directors; (vi) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company; or (vii) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (i) through (vi) above.
2.3 Notice. In the event the Company proposes to undertake an issuance
of New Securities, it shall give Glentel written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Glentel will then have 7
calendar days after the date such notice is delivered to Glentel to agree to
purchase its pro rata share of such New Securities for the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
-9-
<PAGE>
2.4 Selling Period. The Company shall have 120 calendar days from the
expiration of the 20 day period set forth in Section 2.3 to sell or enter into
an agreement (pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within 120 calendar days from the date of said agreement)
to sell the New Securities at a price and upon terms no more favorable to the
purchasers thereof than specified in the Company's notice to Glentel pursuant to
Section 2.3. In the event the Company had not sold the New Securities within
said 120 day period or entered into an agreement to sell the New Securities in
accordance with the foregoing within said 120 day period from the date of said
agreement, the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to Glentel in the manner provided
in Section 2.3 above.
2.5 Transfer of Pre-Emptive Right. The Pre-Emptive Right set forth in
this Section 4 may be transferred or assigned by Glentel only to a transferee or
assignee of not less than 50% of the Common Stock owned by Glentel (as currently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits, and the like), provided that the Company is
given written notice prior to said transfer or assignment, stating the name and
address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes in
writing the obligations of Glentel under this Agreement.
3. Forced Exercise of Warrants. At any time following the registration of
the Warrants, the Company may within one business day following any period in
which the closing price of its Common Stock as listed on any U.S. public
exchange or OTC-BB exceeds $8.50 on each of any consecutive 30 day period issue
a written notice to the Investor demanding the exercise of the Warrants. The
Investor within 30 days following receipt of this notice shall exercise all the
Warrants held by them. Notwithstanding the foregoing an Investor shall not be
required to exercise a Warrant if on any one day during this 30 day period
following the receipt of this notice the closing price of the Common Stock as
listed on any U.S. Public exchange or OTC-BB is less than $8.50.
4. Board of Directors and Committees. The Company agrees to nominate
Thomas E. Skidmore to the Board of Directors of the Company within 60 days of
the date of this Agreement and to nominate Mr. Skidmore for election to the
Board of Directors of the Company annually until Mr. Skidmore delivers to the
Company a written resignation from the Board of Directors.
5. Transfers of Certain Rights.
---------------------------
5.1 Transferees. Any transferee to whom rights under this Agreement are
transferred shall, as a condition to such transfer, deliver to the Company a
written instrument by which such transferee agrees to be bound by the
obligations imposed upon the Investor under this Agreement, to the same extent
as if such transferee were a Shareholder hereunder.
5.2 Subsequent Transferees. A transferee to whom rights are transferred
pursuant to this Section 5 may not again transfer such rights to any other
person or entity, other than as provided in subsection 5.1 above.
-10-
<PAGE>
6. Miscellaneous.
-------------
6.1 Successors and Assigns. The provisions of this Agreement shall be
binding upon, and inure to the benefit of, the respective successors, assigns,
heirs, executors and administrators of the parties hereto. Nothing in the
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.2 Waivers and Amendments. Neither this Agreement nor any provisions
hereof may be amended, changed, waived, discharged, or terminated orally, but
only by a written statement signed by Glentel and the Company.
6.3 Governing Law. This Agreement shall be governed in all respects by
the laws of the Province of Alberta, Canada, without regard to the
conflict-of-laws rules or principle that might refer to the governance or
construction of this Agreement to the law of another jurisdiction.
6.4 Entire Agreement. This Agreement (together with the Purchase
Agreement) constitutes the full and entire understanding and agreement between
the parties with regard to the subjects addressed herein.
6.5 Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt and shall be in writing and may be
delivered in person, by telecopy, electronic mail, overnight delivery service,
or U.S. or Canadian mail (in which event it may be mailed by first-class,
certified or registered, postage prepaid), addressed (a) if to the Shareholder,
at such address as the Shareholder shall have furnished the Company in writing,
or, until any such holder so furnishes an address to the Company, then to and at
the address of the last holder of such securities who has so furnished an
address to the Company, or (b) if to the Company, at its address set forth at
the beginning of this Agreement, or at such other address as the Company shall
have furnished to the each Shareholder in writing.
6.6 Titles and Subtitles. The titles of the sections and paragraphs of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
the date first above written.
COMPANY:
JAWS TECHNOLOGIES, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-11-
<PAGE>
INVESTOR:
GLENTEL, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-12-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
INVESTOR NUMBER OF SHARES OF COMMON NUMBER OF WARRANTS
STOCK CONSIDERATION
<S> <C> <C> <C>
Glentel Inc. 1,000,000 834,000 $1,500,008.34
Suite 2700
4710 Kingsway ($1.5 per Share and
Burnaby, British Columbia $.00001 per Warrant)
V5H 4M2
Attention: Thomas E. Skidmore
Legal Counsel
Blackwell Sanders Peper Martin LLP
2300 Main Street, Suite 1000
Kansas City, Missouri 64108
Attention: James A. Ash, Esq.
</TABLE>
-13-
Exhibit 10.12
-------------
Investors Receiving Rights Pursuant to Form of Investors Rights
Agreement Set Forth in Exhibit 10.11
The following entities received certain rights related to a private
placement of securities on June 21, 1999, pursuant to Investor Rights Agreements
substantially to the form set forth in Exhibit 10.13. The sole difference
between these agreements was the entity receiving such rights.
Thomas E. Skidmore
A. Allan Skidmore
Arthur Skidmore
Brian Skidmore
Cary Skidmore
Garry Skidmore
Beverly Droulis
Margrit Hartman
Margaret Alexis Kennedy
Suzanne Lowndes
913576.1
EXHIBIT 10.13
JAWS Technologies, Inc.
1013 17th Avenue, S.W.
Calgary, Alberta T2T0A7
Canada
PLACEMENT AGENCY AGREEMENT
SmallCaps Online LLC
1285 Avenue of the Americas, 35th Floor
New York, New York 10019
Attention: Jeffrey B. Davis, President
Gentlemen:
This Placement Agency Agreement (the "Agreement") confirms the retention
by JAWS Technologies, Inc., a Nevada corporation (the "Company"), of SmallCaps
Online LLC, a Delaware limited liability company (the "US Placement Agent"), to
act as the sales agent in the United States on a best efforts basis in
connection with the private placement of Units (as defined below) of the Company
on the terms set forth below, including the financial and other terms set forth
in Schedule A hereto, which is hereby incorporated by reference into this
Agreement.
1. PLACEMENT
(a) Each unit (a "Unit") shall consist of one share of common stock, par
value $.001 per share (the "Common Stock), of the Company, and a warrant (each,
a "Warrant" and collectively, the "Warrants") to acquire 1/2 (one-half) of a
share of Common Stock at an exercise price of US$ 6.50 per share. The placement
of the Units (the "Placement") will be made pursuant to the Memorandum (as
defined in Section 2 below). Except as provided in Schedule A, the Units (and
the shares of Common Stock and Warrants included therein) will not be registered
under the Securities Act of 1933, as amended, or any applicable successor
statute (the "Act"), but will be issued in reliance on the private offering
exemption available under Section 4(2) of the Act and the rules and regulations
promulgated thereunder, including Regulation D, and outside the United States,
through exemptions from any prospectus requirements of applicable foreign
securities laws. The US Placement Agent understands that all subscriptions for
Units are subject to acceptance by the Company. The Company and the US Placement
Agent reserve the right in their reasonable discretion to accept or reject any
or all subscriptions for Units in whole or in part. Investors shall be required
to subscribe for a minimum number of Units with additional increments available
at the Company's discretion as set forth in Schedule A or as provided in the
Memorandum. Any subscription monies received by the US Placement Agent from
investors will be handled in accordance with Rule 15c2-4 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") , whether or not the US
Placement Agent is subject to the Exchange Act, and as otherwise may be
896966.8
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prescribed by the terms of the Memorandum. Without limiting the generality of
the foregoing, the Company and the US Placement Agent shall enter into an escrow
agreement (the "Escrow Agreement") with the United States Trust Company of New
York (or other escrow agent mutually acceptable to the parties (the "Escrow
Agent") and shall establish a separate account with the Escrow Agent entitled
"JAWS Technologies, Inc.--Escrow Account." All funds received by either the
Company or the US Placement Agent shall be immediately deposited in such escrow
account pending an initial closing hereunder.
(b) The Company is making an offering of the Units, concurrent with the
making of the private placement of Units in the United States as described
herein (the "Placement"), in Canada through the Company's Canadian placement
agent, Thomson Kernaghan & Co. Limited ("TK"). Such concurrent Canadian offering
is referred to herein as the "Concurrent Offering." The US Placement Agent will
only offer Units to prospective investors in the United States and TK will only
offer Units to prospective investors in Canada and, with the Company's consent
in Belgium. The terms of the Concurrent Offering are substantially identical to
the terms of this Placement, except to the extent that either the laws of the
United States and/or Canada require special disclosure in the Memorandum and/or
terms in this Agreement for the placement agent agreement with TK and/or terms
in the Subscription Agreement (as defined below) or the subscription agreement
between the Company and Canadian investors. The Units, Shares and Warrants sold
in the United States and Canada will be identical in all respects. For purposes
of calculating the minimum and maximum sizes of the offering, Units sold in the
United States and in Canada will be aggregated.
2. OFFERING CIRCULAR
The Company will prepare an Offering Circular relating to the Company
(such Offering Circular, together with the exhibits and attachments thereto or
available thereunder and any amendments or supplements thereto prepared and
furnished by the Company, being referred to herein as the "Memorandum") which
describes the Placement and certain investment risks relating thereto. The
Company has been and will continue to be responsible for preparing and filing
required documentation, if any, with authorities in United States prior to (and
subsequent to, if required by the laws of such jurisdiction) the distribution of
the Memorandum to prospective investors (the parties acknowledging, however,
that the offering of Units is intended and expected to be wholly or partially
exempt from filing requirements in most jurisdictions by reason of an
"accredited investor" exemption). The US Placement Agent and its counsel and the
Company and its counsel will jointly prepare a form of Subscription Agreement to
be entered into between the Company and United States purchasers of the Units
(the "Subscription Agreement"), with such representations, warranties,
conditions and covenants as are customary in private placements of corporate
equity securities with United States accredited investors. The US Placement
Agent and its counsel shall have an opportunity to review the final form of the
Memorandum and Subscription Agreement prior to the distribution thereof to
prospective investors, and the Memorandum and the Subscription Agreement will be
the only offering documents (other than cover letters which may be used by the
US Placement Agent, and any documents made available to investors in accordance
with the terms of the Memorandum) shown to prospective investors. The Company
and its counsel will advise the US Placement Agent and its counsel in writing of
those jurisdictions in which Units may lawfully be offered and sold, and the
manner in which the Units may
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lawfully be offered and sold in each such jurisdiction, in connection with the
Placement, and the US Placement Agent agrees that the Units will be offered or
sold only in such jurisdictions and in the manner specified by the Company. The
offering of Units will be made in accordance with the requirements of Section
4(2) under the Act to investors that qualify as accredited investors, as defined
in Rule 501(a) under the Act ("Accredited Investors"), purchasing for their own
account for investment purposes and not for distribution in violation of
securities laws.
3. PLACEMENT AGENT
(a) Upon the terms and conditions set forth in this Agreement and
Schedule A hereto, the Company hereby employs the US Placement Agent as its
sales agent in the United States for the purpose of placing the Units for the
account and risk of the Company. This appointment shall be exclusive with
respect to the Placement, and the Company shall not have the right to appoint
additional sales agents in the United States without the US Placement Agent's
express prior written consent (other than TK with respect to the Concurrent
Offering); provided that this Agreement shall not give the US Placement Agent
any right to act as sales agent or receive compensation in connection with any
future offerings sponsored by the Company absent a separate agreement to such
effect between the US Placement Agent and the Company. Subject to the provisions
of Section 5 hereof and to the performance by the Company of all of its
obligations to be performed hereunder, the US Placement Agent agrees to use its
best efforts to assist in arranging for sales of Units. The US Placement Agent
will also assist the Company in the preparation of the Memorandum and
presentations to prospective investors. It is understood and agreed that this
Agreement does not create any partnership, joint venture or other similar
relationship between or among the US Placement Agent and the Company, that the
US Placement Agent is acting only as a sales agents and that, except as
specifically set forth in Schedule A, there is no undertaking on the US
Placement Agent's part to purchase any of the Units or to arrange or participate
in any other financing in connection with the Placement.
(b) For the services of the US Placement Agent hereunder, the Company
will pay or caused to be paid to the US Placement Agent the commissions, fees
and expenses stated in Schedule A.
(c) Upon receipt by the Company from a proposed purchaser of completed
subscription materials in the form set prepared by the Company, and such other
documents as the Company requests, the Company and the US Placement Agent will
determine in their reasonable discretion whether they wish to accept or reject
the subscription.
(d) Subject to the provisions relating thereto contained in Schedule A,
the US Placement Agent's commissions, fees and expenses based on a percentage of
gross proceeds and all other expenses reimbursable or payable by the Company as
provided herein or in Sche dule A will be paid in full upon transfer to the
account of the Company of the purchase price of such Units; provided, however,
that no such commissions or fees shall be payable until subscriptions for the
minimum number of Units described in the Memorandum have been accepted and the
purchase price of the Units to be purchased from the Company has been
transferred to the account of the Company. For purposes of calculating the
minimum and
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maximum sizes of the offering, Units sold in the United States and in Canada
will be aggregated.
(e) The Company and the US Placement Agent agree to the terms of, and to
comply with, the agreements set forth on Schedule A hereto as if such terms and
agreements were repeated herein in their entirety.
4. PLACEMENT EXPENSES
(a) The Company will pay, whether or not any Units are sold in
connection with the Placement, all reasonable, accountable costs and expenses
incurred by the US Placement Agent in connection with the Placement as provided
in Schedule A . Reimbursement of the US Placement Agent's reasonable,
accountable out-of-pocket costs and expenses hereunder shall be made promptly in
full in the event the US Placement Agent elects to terminate this Agreement in
accordance with Section 5.
(b) Without limiting the generality of the foregoing, the Company hereby
agrees to pay all fees, charges and expenses incident to the performance by the
Company and the US Placement Agent of its respective obligations hereunder,
including, without limitation, all fees, charges, and expenses in connection
with (i) the preparation, printing, reproduction, filing, distribution and
mailing of the Memorandum and all other documents relating to the offering,
purchase, sale and delivery of the Units, and any supplements or amendments
thereto, including the fees and expenses of counsel to the Company and to the US
Placement, and the cost of all copies thereof, (ii) the issuance, sale, transfer
and delivery of the Units, the Shares, and the Warrants, including any transfer
or other taxes payable thereon and the fees of any transfer agent, warrant agent
or registrar, (iii) the registration or qualification of the Units or the
securing of an exemption therefrom under state of foreign "blue sky" or
securities laws, including, without limitation, filing fees payable in the
jurisdictions in which such registration or qualification or exemption therefrom
is sought, the costs of preparing preliminary, supplemental and final "blue sky
surveys" relating to the offer and sale of the Units and the fees and
disbursements of counsel to the Placement Agents in connection with such "blue
sky" matters, (iv) the filing fees, if any, payable to the Commission, and (v)
the retention of the Escrow Agent, including the reasonable fees and expenses of
the Escrow Agent for serving as such and the reasonable fees and expenses of its
counsel.
5. TERMINATION OF PLACEMENT
The Placement may be terminated by the mutual consent of the US
Placement Agent and TK at any time by them giving written notice to the Company
if (a) in the opinion of the US Placement Agent, the Memorandum contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements appearing
therein not misleading in the light of the circumstances in which they were
made, and the Company shall not have corrected such untrue statement or omission
to the reasonable satisfaction of the US Placement Agent and TK and their
counsel within ten business days after the Company receives notice of such
untrue statement or omission, provided that notwithstanding such ten business
day period, no such closing shall occur
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hereunder until the US Placement Agent and TK shall have notified the Company
that they are satisfied, in their reasonable determination, that the Company has
taken such steps (including circulating amended offering materials) to allow any
such closing to occur, or (b) the Company shall be in material breach of any
representation, warranty or covenant made by it in this Agreement.
6. CLOSING
(a) Subject to the conditions set forth in Section 10 hereof, if
subscriptions to purchase at least 2,000,000 Units in the aggregate in the
Placement and the Concurrent Offering have been received prior to the expiration
of the offering period and accepted by the Company, the initial closing under
this Agreement (the "Closing") shall be held at the offices of Battle Fowler
LLP, Park Avenue Tower, 75 East 55th Street, New York, New York, at 10:00 A.M.,
New York time, on December 23, 1999 (provided that subscriptions to purchase at
least 2,000,000 Units have been accepted) or at such other place, time and/or
date as the Company and the US Placement Agent shall agree upon. The date upon
which the Closing is held shall hereinafter be referred to as the "Closing
Date."
(b) Subject to the conditions set forth in Section 10 hereof, if,
subsequent to the date the subscriptions referred to in Section 6(a) hereof are
received and accepted and prior to the expiration of the offering period,
additional subscriptions to purchase Shares are received from prospective
investors, which subscriptions are accepted by the Company, one or more
additional closings under this Agreement (each, an "Additional Closing") shall
be held at the offices of Battle Fowler LLP, Park Avenue Tower, 75 East 55th
Street, New York, New York, at 10:00 A.M., New York time, on the third business
day following the date upon which the US Placement Agent receives notice from
the Company that additional subscriptions have been so accepted, or at such
other place, time or date as the Company and the US Placement Agent shall agree
upon. The Company shall notify the US Placement Agent as promptly as practicable
whether any additional subscriptions so received have been accepted. The date
upon which any additional Closing is held shall hereinafter be referred to as an
"Additional Closing Date."
(c) At the Closing or an Additional Closing, as the case may be,
the Company shall instruct the Escrow Agent to pay to the US Placement Agent at
the Closing or an Additional Closing, from the funds deposited in the applicable
Escrow Account in payment for the Shares, any cash amounts payable to the US
Placement Agent pursuant to Schedule A of this Agreement. Promptly after the
Closing Date or an Additional Closing Date, as the case may be, the Company
shall deliver to the purchasers of Unit certificates representing the Shares and
agreements representing the Warrants to which they are entitled.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company represents and warrants to, and covenants with, the US
Placement Agent that:
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(a) The Company has been validly formed and is legally existing as a
corporation in good standing under the laws of the State of Nevada, with full
corporate power and authority to conduct its business as currently conducted,
and is in good standing in each jurisdiction in which the conduct of its
business or the nature of its properties requires such qualification or
authorization, except where the failure to be so qualified or authorized and in
good standing could not reasonably be expected to have a material adverse effect
on the business and financial condition of the Company and its subsidiaries,
taken as a whole (a "Material Adverse Effect"). As of the date hereof, the
Company does not have any material subsidiaries other than JAWS Technologies,
Inc. an Alberta corporation ("Jaws Canada"), Pace Systems, Inc., incorporated
under the laws of the Province of Ontario ("Pace"), and Jaws Acquisition Corp.,
an Alberta corporation ("JAC" and collectively with Jaws Canada and Pace, the
"Subsidiaries"). Each Subsidiary has been duly organized, is validly existing
and in good standing under the laws of the jurisdiction of its organization, has
the power and authority to own its properties and to conduct its business and is
duly qualified and authorized to transact business and is in good standing in
each jurisdiction in which the conduct of its business or the nature of its
properties requires such qualification or authorization, except where the
failure to be so qualified or authorized and in good standing could not
reasonably be expected to have a Material Adverse Effect. All of the outstanding
capital stock of each Subsidiary is owned by the Company, free and clear of any
liens, and has been duly authorized and validly issued, and is non-assessable,
except for such failures as could not reasonably be expected to have a Material
Adverse Effect.
(b) Neither the Memorandum nor the Subscription Agreement contain any
untrue statement of a material fact, and the Memorandum and the Subscription
Agreement taken as a whole will not omit to state any material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading, except that the Company shall have no liability
for any information provided to the Company in writing by, and relating to, the
US Placement Agent, for use in and used in the Memorandum. It is understood that
any summary in the Memorandum of a document which appears therein in full
(either as signed or substantially in the form to be signed) does not constitute
an untrue or misleading statement merely because it is a summary; provided,
however, that any such summary may not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading. If, at any time before the Placement is completed or terminated or
before all subscriptions are accepted by the Company, there should be any change
which would cause the Memorandum or the Subscription Agreement not to comply
with this paragraph 7(b), the Company will promptly advise the US Placement
Agent thereof and prepare and furnish the US Placement Agent with, for
distribution to investors, after prior review and approval by the US Placement
Agent and their counsel (such approval not to be unreasonably withheld), such
copies of such supplements or amendments to the Memorandum and the Subscription
Agreement as will cause the Memorandum and the Subscription Agreement, as so
supplemented or amended, to comply with this paragraph 7(b), and will authorize
the US Placement Agent to make to investors, if (i) deemed necessary by counsel
to the US Placement Agent and approved by the US Placement Agent or (ii) if
deemed necessary by counsel to the Company, an offer of rescission.
896966.8
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(c) The execution, delivery and performance of this Agreement, and all
other documents to be entered into by the Company in connection with any
transaction described in the Memorandum and the consummation of the transactions
contemplated hereby and thereby have been or will be prior to such execution,
delivery, performance or consummation, as the case may be, duly and validly
authorized by the Company and do not and will not (i) constitute, or result in,
a breach or violation of any of the terms, provisions or conditions of the
articles of incorporation or bylaws of the Company or any of its Subsidiaries,
(ii) constitute, or result in, a material violation of any applicable statute,
law, ordinance or regulation of any state, territory or other jurisdiction, or
(iii) violate, constitute, or result in, a default under (or an event which with
the passing of time or the giving of notice or both would constitute a default
under) or breach of the terms, provisions or conditions of any material
indenture, note, contract, commitment, instrument or document to which the
Company or any of its Subsidiaries is or will be a party or by which the Company
or any of their respective properties are bound, or any award, judgment, decree,
rule or regulation of any court or governmental or regulatory agency or body
having jurisdiction over the Company or any of its Subsidiaries or their
respective activities or properties, in each case which breach, violation or
default would have a Material Adverse Effect; and no material consent, approval,
authori zation or order of any court or governmental or regulatory agency or
body is required on the part of the Company for the lawful consummation of the
transactions contemplated hereby and thereby, except for such consents and
approvals with respect to the offer and sale of Units in certain jurisdictions
which are identified to you by counsel for the Company.
(d) Neither the Company nor any of its officers, employees, agents or
representatives has taken or will take any action which has caused or may cause
the Placement not to qualify for exemption from the registration requirements of
the Act or of United States federal or state, or other securities laws. In
connection with the Placement, the Company shall not offer or cause to be
offered the Units by any form of general solicitation or general advertising as
defined in Rule 502(c) of Regulation D, and shall not take any action (except
for actions contemplated by the Memorandum) that would cause the Placement to be
integrated with other transactions under Rule 502(a) of Regulation D.
(e) This Agreement has been duly authorized, executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms (except
insofar as enforcement of the in demnification or contribution provisions hereof
may be limited by applicable laws or principles of public policy and subject, as
to enforcement, to the availability of equitable remedies and limitations
imposed by bankruptcy, insolvency, reorganization and other similar laws and
related court decisions relating to or affecting creditors' rights generally).
(f) The Company will not offer the Units for sale on the basis of any
communications or documents relating to the US Placement Agent or the Units
except the Memorandum and the exhibits thereto and documents described or
referred to therein (including the Subscription Agreement).
(g) So long as the Units (or the Shares, Warrants or shares of Common
Stock underlying the Warrants) are "restricted securities" within the meaning of
Rule 144(a)(3) under the Act, the Company, during any period in which it is not
subject to and in compliance with
896966.8
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Section 13 or 15(d) of the Exchange Act, or is not exempt from such reporting
requirements pursuant to and in compliance with Rule 12g3-2b under the Exchange
Act, provide to each holder of such Units and to each prospective purchaser (as
designated by such holder) of such Units, upon the request of such holder or
prospective holder, any information required to be provided by Rule 144A(d)(4)
under the Act.
(h) The Company will initially invest the proceeds of the Offering of
the Units and all other funds of the Company in such a manner so as to cause the
Company not to be subject to the United States Investment Company Act of 1940,
as amended (the "1940 Act"), and will thereafter use its best efforts to avoid
the Company's becoming subject to the 1940 Act.
(i) In addition to the foregoing, to the extent not set forth herein,
the US Placement Agent may rely on the representations and warranties made by
the Company in the Subscription Booklet provided by the Company and used in
connection with the Placement.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF US PLACEMENT AGENT
The US Placement Agent hereby represents and warrants to, and covenant
with, the Company that:
(a) This Agreement has been duly authorized, executed and delivered by
the US Placement Agent and constitutes the legal, valid and binding obligation
of the Placement Agent, enforceable against it in accordance with its terms
(except insofar as enforcement of the indemnification or contribution provisions
hereof may be limited by applicable laws or principles of public policy and
subject, as to enforcement, to the availability of equitable remedies and
limitations imposed by bankruptcy, insolvency, reorganization and other similar
laws and related court decisions relating to or affecting creditors' rights
generally).
(b) The US Placement Agent will cooperate with the Company to ensure
that the offering and sale of the Units will comply with the requirements of
Rule 506 under the Act, including, without limitation, the general conditions
contained in Regulation D and the federal securities laws, and will follow the
reasonable advice of the Company with respect to the manner in which to offer
and sell the Units so as to ensure that the offering and sale thereof will
comply with the securities laws of the jurisdictions which is not listed in
Exhibit A or in any jurisdiction in which Units are offered by the US Placement
Agent, and the US Placement Agent will not make an offer of Units in any
jurisdiction which is not listed on Exhibit A or in any jurisdiction in which
the Company advises it in writing that such offer would be unlawful for the US
Placement Agent to offer or sell securities.
(c) The US Placement Agent is (i) a registered broker-dealer under the
Exchange Act, and (ii) a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), and (iii) registered as a broker-dealer
in each jurisdiction in which it is required to be registered as such in order
to offer and sell the Units in such jurisdiction. The US Placement Agent, as
applicable, will comply with all applicable rules, regulations and
interpretations of the NASD relating to the receipt and disclosure of
compensation in connection with the Placement.
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(d) The US Placement Agent has not and will not make an offer of Units
(or of any securities, the offering of which may be integrated with the
Placement), on the basis of any communications or documents relating to the
Company or the Units except the Memorandum and the exhibits thereto and
documents described or referred to therein (including the Subscription
Agreement), and the cover letters referred to in Section 2 hereof. Without
limiting the generality of the foregoing, the US Placement Agent has not and
will not make any representation as to any rate of return on investment that an
offeree may obtain from the ownership of Units other than as set forth in the
Memorandum. The Placement Agent will deliver a copy of the Memorandum to each
prospective investor solicited by it prior to such offeree's execution of a
Purchase Agreement or, in the case of amendments or supplements to the
Memorandum (other than those amendments and supplements approved in writing by
the Company but designated in writing as not subject to this requirement), prior
to such offeree's execution of an acknowledgment of receipt of such amendment or
supplement and reconfirmation of intent to subscribe.
(e) The US Placement Agent has not and will not make an offer of Units
on behalf of the Company, or of any securities, the offering of which may be
integrated with the Placement, by any form of general solicitation or general
advertising in violation of Rule 502(c) of Regulation D such as would cause the
offering of Units not to qualify under Section 4(2) of the Act as a transaction
exempt from Section 5 thereof. The US Placement Agent has not and will not
supply in writing for inclusion in the Memorandum or any related sales materials
any information relating to the US Placement Agent containing any untrue
statement of a material fact or omitting to state any material fact required to
be stated therein or necessary to make such information, in light of the
circumstances under which it is used, not misleading.
(f) The Placement Agent will not transmit to the Company any written
offer from an offeree to purchase a Unit or Units unless, immediately prior
thereto, it reasonably believes that:
(i) the offeree is an Accredited Investor; and
(ii) the offeree meets all other offeree and/or purchaser
suitability standards, if any, required under applicable securities laws
and regulations.
(g) The US Placement Agent will exercise reasonable care to determine
that prospective investors are not "underwriters" within the meaning of Section
2(11) of the Act, and in that connection will obtain from each investor
purchasing Units in the Placement a duly executed Subscription Agreement, in the
form provided to the US Placement Agent by the Company.
(h) The US Placement Agent will periodically notify the Company of the
jurisdiction in which the Units are being offered by it or will be offered by it
pursuant to this Agreement, and will periodically notify the Company of the
status of the offering conducted pursuant to this Agreement.
(i) The US Placement Agent will take such other action or refrain from
taking such action as the Company may reasonably request in order to comply with
all applicable United
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States laws and all applicable securities laws of those jurisdictions listed in
Schedule A of which the Company advises the US Placement Agent, including using
its best efforts to cause offerees and subscribers for Units to execute and
deliver such additional documents and instruments as the Company may reasonably
require, except that the Company shall be required to complete all necessary
securities qualifications with respect to those jurisdictions listed in Schedule
A as provided in Section 2.
(j) The US Placement Agent has delivered or caused to be delivered to
each prospective investor who received the Memorandum each of (i) the Company's
quarterly report on form 10-Q, filed with the Securities and Exchange Commission
on December 15, 1999, (ii) the amended form of warrant amending the form of
warrant attached to the Memorandum as Appendix F and (iii) the supplement to
confidential private placement memorandum supplementing the Memorandum, and has
informed prospective investors that such documents, in each case, constitute
supplements to the Memorandum.
9. COVENANTS
(a) Covenants of the Company. The Company covenants to the US
Placement Agent that it will:
(i) Notify the US Placement Agent as soon as practicable,
and confirm such notice promptly in writing, (A) when any event shall have
occurred during the period commencing on the date hereof and ending on the later
of the Closing Date and the last Additional Closing Date (if any) as a result of
which the Memorandum would include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) of the receipt of any
notification with respect to the modification, recission, withdrawal or
suspension of the qualification or registration of the Shares or of an exemption
from such registration or qualification in any jurisdiction. The Company will
use its reasonable best efforts to prevent the issuance of any such
modification, rescission, withdrawal or suspension and, if any such
modification, rescission, withdrawal or suspension is issued and you so request,
to obtain the lifting thereof as promptly as possible.
(ii) Not supplement or amend the Memorandum unless the US
Placement Agent shall have approved of such supplement or amendment in writing.
If, at any time during the period commencing on the date hereof and ending on
the later of the Closing Date and the last Additional Closing Date (if any), any
event shall have occurred as a result of which the Memorandum contains any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
or if, in the opinion of counsel to the Company or counsel to the US Placement
Agent, it is necessary at any time to supplement or amend the Memorandum to
comply with the Act, Regulation D or any applicable securities or "blue sky"
laws, the Company will promptly prepare an appropriate supplement or amendment
(inform and substance reasonably satisfactory to you) which will correct such
statement or omission or which will effect such compliance.
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(iii) Deliver without charge to the US Placement Agent
such number of copies of the Memorandum and any supplement or amendment thereto
as may reasonably be requested by the US Placement Agent.
(iv) Not directly or indirectly, solicit any offer to buy
from, or offer to
sell to, any person any Units except through the US Placement Agent or TK.
(v) Not solicit any offer to buy or offer to sell Units by
any form of general solicitation or advertising, including, without limitation,
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio or
any seminar or meeting whose attendees have been invited by any general
solicitation or advertising.
(vi) At all times during the period commencing on the date
hereof and ending on the later of the Closing Date and the last Additional
Closing Date (if any), provide to each prospective investor or his purchaser
representative, if any, on reasonable request, such information (in addition to
that contained in the Memorandum) concerning the Placement, the Company and any
other relevant matters as it possesses or can acquire without unreasonable
effort or expense and extend to each prospective investor or his purchaser
representative, if any, the opportunity to ask questions of, and receive answers
from the Company concerning the terms and conditions of the Placement and the
business of the Company and to obtain any other additional information, to the
extent it possesses the same or can acquire it without unreasonable effort or
expense, as such prospective investor or purchaser representative may consider
necessary i making an informed investment decision or in order to verify the
accuracy of the information furnished to such Prospective Investor or purchaser
representative, as the case may be.
(vii) Notify the US Placement Agent promptly of the
acceptance or rejection of any subscription. Any subscription unreasonably
rejected shall be deemed to have been accepted for purposes of determining
whether at least 2,000,000 Units have been sold solely for the purpose of
determining whether the US Placement Agent is entitled to its compensation
pursuant to Schedule A hereof.
(viii) File five (5) copies of a Notice of Sales of
Securities on Form D with the Securities and Exchange Commission (the
"Commission") no later than 15 days after the first sale of the Units. The
Company shall file promptly such amendments to such Notices on Form D as shall
become necessary and shall also comply with any filing requirement imposed by
the laws of any state or jurisdiction in which offers and sales are made. The
Company shall furnish you with copies of all such filings.
(ix) Place the following legend on all certificates
representing the Units and the Warrants:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD,
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TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS
OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS
CORPORATION, IS AVAILABLE."
(x) Not, directly or indirectly, engage in any act or
activity which may jeopardize the status of the offering and sale of the Units
as exempt transactions under the Act or under the securities or "blue sky" laws
of any jurisdiction in which the Placement may be made.
(xi) Apply the net proceeds from the sale of the Units for
the purposes set forth under the caption "Use of Proceeds" in the Memorandum in
substantially the manner indicated thereunder.
(xii) Not, during the period commencing on the date hereof
and ending on the later of the Closing Date and the last Additional Closing Date
(if any) issue any press release or other communication or hold any press
conference with respect to the Company, its financial condition, results of
operations, business properties, assets, liabilities or future prospects of the
Placement, without the prior written consent of the US Placement Agent and TK,
which consent will not be unreasonably withheld.
(xiii) Not, prior to the completion of the Offering, bid
for, purchase, attempt to induce others to purchase, or sell, directly or
indirectly, any shares of Common Stock or any other securities in violation of
the provisions of Regulation M under the Exchange Act.
10. CONDITIONS OF US PLACEMENT AGENT'S OBLIGATIONS
The obligations of the US Placement Agent pursuant to this Agreement
shall be subject, in its discretion, to the continuing accuracy of the
representations and warranties of the Company contained herein and in each
certificate and document contemplated under this Agreement to be delivered to
the US Placement Agents, as of the date hereof and as of the Closing Date (and,
if applicable, each Additional Closing Date), to the performance by the Company
of its obligations hereunder, and to the following conditions:
(a) At the Closing and each Additional Closing, as the case may
be, the Placement Agents shall have received the favorable opinion of Battle
Fowler LLP and Bennett Jones, as counsel for the Company, in substantially the
forms of Exhibit B hereto.
(b) On or prior to the Closing Date and each Additional Closing
Date, as the case may be, the US Placement Agent shall have been furnished such
information, documents and certificates as it may reasonably require for the
purpose of enabling it to review the matters referred to in this Section 10 and
in order to evidence the accuracy, completeness or
896966.8
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satisfaction of any of the representations, warranties, covenants, agreements or
conditions herein contained, or as it may otherwise reasonably request.
(c) At the Closing and each Additional Closing, as the case may
be, the US Placement Agent shall have received a certificate of the chief
executive officer of the Company, dated the Closing Date or such Additional
Closing Date, as the case may be, to the effect that, as of the date of this
Agreement and as of the Closing Date or such Additional Closing Date, as the
case may be, the representations and warranties of the Company contained herein
were and are accurate, and that as of the Closing Date or such Additional
Closing Date, as the case may be, the obligations to be performed by the Company
hereunder on or prior thereto have been fully performed.
(d) All proceedings taken in connection with the issuance, sale
and delivery of the Shares shall be reasonably satisfactory in form and
substance to you and your counsel.
Any certificate or other document signed by any officer of the Company
and delivered to you or to your counsel as required hereunder shall be deemed a
representation and warranty by the Company hereunder as to the statements made
therein. If any condition to your obligations hereunder has not been fulfilled
as and when required to be so fulfilled, you may terminate this Agreement or, if
you so elect, in writing waive any such conditions which have not been fulfilled
or extended the time for their fulfillment. In the event that you elect to
terminate this Agreement, you shall notify the Company of such election in
writing. Upon such termination, neither party shall have any further liability
or obligation to the other except as provided in Section 11 hereof.
11. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless the US Placement
Agent, any person who controls the Placement Agent within the meaning of the
Act, Section 20(a) of the Exchange Act or any applicable statute and each
partner, director, officer, employee, agent and representative of the US
Placement Agent or any person who controls any such Placement Agent from and
against any loss, damage, expense, liability or claim, or actions or proceedings
in respect thereof (including, without limitation, reasonable attorneys' fees
and expenses incurred in investigating, preparing or defending against any
litigation commenced) which any such person may incur or which may be made or
brought against any such person arising out of or based upon (i) any breach of
any of the agreements, representations or warranties of the Company contained in
this Agreement or Schedule A, (ii) any violation of securities laws attributable
to the offer or sale of Units in a jurisdiction listed in Schedule A and in a
manner authorized by the Company, or (iii) any violation of law by the Company
or any Affiliate thereof, or any director, officer, employee, agent or
representative of any of them, related to or arising out of the Placement. This
indemnity agreement by, and the agreements, warranties and representations of,
the Company shall survive the offer, sale and delivery of the Units and the
termination of this Agreement and shall remain in full force and effect
regardless of any investigation made by or on behalf of any person indemnified
hereunder, and termination of this Agreement and acceptance of any payment for
the Units hereunder.
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(b) The US Placement Agent agrees to indemnify and hold harmless the
Company and its Affiliates, any person who controls any of them within the
meaning of the Act, Section 20(a) of the Exchange Act or any applicable statute,
and each officer, director, employee, agent and representative of the Company or
any of its Affiliates from and against any loss, damage, expense, liability or
claim or actions or proceedings in respect thereof (including, without
limitation, reasonable attorneys' fees and expenses incurred in investigating,
preparing or defending against any litigation commenced) which any such person
may incur or which may be made or brought against any such person, but only to
the extent the same arises out of or is based upon (i) any breach of any of the
agreements, representations or warranties of the respective US Placement Agent
contained in this Agreement or Schedule A or (ii) any untrue statement of a
material fact in any information provided to the Company in writing by, and
relating to, the US Placement Agent, expressly for use in and used in the
Memorandum, or any omission in any information provided to the Company in
writing by, and relating to, the US Placement Agent, expressly for use in and
used in the Memorandum of any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. This indemnity agreement by, and the agreements, warranties and
representations of, the US Placement Agent shall survive the offer, sale and
delivery of the Units and shall remain in full force and effect regardless of
any investigation made by or on behalf of any person indemnified hereunder, and
termination of this Agreement and acceptance of any payment for the Units
hereunder.
(c) If any action is brought against a party (the "Indemnified Party")
in respect of which indemnity may be sought against one or more other parties
(the "Indemnifying Party" or "Indemnifying Parties"), the Indemnified Party
shall promptly notify the Indemnifying Party or Parties in writing of the
institution of such action; provided, however, the failure to give such notice
shall not release the Indemnifying Party or Parties from its or their obligation
to indemnify the Indemnified Party hereunder except to the extent the
Indemnifying Party actually incurs damage by reason of such failure and shall
not release the Indemnifying Party or Parties from any other obligations or
liabilities to the Indemnified Party in any event. The Indemnifying Party or
Parties may at its or their own expense elect to assume the defense of such
action, including the employment of counsel reasonably acceptable to the
Indemnified Party; provided, however, that no Indemnifying or Indemnified Party
shall consent to the entry of any judgment or enter into any settlement by which
the other party is to be bound without the prior written consent of such other
party, which consent shall not be unreasonably withheld. In the event the
Indemnifying Party or Parties assume a defense hereunder, the Indemnified Party
shall be entitled to retain its own counsel in connection therewith and, except
as provided below, shall bear the fees and expenses of any such counsel, and
counsel to the Indemnified Party or Parties shall cooperate with such counsel to
the Indemnifying Party in connection with such proceeding. If an Indemnified
Party reasonably determines that there are or may be differing or additional
defenses available to the Indemnified Party which are not available to the
Indemnifying Party, or that there is or may be a conflict between the respective
positions of the Indemnifying Party and of the Indemnified Party in conducting
the defense of any action, then the Indemnifying Party shall bear the reasonable
fees and expenses of any counsel retained by the Indemnified Party in connection
with such proceeding. All references to the Indemnified Party contained in this
paragraph 8(c) include, and extend to and protect with equal effect, any persons
who may control the Indemnified Party within the meaning of the Act, Section
20(a) of the Exchange Act or any applicable statute, any successor to the
896966.8
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Indemnified Party and each of its partners, officers, directors, employees,
Agents and representatives. The indemnity agreements set forth in this paragraph
8 shall be in addition to any other obligations or liabilities of the
Indemnifying Party or Parties hereunder or at common law or otherwise.
(d) If recovery is not available under the foregoing indemnification
provisions of this paragraph, for any reason other than as specified therein,
the party entitled to indemnification by the terms thereof shall be entitled to
contribution to losses, damages, liabilities and expenses of the nature
contemplated by such indemnification provisions. In determining the amount of
such losses, damages, contribution, there shall be considered the relative
benefits received by the Company on the one hand, and the US Placement Agent on
the other hand from the Placement (which shall be deemed to be the portion of
the proceeds of the Placement realized by each party), the parties' relative
knowledge and access to information concerning the matter with respect to which
the claim was asserted, the opportunity to correct and prevent any statement or
omission, the relative culpability of the parties and any other equitable
considerations appropriate under the circumstances. No party shall be liable for
contribution with respect to any action or claim settled without its consent.
Any party entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this Section, notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any obligation it
or they may have under this Section or otherwise. For purposes of this Section,
each person, if any, who controls a party to this Agreement within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act shall have the
same rights to contribution as that party to this Placement Agreement.
(e) In any claim for indemnification for United States Federal or state
securities law violations, the party seeking indemnification shall place before
the court the position of (i) the United States Securities and Exchange
Commission and (ii) if applicable, any state securities commissioner or agency
having jurisdiction with respect to the issue of indemnification for securities
law violations.
12. MISCELLANEOUS
(a) The agreements set forth in this Agreement have been made and are
made solely for the benefit of the Company, the US Placement Agent, their
affiliates and the respective heirs, personal representatives and permitted
successors and assigns thereof, and except as expressly provided herein nothing
expressed or mentioned herein is intended or shall be construed to give any
other person, firm or corporation any legal or equitable right, remedy or claim
under or in respect of this Agreement or any representation, warranty or
agreement herein contained. The term "successors and assigns" as used herein
shall not include any purchaser of any Units merely because of such purchase.
(b) Any notice or other communication required or appropriate under the
provisions of this Agreement shall be given in writing addressed as follows: (i)
if to the Company, at the address set forth above, Attention: President; and
(ii) if to the US Placement Agent, 1285 Avenue of the Americas, 35th Floor, New
York, New York 10019, Attention: Jeffrey B. Davis, President, or at such other
address as any party may designate to the others in accordance with this
paragraph.
896966.8
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<PAGE>
(c) This Agreement and Schedule A constitute the entire agreement
between the parties hereto with respect to the Placement and supercedes any and
all prior agreements, and may be amended or modified only by a duly authorized
writing signed by such parties. This Agreement and Schedule A may be executed in
any number of counterparts, each of which shall be deemed an original and all of
which shall constitute a single instrument.
[Signature page follows]
896966.8
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<PAGE>
This Agreement is executed and shall be effective as of December
__, 1999, and shall be governed and construed in accordance with the laws of the
State of New York, without giving effect to conflicts of law provisions thereof.
JAWS TECHNOLOGIES, INC.
By: /s/Vera Gmitter
-------------------------
Name:Vera Gmitter
Title:V.P. Administration
Agreed and accepted:
SMALLCAPS ONLINE LLC
By: /s/Jeffrey B. Davis
---------------------------
Name: Jeffrey B. Davis
Title: President
896966.8
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SCHEDULE A
JAWS Technologies, Inc.
The parties hereto enter into this Schedule A to the Placement Agency
Agreement (the "Agreement") effective as of December 13, 1999 (the "Effective
Date"), and incorporate said Agreement herein by reference in full. Capitalized
terms used in this Schedule and not otherwise defined have the meanings provided
in the Agreement. All dollar amounts are in $USD.
Issuer:
JAWS Technologies, Inc., a Nevada
corporation.
Placement Agents: US: SmallCaps Online LLC. CDN: Thomson
Kernaghan & Co. Limited.
Security Offered: Units, each Unit consisting of (i) one share
of common stock, par value $.001 per share
(the "Common Stock"), of the Company and
(ii) one warrant to purchase1/2(one half) a
share of Common Stock at an exercise price
of $6.50 per share (subject to adjustment,
as described below), which warrants shall
expire on the third anniversary date of the
effective date of the registration statement
relating thereto (as described below).
Certificates representing shares of Common
Stock and warrants shall bear appropriate
legends, including those relating to
"restricted securities" under the Act.
Number of Units: A minimum of 2,000,000 Units (aggregate
gross proceeds of $8,500,000) and a maximum
of 3,500,000 Units (gross proceeds of
$14,875,000).
Offering Price
(Per Unit): $4.25 per Unit.
Minimum Subscription: $100,000, or greater if required by local
law.
Use of Proceeds: Working capital and general corporate
purposes, and acquisitions yet to be
identified.
Placement Period: From December 13, 1999 to January 14, 2000,
unless extended by the Company in its sole
discretion. The anticipated date of the
initial closing is December 23, 1999.
Sales Commissions, Warrants
and Financial Advisory Fees
to Placement Agents: An aggregate cash payment to the Placement
Agents of a 7% sales commission and a 3%
financial advisory fee,
896966.8
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<PAGE>
in each case, based upon the gross proceeds
from all Units sold by or on behalf of the
Company.
On the closing date, the Company shall issue
to the Placement Agents an aggregate number
of warrants to purchase shares of Common
Stock equal to 10% of the number of Units
sold, one-half of which shall be allocated
as a financial advisory fee. The warrants
will be exercisable at an exercise price of
$4.25 per share, and will expire on the
third anniversary date of the effectiveness
of the registration statement relating
thereto (as described below). The warrants
will be issued pursuant to a warrant
agreement and/or form of warrant certificate
in form and substance satisfactory to the
Company and the Placement Agents.
Expenses of Placement Agents
to be Reimbursed: Each Placement Agent will receive
reimbursement of all reasonable, accountable
out-of-pocket expenses, including legal fees
and disbursements of one counsel, and travel
and due diligence expenses.
Jurisdictions in Which
Units Will Be Offered United States: New York, Connecticut,
Massachusetts, California, Georgia, Texas
and Colorado.
Canada: Ontario, Alberta, Manitoba and
British Columbia
Belgium
Registration of
Common Stock: The Company will use its best efforts to
file, no later than 30 days following the
final closing date, a registration statement
with the United States Securities and
Exchange Commission registering for resale
all of the shares of Common Stock included
in the Units, and shares of Common Stock
issuable upon exercise of the warrants
included in the Units and the warrants
issued to the Placement Agents. The Company
will use its best efforts to cause such
registration statement to become effective
no later than 90 days following the final
closing date, and to cause such registration
statement to remain effective until 30 days
following the date on which all warrants
have been exercised or expired, and/or have
been called and repurchased by the Company
as provided below. During such period, the
Company will file all documents required to
be filed by it under the Securities Exchange
Act of 1934, as amended.
If a registration statement covering such
shares of Common Stock is not declared
effective within 90 days, but prior to 180
days, following the final closing date, the
896966.8
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exercise price of the warrants sold to
Investors shall be reduced by $0.25 per
month, or a pro rated amount thereof for
partial months, until a registration
statement covering such shares is declared
effective. If a registration statement
covering such shares of Common Stock is not
declared effective within 180 days following
the final closing date, the exercise price
of the warrants sold to Investors shall be
reduced by $0.50 per month, or a pro rated
amount thereof for partial months, until a
registration statement covering such shares
of Common Stock is declared effective.
Notwithstanding the foregoing, in no event
shall the exercise price of the Warrants
sold to Investors be reduced to a price
lower than $3.75 per share.
Call Rights on Warrants: If at any time following the effectiveness
of the registration statement described
above the last reported sale price per share
of Common Stock exceeds $9.75 for any
consecutive thirty day trading period, then
the Company may, at any time upon thirty
days notice, call and repurchase warrants
issued to the purchasers and the Placement
Agents at a call price of $.001 per warrant.
Definitive Agreements: The purchase and sale of Units is subject to
the execution and delivery of definitive
agreements containing such representations,
warranties, terms and conditions as the
respective parties and their counsel may
agree.
896966.8
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EXHIBIT 10.14
CONFIDENTIAL
Copy Number: _____
Name of Offeree: ______________________________
OFFERING OF UNITS
(each Unit consisting of one share of
common stock
and one warrant to purchase
1/2 (one-half) a share of common stock)
OF
JAWS TECHNOLOGIES, INC.
(a Nevada corporation)
------------------------------------
SUBSCRIPTION
BOOKLET
------------------------------------
CANADIAN PLACEMENT AGENT:
Thomson Kernaghan & Co. Limited (Canada)
<PAGE>
December 16, 1999
SUBSCRIPTION INSTRUCTIONS
(Please read carefully)
Units (the "Units") of JAWS Technologies, Inc., a Nevada
corporation (the "Company"), are being offered in the United States and in
Canada pursuant to (i) the Company's Confidential Private Placement Memorandum
dated December 13, 1999 (the "U.S. Memorandum"), and (ii) the Company's
Confidential Private Placement Memorandum dated December 13, 1999 (the "Canadian
Memorandum"), respectively, for a minimum investment for purchasers resident in
the United States or in the Provinces of Alberta, Manitoba or British Columbia
of US$100,000 and a minimum investment for purchasers resident in the Province
of Ontario of US$ 106,250 (together, the "Offering"). You should consult with an
attorney, accountant, investment advisor or other advisor regarding an
investment in the Company and its suitability for you. The Company reserves the
right to reject any offer to purchase the Units, in whole or part, for any
reason without notice. The Company may withdraw, cancel or modify this Offering
at any time without notice.
In order to subscribe for Units, a prospective purchaser must
complete and execute the subscription documents contained in this booklet in
accordance with the instructions set forth herein. All subscription documents
must be completed correctly and thoroughly or they will not be accepted
(including checking the appropriate box(es) in Section 6 and Section 7 to
indicate accredited investor status. This entire booklet should then be returned
to Thomson Kernaghan & Co. Limited, 365 Bay Street, 10th Floor, Toronto, Ontario
M5H 2V2 (Attention: Lionel F. Conacher). Please be sure that your name appears
in exactly the same way in each signature and in each place where it is inserted
in the documents. Duplicate copies of each signed document will be returned to
you after your subscription is accepted and a closing with respect to your
subscription for Units has occurred.
NO PERSON IS AUTHORIZED TO RECEIVE THIS BOOKLET UNLESS
SUCH PERSON HAS PREVIOUSLY RECEIVED, OR SIMULTANEOUSLY RECEIVES,
COPIES OF THE MEMORANDUM BEARING ON ITS FIRST PAGE THE NAME OF
SUCH PERSON AND THE NUMBER SET FORTH ON THE COVER HEREOF. Delivery
of this booklet to anyone other than the person named on the front cover as the
offeree is unauthorized, and any reproduction or circulation of this booklet, in
whole or in part, is prohibited.
Subscriptions from suitable prospective investors ("Subscribers",
or each individually a "Subscriber") will be accepted at the sole discretion of
the Company after receipt of all subscription documents (properly completed and
executed) and after confirmation of the receipt of the appropriate payment.
897953.8
<PAGE>
FOR ALL SUBSCRIBERS
Subscription Agreement READ, complete, date and sign. Each
Subscriber must complete and sign the
signature page and initial the
applicable boxes under Sections 6 and 7
of the Subscription Agreement entitled
"Representations and Warranties as to
Institutional Accredited Investor
Status" and "Representations and
Warranties as to Accredited Investor
Status," respectively.
Corporations, partnerships and trusts
must attach appropriate authorizing
instruments (corporate resolution or
by-laws, partnership agreement or trust
instrument). Additional documentation
may be required.
Payment The minimum investment for purchasers
resident in the United States, in the
Provinces of Alberta, Manitoba or
British Columbia or in Belgium is
US$100,000 or such greater amount
required by local law.
The minimum investment for purchasers
resident in the Province of Ontario is
US$106,250.
The purchase price is payable by either
certified cheque or wire transfer.
If making payment by certified cheque,
send a cheque payable to "Thomson
Kernaghan & Co. Limited"
Wire transfer instructions will be
provided to prospective investors by the
Placement Agent.
PLEASE PRINT IN INK OR TYPE ALL INFORMATION.
FAILURE TO COMPLY WITH THE ABOVE INSTRUCTIONS WILL CONSTITUTE
AN INVALID SUBSCRIPTION, WHICH, IF NOT CORRECTED, WILL RESULT IN
THE REJECTION OF YOUR SUBSCRIPTION REQUEST.
897953.8
<PAGE>
No. _________ ______________________________
Name of Offeree
SUBSCRIPTION AGREEMENT
JAWS Technologies, Inc.
1013 17th Avenue, S.W.
Calgary, Alberta T2T0A7
Canada
Ladies and Gentlemen:
This Subscription Agreement is made between JAWS Technologies,
Inc., a Nevada corporation (the "Company"), and the undersigned prospective
purchaser (the "Subscriber") who is subscribing hereby for Units (the "Units")
in the Company, each Unit consisting of one share of common stock, par value
$.001 per share ( "Common Stock"), of the Company and one warrant (a "Warrant")
to purchase 1/2 (one half) of a share of Common Stock at an exercise price of
US$6.50 per share. This subscription is submitted to you in accordance with, and
subject to, the terms and conditions described in the Canadian Offering
Memorandum of the Company, together with any supplements or amendments thereto
(the "Canadian Memorandum"), relating to two concurrent offerings (together, the
"Offering") of a minimum of 2,000,000 Units and a maximum of 3,500,000 Units, at
a purchase price of US$4.25 per Unit. Thomson Kernaghan & Co. Limited (the
"Canadian Placement Agent") is acting as the placement agent on behalf of the
Company in connection with the Canadian Offering (the "Canadian Placement
Agent") and SmallCaps Online LLC is acting concurrently as the placement agent
on behalf of the Company in connection with the U.S. Offering (the "U.S.
Placement Agent" and, together with the Canadian Placement Agent, the "Placement
Agents"). It is anticipated that the initial closing will occur on or about
December 23, 1999, or such other date the Company and the Placement Agents may
agree (the "Initial Closing Date" and, collectively with all other closing
dates, the "Closing Date") pursuant to a Placement Agency Agreement by and
between the Company and each Placement Agent, respectively.
In consideration of the Company's agreement to sell Units to the
undersigned upon the terms and conditions summarized in the Canadian Memorandum,
the undersigned agrees and represents to the Company and the Canadian Placement
Agent as follows:
1. Subscription. The Subscriber hereby irrevocably subscribes
for, and agrees to purchase, Units of the Company. In accordance with the
Subscription Instructions attached hereto, the undersigned has remitted to the
Company payment in full for one hundred percent (100%) of the estimated
aggregate purchase price of the Units subscribed for hereunder.
897953.8
<PAGE>
The undersigned acknowledges receipt of a copy of the Canadian
Memorandum.
2. Understandings. The Subscriber understands and acknowledges
that it is aware of the following:
(a) This subscription may be rejected, in whole or in part, by
the Company, in its sole and absolute discretion, for any reason without notice,
notwithstanding prior receipt by the undersigned of notice of acceptance of the
undesigned's subscription. If the undersigned's subscription is rejected in
whole or in part, the payment made by the undersigned (or, in the case of
rejection of a portion of the undersigned's subscription, the part of the
payment relating to such rejected portion) will be returned promptly, with
interest.
(b) Except as set forth in paragraph 2(a) above, the undersigned
hereby acknowledges and agrees that the subscription hereunder is irrevocable by
the undersigned and that, except as required by law, the undersigned is not
entitled to cancel, terminate, or revoke this Subscription Agreement or any
agreements of the undersigned hereunder and that this Subscription Agreement and
such other agreements shall survive the death or disability of the undersigned
and shall be binding upon and inure to the benefit of the parties and their
heirs, executors, administrators, successors, legal representatives, and
permitted assigns. If the undersigned is more than one person, the obligations
of the undersigned hereunder shall be joint and several and the agreements upon
each such person and his/her heirs, executors, administrators, successors, legal
representatives, and permitted assigns.
(c) NEITHER THE UNITS, NOR THE SHARES OF COMMON STOCK, THE
WARRANTS OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANTS,
HAVE BEEN REGISTERED FOR SALE UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE
BEING OFFERED IN RELIANCE ON EXEMPTIONS FROM THE ACT AND SUCH STATE LAWS AND THE
LAWS OF OTHER APPLICABLE JURISDICTION. THE UNITS MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND/OR SUCH STATE LAWS PURSUANT TO
REGISTRATION THEREUNDER OR EXEMPTION THEREFROM. THE MEMORANDUM CONSTITUTES AN
OFFER ONLY TO THE PERSON NAMED ABOVE, AND ONLY IF THAT PERSON MEETS THE
SUITABILITY STANDARDS SET FORTH IN THE MEMORANDUM.
(d) The Offering is intended to be exempt from registration under
the Act by virtue of Section 4(2) of the Act and the provisions of Regulation D
promulgated under the Act ("Regulation D") and Rule 506 thereunder, which is in
part dependent upon the truth, completeness and accuracy of the statements made
by the undersigned hereunder.
(e) It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the Act, Regulation D and Rule
506, the undersigned will, at a minimum, be required to fulfill the investor
suitability requirements hereunder.
897953.8
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<PAGE>
(f) No governmental agency has passed upon the Units or made any
finding or determination as to the wisdom or fairness of any investments therein
nor has any such agency made any recommendation or endorsement of the Units.
(g) The Units involve a risk of loss by the Subscriber of its
entire investment, including the risks summarized in the Memorandum, and it must
bear such economic risk for an indefinite period of time. An investment in the
Units is suitable only for persons who have substantial financial resources and
have no need for liquidity in this investment.
(h) THE TAX CONSEQUENCES TO THE SUBSCRIBER OF THE INVESTMENT IN
THE COMPANY WILL DEPEND ON THE SUBSCRIBER'S PARTICULAR CIRCUMSTANCES. IN MAKING
AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE
COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
PROSPECTIVE INVESTORS SHOULD NOT CONSTRUE THE CONTENTS OF THIS MEMORANDUM, THE
OTHER DOCUMENTS DELIVERED HEREWITH OR ANY OTHER COMMUNICATION FROM THE COMPANY
OR ANY PLACEMENT AGENT AS INVESTMENT OR LEGAL ADVICE. THE MEMORANDUM, THE OTHER
DOCUMENTS DELIVERED HEREWITH AND ANY SUCH OTHER MATERIALS, AS WELL AS THE NATURE
OF AN INVESTMENT IN THE SECURITIES OFFERED, SHOULD BE REVIEWED BY EACH
PROSPECTIVE INVESTOR AND SUCH INVESTOR'S INVESTMENT, TAX, LEGAL, ACCOUNTING AND
OTHER ADVISORS.
3. General Representations and Warranties. The Subscriber
represents and warrants to the Company, that:
(a) The undersigned is familiar with, and understands, the terms
of the Offering and sale of the Units and any other matters set forth in the
Canadian Memorandum. The Subscriber, its advisers, if any, and designated
representatives, if any, have the knowledge and experience in financial and
business matters necessary to evaluate the investment in the Company, and have
carefully reviewed and understand the risks of, and other considerations
relating to, the purchase of Units, including the risks set forth in the
Canadian Memorandum under "Risk Factors."
(b) The Subscriber, its advisers, if any, and designated
representatives, if any, have been afforded the opportunity to obtain any
information necessary to verify the accuracy of any representations or
information set forth in the Canadian Memorandum, have had all their inquiries
to the Company answered to their satisfaction, and have been furnished all
information requested in writing relating to the Company, the offering and sale
of the Units and any other matters set forth in the Canadian Memorandum.
(c) The Subscriber, its advisers, if any, and designated
representatives, if any, have not been furnished any offering literature other
than the Canadian Memorandum have relied only
897953.8
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on the information contained in such Canadian Memorandum and the information
described in paragraph 3(b) above furnished or made available to them at their
written request by the Company.
(d) The Subscriber, if a corporation, partnership, trust or other
legal entity, is authorized and otherwise fully qualified to purchase and hold
Units in the Company. Such entity has its principal place of business at the
address set forth on the signature page hereof and such entity has not been
formed for the specific purpose of acquiring Units in the Company.
(e) The Subscriber has adequate means of providing for current
and anticipated financial needs and contingencies, is able to bear the economic
risk for an indefinite period of time and has no need for liquidity of the
investment in the Units and could afford complete loss of such investment.
(f) The Subscriber is not subscribing for Units as a result of or
subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media (but excluding information
available through Internet-related media that would not constitute general
solicitation material under applicable federal securities laws, rules and
regulations) or broadcast over television or radio, or presented at any seminar
or meeting, or any solicitation of a subscription by a person not previously
known to the Subscriber in connection with investments in securities generally.
(g) All of the information that the Subscriber has heretofore
furnished or which is set forth herein is correct and complete as of the date of
this Subscription Agreement, and, if there should be any material change in such
information prior to the admission of the undersigned to the Company, the
Subscriber will immediately furnish revised or corrected information to you.
(h) If the Subscriber is a partnership or limited liability
company, the representations, warranties, agreements and understandings set
forth herein are true with respect to all partners or members in the Subscriber
(and if any such partner or member is itself a partnership or limited liability
company, all persons holding an interest in such partnership or limited
liability company, directly or indirectly, including through one or more
partnerships or limited liability companies), and the person executing this
Subscription Agreement has made due inquiry to determine the truthfulness of the
representations and warranties made hereby, and the undersigned agrees to
furnish to the Company, upon request, documentation satisfactory to Company in
its reasonable discretion, supporting the truthfulness of such representations
and warranties with respect to all such partners or members in the Subscriber.
(i) If the undersigned is purchasing in a representative or
fiduciary capacity, the representations and warranties herein shall be deemed to
have been made on behalf of the person or persons for whom the undersigned is so
purchasing, and the undersigned agrees to furnish to the Company, upon request,
documentation satisfactory to the Company in its sole discretion, supporting the
truthfulness of such representations and warranties as made on behalf of such
person or persons.
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4. Representations and Warranties as to Investment Intent. The
Subscriber has read and is familiar with the Canadian Memorandum and represents
to the Company that: it is purchasing the Units for his or its own account, or
for one or more fiduciary accounts as to which the Subscriber has investment
discretion, and for investment purposes only and not with a view to their resale
or further distribution to any other person or entity; no one other than the
Subscriber will have any interest in, or any right to acquire, the Units, nor
does anyone other than the Subscriber have any interest in this subscription; it
has full right, power and authority to execute this Subscription Agreement, any
materials accompanying this Subscription Agreement, and as of the time this
Subscription Agreement, he or it has duly and validly executed, this
Subscription Agreement; and he or it has full right power and authority to
perform his or its obligations hereunder and thereunder.
5. Understanding as to Exemption from Registration. The
Subscriber understands and acknowledges that the Units in the Company are being
offered and sold in reliance upon the exemption from registration provided by
Section 4(2) of the Act; that the reliance of the Company upon that exemption is
predicated, in part, on the representations and warranties made and to be made
by the Subscriber in and pursuant to this Subscription Agreement; and that the
exemption may not be available if any of those representations and warranties is
not true and accurate.
6. Representations and Warranties as to Institutional Accredited
Investor Status. The Subscriber warrants and represents that any one of the
statements below, next to which the Subscriber has placed its initials in the
space designated therefor, which describe an institutional "accredited
investor," as that term is defined in Rule 501(a) of Regulation D promulgated by
the SEC under the Act, is true with respect to the Subscriber.
Initial one or more of the following statements, if applicable:
[ ](i) the Subscriber is a bank as defined in Section 3(a)(2) of
the Act, or any savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity;
[ ](ii) the Subscriber is a broker or dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
[ ](iii) the Subscriber is an insurance company as defined in
Section 2(13) of the Act;
[ ](iv) the Subscriber is an investment company registered under
the Investment Company Act of 1940;
[ ](v) the Subscriber is a business development company as
defined in Section 2(a)(48) of the Investment Company Act of 1940;
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<PAGE>
[ ](vi) the Subscriber is a Small Business Investment Company
licensed by the United States Small Business Administration under Section 301(c)
or (d) of the Small Business Investment Act of 1958;
[ ](vii) the Subscriber is a private business development company
as defined in Section 202(a)(22) of the Advisers Act;
[ ](viii) the Subscriber is a corporation, Massachusetts or
similar business trust, or partnership, not formed for the specific purpose of
acquiring Units, with total assets in excess of $5,000,000;
[ ](2)(ix) the Subscriber is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring Units, whose
purchase is directed by a sophisticated person as described in Rule
506(b)(2)(ii) of Regulation D promulgated by the SEC under the Act; or
[ ](x) the Subscriber is an entity in which all of the equity
owners are accredited investors.
7. Representations and Warranties as to Accredited Investor
Status (if applicable). To the extent that Subscriber has not set forth its
initials in the space designated therefor in Section 6 above, the Subscriber
warrants and represents that any one of the statements below, next to which the
Subscriber has placed its initials in the space designated therefor, which
describe an institutional "accredited investor," as that term is defined in Rule
501(a) of Regulation D promulgated by the SEC under the Act, is true with
respect to the Subscriber:
Initial one or more of the following statements, if
applicable:
[ ] (i) A natural person who had individual income of more than
$200,000 in each of the most recent two years or joint income with that person's
spouse in excess of $300,000 in each of the most recent two years and who
reasonably expects to reach that same income level for the current year. For
this purpose, individual income means adjusted gross income, as reported for
federal income tax purposes, less any income attributable to a spouse or to
property owned by a spouse, (A) increased by the individual's share (and not a
spouse's share) of: (i) the amount of any tax exempt interest income received,
(ii) amounts contributed to an IRA or Keogh retirement plan, (iii) alimony paid,
and (iv) the excluded portion of any long-term capital gains, and (B) adjusted,
plus or minus, for any non-cash loss or gain, respectively, reported for federal
income tax purposes; and/or
- --------
2 A Subscriber initialing this box must provide a supplemental letter with
this Subscription Agreement describing the basis by which it is a trust
directed by a sophisticated person with the knowledge and experience in
business and financial matters capable of evaluating the merits and
risks of the prospective investment.
897953.8
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<PAGE>
[ ] (ii) A natural person whose individual net worth, or joint
net worth with that person's spouse, is in excess of $1,000,000. For this
purpose, "net worth" means the excess of total assets at fair market value,
including home and personal property, over total liabilities, provided, however,
for the purpose of determining a person's net worth, the principal residence
owned by an individual shall be valued at cost, including the cost of
improvements, net of current encumbrances upon the property or valued on the
basis of a written appraisal used by an institutional lender making a loan
secured by the property. For the purposes of this provision, "institutional
lender" means a bank, savings and loan company, industrial loan company, credit
union, or personal property broker or a company whose principal business is as a
lender upon loans secured by real property and which has such loans receivable
in the amount of $2,000,000 or more. Any person relying on the appraised value
of a principal residence must deliver to the Company, at or prior to the date of
execution hereof, a copy of such appraisal.
8. Representations and Warranties Regarding Canadian Securities
Laws (made only by Subscribers who are not U.S. Persons (as defined in
Regulation S under the Act)).
(a) The Subscriber is a resident of, or has its place of business
in, Ontario, Manitoba, British Columbia, Alberta or Belgium as is set as set
forth on the signature page hereto, which address was not created or used solely
for the purpose of acquiring Units, and the Subscriber:
(i) is not (and is not purchasing Units for the account or
benefit of) a U.S. Person;
(ii) was not offered the Units in the United States;
(iii) did not execute or deliver this Subscription Agreement in
the United States, and
(iv) will not take delivery of the Units in the United States.
(b) The Subscriber, on its own behalf and, if applicable, on
behalf of others for whom it is contracting hereunder, further represents,
warrants and covenants to the Company and the Canadian Placement Agent (and
acknowledges that the Company and the Canadian Placement Agent and their
respective counsel are relying thereon) that it falls within one of the
following prospectus exemptions applicable under Securities Laws (as used
herein, the term "Securities Laws" means the applicable securities laws of the
Province of Ontario, the Province of Alberta or the Province of Manitoba and the
respective regulations and rules made and forms prescribed thereunder, together
with all applicable published policy statements and blanket orders and rulings
of the applicable securities regulatory authority):
(i) The Subscriber is purchasing as principal and is:
897953.8
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<PAGE>
(A) a bank listed in Schedule I or II to the Bank Act
(Canada) to which the Bank Act (Canada) applies, or the
Federal Business Development Bank incorporated under the
Federal Business Development Bank Act (Canada);
(B) a credit union or league to which the Credit Unions
and Caisses Populaires Act, 1994 (Ontario) applies;
(C) an insurance company licensed under the Insurance Act
(Ontario);
(D) a subsidiary of any company referred to above, where
the company owns all of the voting shares of the
subsidiary;
(E) a dealer registered in the category of broker,
investment dealer or securities dealer under Securities
Laws;
(F) Her Majesty in right of Canada or any province or
territory of Canada;
(G) a municipal corporation or public board or commission
in Canada; or
(H) a company or a person purchasing as principal, other
than an individual, and is recognized by the applicable
securities regulatory authority as an exempt Subscriber.
(ii) The Subscriber is purchasing as principal (of if purchasing
as agent for a disclosed or undisclosed principal, each
beneficial Subscriber for whom the Subscriber is acting is
purchasing as principal for its own account and not for the
benefit of any other person) and is purchasing a sufficient
number of Units which have an aggregate acquisition cost to the
Subscriber of not less than CDN$150,000 if resident in Ontario
and CDN$97,000 if resident in Alberta, Manitoba or British
Columbia; and the Subscriber has not been created or is not being
used primarily to permit purchases without a prospectus or the
share or portion of any disclosed or undisclosed principal,
member, partner, beneficiary or shareholder of the Subscriber (as
applicable) of the aggregate acquisition cost to such disclosed
or undisclosed, principal member, partner, beneficiary or
shareholder of the Units being purchased is not less than
CDN$150,000 if resident in Ontario and CDN$97,000 if resident in
Alberta, Manitoba or British Columbia.
(iii) The Subscriber is a trust company registered under the Loan
and Trust Corporations Act (Ontario) and is purchasing the Units
as trustee or as agent for accounts fully managed by it, or it is
a portfolio advisor as defined in Ontario Securities Commission
Rule 45-504 and it is purchasing the Units for an account of a
client established in writing under which it makes the investment
decisions for the
897953.8
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<PAGE>
account and has full discretion to trade in securities of the
account without requiring the client's express consent to a
transaction.
(c) The Subscriber, on its own behalf and, if applicable, on
behalf of others for whom it is contracting hereunder, acknowledges that the
representations and warranties contained herein are made by it with the
intention that they may be relied upon by the Canadian Placement Agent and the
Company in determining the Subscriber's eligibility, or (if applicable) the
eligibility of others on whose behalf it is contracting hereunder to purchase
Units under Securities Laws. The Subscriber, on its own behalf and, if
applicable, on behalf of others for whom it is contracting hereunder, further
agrees that by accepting delivery of the Units on a Closing Date of the
Offering, it will be representing and warranting that the foregoing
representations and warranties are true and correct as at the time of closing
with the same force and effect as if they had been made by the Subscriber, on
its own behalf and, if applicable, on behalf of others for whom it is
contracting hereunder, at the time of closing and that they will survive the
purchase by the Subscriber of Units and will continue in full force and effect
notwithstanding any subsequent disposition by the Subscriber of such Units or
the shares of Common Stock and Warrants included in the Units, as the case may
be.
(d) The Subscriber hereby acknowledges that no prospectus has
been filed by the Company in Canada with any securities regulatory authority and
that notwithstanding that the issuance of the Units is exempted from the
prospectus requirements available under the provisions of applicable Securities
Laws:
(i) the Subscriber is restricted from using most of the civil
remedies available under applicable Securities Laws;
(ii) the Subscriber may not receive information that would
otherwise be required to be provided to him under applicable
Securities Laws; and
(iii) the Company is relieved from certain obligations that
would otherwise apply under applicable Securities Laws.
(e) if an individual, the Subscriber has attained the age of
majority and is legally competent to execute this subscription and to take all
actions required pursuant hereto;
(f) The Subscriber (or others for whom it is contracting
hereunder) agrees that the Company and/or the Canadian Placement Agent may be
required by law or otherwise to disclose to regulatory authorities the identity
of the Subscriber and each beneficial Subscriber of Units for whom the
Subscriber may be acting and authorizes the Company and/or the Canadian
Placement Agent to make any such disclosure.
897953.8
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<PAGE>
9. Contractual Right of Action. The Company and the Subscriber
agree that, in addition to any other right available to the Subscriber at law,
the Subscriber, if resident in Ontario or Alberta, is entitled to exercise the
contractual right of action described in the Canadian Memorandum in the
circumstances described therein.
10. Further Agreements. The Subscriber agrees that:
(a) it is not entitled to cancel, terminate or revoke this
subscription;
(b) it will not transfer or assign this subscription or any
interest therein;
(c) this subscription may be accepted or rejected, in whole or in
part, by the Company, in its sole discretion, without giving any reason
therefor;
(d) if (i) this subscription is accepted in whole or in part, and
(ii) the other conditions precedent set forth above are met, it shall become a
stockholder and warrantholder of the Company, the amount to be paid by the
Subscriber for the Units to be issued to the Subscriber may be transferred to
the capital of the Company as a contribution of the Subscriber;
(e) additional Units may be offered or sold by the Company; and
(f) it will indemnify and hold harmless the Company, Thomson
Kernaghan & Co. Limited, and their respective affiliates and each other person,
if any, who controls any of the foregoing, within the meaning of Section 15 of
the Act, against any and all loss, liability, claim, damage and expense
whatsoever (including, but not limited to, any and all expenses reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever, including reasonable attorneys'
fees) arising out of or based upon any false representation, warranty or
acknowledgment made herein.
11. Acknowledgment. The Subscriber acknowledges that this
Subscription Agreement will not be valid, binding and enforceable until the
Subscriber hereunder is accepted and approved by the Company.
12. Miscellaneous. The Subscriber understands and agrees that:
(a) This Subscription Agreement supersedes any previous
subscription agreement executed by or on behalf of the Subscriber relative to
Units in the Company, and any such previous agreement is hereby rescinded and is
of no further force and effect.
(b) The Subscriber's representations, warranties and covenants
contained herein shall be true and correct in all respects on and as of the date
of the sale of the Units as if made on and as of such date and shall survive the
execution and delivery of this Subscription Agreement and the purchase of the
Units.
897953.8
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<PAGE>
(c) Failure of the Company to exercise any right or remedy under
this Subscription Agreement or any other agreement between the Company and the
undersigned, or delay by the Company in exercising such right or remedy, will
not operate as a waiver thereof. No waiver by the Company will be effective
unless and until it is in writing and signed by the Company.
(d) This Subscription Agreement shall be governed by, and
enforced and construed in all respects in accordance with, the laws of the State
of New York, such laws are applied by New York courts to agreements entered
into, and to be performed in, New York by and between residents of New York, and
shall be binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors, and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) The Subscriber hereby agrees to furnish the Company such
other information as the Company may request with respect to his or its
subscription hereunder.
13. Representations and Warranties of the Company. The Company
represents and warrants to the Subscriber as follows:
(a) Organization. The Company is a corporation validly existing
and in good standing under the laws of the State of Nevada and has all requisite
corporate power and authority to carry on its business as now being conducted
and to own its properties and is duly licensed or qualified and in good standing
in each jurisdiction in which the conduct of its business or the nature of its
properties requires such qualification or authorization, except where the
failure to be so qualified or authorized and in good standing could not
reasonably be expected to have a material adverse effect on the business and
financial condition of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"). As of the date hereof, the Company does not have any
material subsidiaries other than Jaws Technology, Inc., an Alberta corporation
("Jaws Canada"), Pace Systems, Inc., incorporated under the laws of the Province
of Ontario ("Pace"), and Jaws Acquisition Corp., an Alberta corporation ("JAC"
and collectively with Jaws Canada and Pace, the "Subsidiaries"). Each Subsidiary
has been duly organized, is validly existing and in good standing under the laws
of the jurisdiction of its organization, has the power and authority to own its
properties and to conduct its business and is duly qualified and authorized to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or the nature of its properties requires such
qualification or authorization, except where the failure to be so qualified or
authorized and in good standing could not reasonably be expected to have a
Material Adverse Effect. All of the outstanding common stock of each Subsidiary
is owned by the Company, free and clear of any liens, and has been duly
authorized and validly issued, and is non- assessable, except for such failures
as could not reasonably be expected to have a Material Adverse Effect.
897953.8
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<PAGE>
(b) Authorization. The Company has taken all action required to
authorize the execution and delivery of this Subscription Agreement and the
consummation of the transactions contemplated hereby, including the issuance of
sale of the Common Stock and the Warrants. This Subscription Agreement has been
duly executed and delivered by the Company and, subject to the due
authorization, execution and delivery by the Subscriber, constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except to the extent that enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(c) SEC Documents. The Company has furnished the Subscriber
herewith, or made available to the Subscriber, copies of the following reports
(the "SEC Documents") filed by the Company with the United States Securities and
Exchange Commission (the "SEC"):
(i) The Company's Pre-Effective Amendment No. 4 to Form 10-SB,
filed on November 1, 1999 (the "Form 10-SB");
(ii) The Company's two Reports on Form 8-K, both filed on
November 15, 1999; and
(iii) The Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1999 (the "Form 10-Q").
Each of the SEC Documents, as of its respective date of filing,
complied in all material respects with the applicable requirements of the
Exchange Act. The Company is current in its obligations to file all periodic
reports with the SEC required to be filed under the Exchange Act and applicable
rules and regulations promulgated thereunder.
(d) Financial Statements. The financial statements of the
Company included in the Company's Form 10-SB and Form 10-Q, which are included
in the Canadian Memorandum or provided in connection therewith, fairly present,
in all material respects, the financial position, the results of operations,
cash flows and the other information purported to be shown therein at the
respective dates and for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved, are
correct and complete, in all material respects, and are in accordance with the
books and records of the Company. There has at no time been a material adverse
change in the financial condition, results of operations, business, properties,
assets, or liabilities of the Company from the latest information set forth in
the Canadian Memorandum, except as may be described in the Canadian Memorandum
as having occurred or may occur.
897953.8
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<PAGE>
(e) No Violations or Breaches; Consents. (i) Neither the
execution and delivery of this Subscription Agreement nor the consummation of
the transactions contemplated hereby will violate any provision of, or result in
the breach of (A) the Articles of Incorporation or By-Laws of the Company; (B)
any material agreement to which the Company is a party; (C) result in the
creation of any material claim, lien, charge or encumbrance upon any of the
property or assets of the Company; or (D) to the knowledge of the Company, any
applicable federal, state, foreign or local law, statute, ordinance, rule, code,
regulation, order, judgment or decree, except for those violations that would
not have a Material Adverse Effect. For purposes hereof, the term "knowledge"
means the actual knowledge of the directors and executive officers of the
Company; and
(ii) The Company is not in violation or breach of or in default
with respect to, complying with any material provision of any contract,
agreement, instrument, lease, license, arrangement or understanding which is
material to the Company, and each such contract, agreement, instrument, lease,
license, arrangement and understanding is in full force and effect and is the
legal, valid and binding obligation of the Company, enforceable as to it in
accordance with its terms (subject to applicable bankruptcy, insolvency and
other laws affecting the enforceability of creditors' rights generally and to
general equitable principles). The Company is not in violation or breach of, or
in default with respect to, any term of its Articles of Incorporation or
By-Laws, each as amended to date.
(iii) The Company is not in material violation of any law or
regulation relating to occupational safety and health or to the storage,
handling or transportation of hazardous or toxic materials and the Company has
received all permits, licenses and/or other approvals required of it under
applicable occupational safety and health and environmental laws and regulations
to conduct its business, and the Company is in material compliance with all
terms and conditions of any such permit, license or approval, except any such
violation of law or regulation, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not, singly or in the aggregate,
result in a Material Adverse Effect.
(f) Capitalization; Issuance of Shares. As of the date of this
Subscription Agreement, the authorized capital stock of the Company consists
solely of (i) 95,000,000 authorized shares of Common Stock, of which 21,326,945
shares are issued and outstanding; and (ii) 5,000,000 authorized shares of
preferred stock, $.001 per share, none of which are issued and outstanding. Each
outstanding share of capital stock of the Company is duly authorized, validly
issued, fully paid and nonassessable and has not been issued and is not owned or
held in violation of any preemptive rights set forth in the Company's Articles
of Incorporation or By-Laws, each as amended to date, or any agreement to which
the Company is a party. There is no binding commitment, plan or arrangement to
issue, and no outstanding option, warrant or other right calling for the
issuance of, any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, exercisable for or
exchangeable for shares of capital stock of the Company, except as may be
described in or contemplated by, the Canadian Memorandum. There is outstanding
no security or other instrument which by its terms is
897953.8
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<PAGE>
convertible into or exchangeable for any class of share of capital stock of the
Company, except as may be described in the Canadian Memorandum. The capital
stock of the company conforms in all material respects to the description
thereof contained in the Canadian Memorandum.
Upon the issuance by the Company to the Subscriber of the shares
of Common Stock and the payment therefor by the Subscriber to the Company, on
the terms and subject to the conditions set forth herein, the shares of Common
Stock will have been duly authorized and validly issued and will be fully paid,
and non-assessable. The shares of Common Stock issuable upon the exercise of the
Warrant upon issuance (and upon receipt by the Company of the exercise price
thereof) will be validly issued, fully paid and non-assessable.
(g) Litigation. There is no litigation, arbitration, governmental
or other proceeding (formal or informal) or claim or investigation pending or,
to the knowledge of the Company, threatened with respect to the Company or any
of its operations, businesses, properties or assets, except as may be described
in the Canadian Memorandum or such as individually or in the aggregate do not
now have and will not likely in the future have a Material Adverse Effect. The
Company is not in violation of, or in default with respect to, any law, rule,
regulation, order, judgment or decree, except as may be described in the
Canadian Memorandum or such as in the aggregate do not have a Material Adverse
Effect.
(h) Intellectual Property. There is no right under any patent,
patent application, trademark, trademark application, trade name, service mark,
copyright, franchise or other intangible property or asset (all of the foregoing
being herein call "Intangibles") necessary to the business of the Company as
presently conducted, except as may be so designated in the Canadian Memorandum
and which the Company has the right or license to use as necessary. To the
Company's knowledge, except as described in the Canadian Memorandum, the Company
has not infringed nor is it infringing in any material respect with respect to
Intangibles or others, and the Company has not received notice of infringement
with respect to asserted Intangibles of others, which infringement would have a
Material Adverse Effect.
(i) Absence of Certain Changes. Subsequent to the date of the
Memorandum, and except as may otherwise be described in or contemplated by the
Memorandum, (A) the Company has not, except in the ordinary course of business,
incurred any material liability or obligation, primary or contingent, for
borrowed money, (B) there has not been any material change in the capital stock,
short-term debt or long-term debt of the company, (C) the Company has not
entered into any material transaction not in the ordinary course of business,
(D) the Company has not purchased any of its outstanding capital stock nor
declared or paid any dividend or distribution of any kind on its capital stock,
(E) the Company has not sustained any material loss or interference with its
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, and (F) there has not been any material
adverse change which the Company reasonably believes would likely result in a
prospective material adverse change, in the financial condition, results of
897953.8
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<PAGE>
operations, business, properties, assets, or liabilities of the Company and its
Subsidiaries, taken as a whole.
(j) Insurance. The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
are prudent and customary in the businesses in which they are engaged; the
Company has not been refused any insurance coverage sought or applied for; and
the Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from insurers of recognized financial responsibility as may be
reasonably necessary to continue its business.
(k) Tax Matters. The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file would not
have a Material Adverse Effect), and has paid all material taxes required to be
paid by it and any other material assessment, fine or penalty levied against it
to the extent that any of the foregoing is due and payable, except for any such
material assessment, fine or penalty that is currently being contested in good
faith or as described in the Memorandum.
(l) Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(m) Disclosure. Neither the Canadian Memorandum nor this
agreement contain any untrue statement of a material fact, and the Canadian
Memorandum and this agreement taken as a whole will not omit to state any
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading, except that the
Company shall have no liability for any information provided to the Company in
writing by, and relating to, the Canadian Placement Agent, for use in and used
in the Canadian Memorandum. It is understood that any summary in the Canadian
Memorandum of a document which appears therein in full (either as signed or
substantially in the form to be signed) does not constitute an untrue or
misleading statement merely because it is a summary; provided, however, that any
such summary may not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made, in light of the
circumstances under which they were made, not misleading. If, at any time before
the Offering is completed or terminated or before all subscriptions are accepted
by the Company, there should be any change which would cause the Canadian
Memorandum or this agreement not to comply with this paragraph 13(m), the
Company will promptly advise the Canadian Placement Agent thereof and prepare
and furnish the Canadian
897953.8
-15-
<PAGE>
Placement Agent with, for distribution to investors, after prior review and
approval by the Canadian Placement Agent and their counsel (such approval not to
be unreasonably withheld), such copies of such supplements or amendments to the
Canadian Memorandum and this agreement will cause the Canadian Memorandum and
this agreement, as so supplemented or amended, to comply with this paragraph
13(m), and will authorize the Canadian Placement Agent to make to investors, if
(i) deemed necessary by counsel to the Canadian Placement Agent and approved by
the Canadian Placement Agent or (ii) if deemed necessary by counsel to the
Company, an offer of rescission.
14. Certain Covenants.
(a) The Company covenants and agrees, at its own cost and
expense:
(i) to file a registration statement (a "Registration Statement")
with the SEC no later than 30 days following the Closing Date,
covering the resale of any and all shares of Common Stock
included in the Units and the shares of Common Stock issuable
upon exercise of the Warrants (the "Registrable Shares"),
(ii) to use its best efforts to cause such Registration Statement
to become effective within 90 days following the Closing Date and
remain effective until the earlier to occur of (i) the date on
which all the Warrants have been exercised or have expired by
their terms, and (ii) the date on which all such shares are
eligible for resale pursuant Rule 144 of the Act, without
limitation;
(iii) to prepare and file with the SEC, as expeditiously as
possible, any amendments and supplements to the Registration
Statement and the prospectus included in the Registration
Statement as may be necessary to keep the Registration Statement
effective for the period described in the foregoing clause (ii);
(iv) as expeditiously as possible, to furnish to the Subscriber
such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, and such other documents as the
Subscriber may reasonably request in order to facilitate the sale
or other disposition of the Registrable Shares; and
(v) as expeditiously as possible, register or qualify the
Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the Subscribers
shall reasonably request; provided, however, that (x) the Company
shall not for any purpose be required to qualify to do business
as a foreign corporation in any jurisdiction wherein it is not so
qualified or execute a general consent to service of process in
any jurisdiction and (y) if the Company is offering securities
for its own account, it need not register or qualify under the
securities or Blue Sky laws of any jurisdiction in which the
managing underwriter has no intention of offering or selling
securities for the account of the Company
897953.8
-16-
<PAGE>
(except that the Company will use its best efforts to register or
qualify Registrable Shares in such additional jurisdiction as any
Subscriber may request subject to the limitation of clause (x)
and at the Subscriber's expense).
Following the issuance of any such shares of Common Stock, and
prior to such time as the applicable Registrable Shares are so registered, such
shares shall be restricted securities under the Act, will not have been
registered under the Act and may not be sold or transferred absent such
registration or unless an exception from registration is available and the
certificates evidencing such shares shall bear an appropriate legend restricting
transfers under the Act. In connection with such registration, the Subscriber
shall provide to the Company such information, and execute and deliver such
certificates and other agreements, as the Company may reasonably request in
order to effectuate the registration of the Registrable Shares including
providing information regarding such holder and the distribution proposed by
such holder as the Company may request in writing and as shall be required in
connection with any registration, qualification or compliance.
(b) The Subscriber agrees that, upon receipt of any notice from
the Company of (i) any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus covering any of the Subscribers'
Registrable Shares, (ii) the issuance by the SEC of any stop order suspending
the effectiveness of a Registration Statement covering any of Subscriber's
Registrable Shares or the initiation of any proceedings for that purpose, (iii)
the receipt by the Company of any notification with respect to the suspension of
the qualification of any Registrable Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (iv) the happening
of any event that requires the making of any changes in the Registration
Statement covering any of Subscriber's Registrable Shares so that it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading or that any related prospectus will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, and (v) the Company's reasonable determination
that a post-effective amendment to a Registration Statement covering any of the
Subscriber's Registrable Shares or a supplement to any related prospectus is
required under the Act; the Subscriber will forthwith discontinue disposition of
such Registrable Shares until it is advised in writing by the Company that the
use of the applicable prospectus (as amended or supplemented, as the case may
be) and disposition of the Registrable Shares covered thereby pursuant thereto
may be resumed provided, however, (x) that the Subscriber shall not resume its
disposition of Registrable Shares pursuant to such Registration Statement or
related prospectus unless it has received notice from the Company that such
Registration Statement or amendment has become effective under the Act and has
received a copy or copies of the related prospectus (as then amended or
supplemented, as the case may be) unless the Registrable Shares are then listed
on a national securities exchange and the Company has advised the Subscriber
that the Company has delivered copies of the related prospectus, as then amended
or supplemented, in transactions effected upon such exchange, subject to any
subsequent receipt by such Subscriber from the Company of notice of any of the
events contemplated by
897953.8
-17-
<PAGE>
clauses (i) through (iv) of this paragraph, and, (y) if so directed by the
Company, such holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in the Subscriber's possession, of
the prospectus covering such Registrable Shares current at the time of receipt
of such notice.
(c) (i) In the event of any Registration of any of the
Registrable Shares under the Act pursuant to this Subscription Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
and each other person, if any, who controls such seller within the meaning of
the Act or the Exchange Act against any losses, claims, damages or liabilities,
joint or several, to which such seller or controlling person may become subject
under the Act, the Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement of any material
fact contained in any Registration Statement under which such Registrable Shares
were registered under the Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or supplement to such
Registration Statement, or arise out of or are based upon the omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading; and, subject to Section 12(c)(iii) below, the
Company will reimburse such seller and each such controlling person for any
legal or any other expenses reasonably incurred by such seller or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such Registration Statement, preliminary prospectus or final prospectus, or
any such amendment or supplement, in conformity with information furnished to
the Company, in writing, by or on behalf of such seller or controlling person
for use in the preparation thereof or inclusion therein.
The indemnity provisions in this Section 12(c)(ii) are subject to
the condition that, insofar as they related to any untrue statement or omission
made in a preliminary prospectus or prospectus but eliminated or remedied in a
final prospectus or an amended or supplemented prospectus on file with the SEC
at the time the Registration Statement becomes effective or any amended or
supplemented prospectus filed with the SEC pursuant to Rule 424 or any successor
provision under the Act (the "Final Prospectus"), such indemnity provisions
shall not inure to the benefit of the Subscriber (x) if the Subscriber is not
selling Registrable Shares through an underwriter, if the Company has previously
delivered copies of such Final Prospectus to the Subscriber or, if Registrable
Shares are then listed on a national securities exchange, if the Company has
previously delivered copies of such Final Prospectus to such national securities
exchange in accordance with Rule 153 or any successor rule under the Act, or (y)
if the Subscriber is selling Registrable Shares through an underwriter or
underwriters, the Company has previously delivered copies of such Final
Prospectus to such underwriter or underwriters.
(ii) In the event of any registration of any of the
Registrable Shares under the Act pursuant to this Subscription Agreement, the
Subscriber will indemnify and hold harmless the Company, each of its directors
and officers and each underwriter (if any), and each person,
897953.8
-18-
<PAGE>
if any, who controls the Company or any such underwriter within the meaning of
the Act or the Exchange Act, against any losses, claims, damages or liabilities,
joint or several, to which the Company, such directors and officers, underwriter
or controlling person may become subject under the Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement of a material fact contained in any Registration
Statement under which such Registrable Shares were registered under the Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission to state a material fact required to
be stated therein or necessary to make the statement therein not misleading, if
the statement or omission was made in conformity with information furnished in
writing to the Company by or on behalf of the Subscriber, specifically for use
in connection with the preparation of or inclusion in such Registration
Statement, prospectus, amendment or supplement; and shall reimburse the Company,
its directors and officers, and each such controlling person for any legal or
other expenses reasonably incurred by any of them in connection with
investigation or defending any such loss, claim, damage, liability or action,
provided, however, in no event shall Subscriber's indemnification obligations
hereunder exceed the gross proceeds from the sale of Registrable Shares by the
Subscriber. This indemnity shall remain in full force and effect for the
applicable statute of limitation period regardless of any investigation made by
or on behalf of the Company or such controlling person and shall survive the
transfer of shares.
(iii) Each party entitled to indemnification under this
Section 12(c)(ii) (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any loss, claim, action, damage
or liability as to which indemnity may be sought, and shall permit the
Indemnified Party to assume the defense of any such claim or any litigation
resulting therefrom; provided, that counsel for the Indemnifying Party, who
shall conduct the defense of such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld); and,
provided, further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnified Party of its obligations under
this Section 12(c)(ii), except to the extent that such failure to give notice
prejudices the Indemnifying Party or such Indemnifying Party is damaged by such
delay. The Indemnified Party may participate in such defense at such party's
expense; provided, however, that the Indemnifying Party shall pay such expense
(but in no event shall the Indemnifying Party be obligated to pay the fees and
expenses of more than one counsel for the Indemnified Party or Parties) if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential conflict of
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall
897953.8
-19-
<PAGE>
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
(iv) If the indemnification provided for in this Section
12(c) is finally determined by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss, liability, claim,
damage, or expense referred to therein or contribution is required under the Act
in circumstances for which indemnification is provided under this Section 12(c),
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense (i) in such
proportion as is in appropriate to reflect the relative benefits received by the
Indemnifying Party on the one hand and the Indemnified Party on the other or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits received by the Indemnifying Party on the one hand and the
Indemnified Party on the other but also the relative fault of the Indemnifying
Party and the Indemnified Party as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact related to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no
Subscriber will be required to contribute any amount in excess of the gross
proceeds of all Registered Shares sold by it pursuant to such Registration
Statement, and (B) no person or entity guilty of fraudulent misrepresentation,
within the meaning of Section 11(f) of the Act, shall be entitled to
contribution from any person or entity who is not guilty of such fraudulent
misrepresentation.
(v) The obligations under this Section 12(c) shall
survive the completion of any offering of Registered Shares in a registration
statement.
(d) As liquidated damages and Subscriber's sole and exclusive
remedy in the event of a breach by the Company of its obligations set forth in
Section 12(a) above to have a Registration Statement declared effective within
90 days following the final Closing Date, if a Company Registration Statement
covering such shares of Common Stock is not declared effective within 90 days,
but prior to 180 days, following the final Closing Date of the Offering, the
exercise price of the Warrants sold to Subscribers shall be reduced by US$0.25
per month, or a pro rated amount thereof for partial months, until a
Registration Statement covering such shares is declared effective. If a
Registration Statement covering such shares of Common Stock is not declared
effective within 180 days following the final Closing Date, the exercise price
of the Warrants shall be reduced by US$0.50 per month, or a pro rated amount
thereof for partial months, until a Registration Statement covering such shares
of Common Stock is declared effective. Notwithstanding the foregoing, in no
event should the exercise price of the Warrants sold to Subscribers be reduced
to a price lower than $3.75 per share.
897953.8
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<PAGE>
(e) From and after the Closing Date, the Company shall use its
best efforts to file all documents required to be filed by it on a timely basis
with the SEC under the Exchange Act and with the applicable Canadian securities
regulatory authorities under the applicable Canadian provincial Securities Laws.
[Signature page follows]
897953.8
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date specified below.
<TABLE>
<CAPTION>
- ----------------------------- --------------------------------------------------
Number of Units Subscribed For Print Full Legal Name of Partnership, Trust or LLC
<S> <C>
By:
- ----------------------------- ----------------------------------------------
Aggregate Purchase Price (Signature of Authorized Signatory)
(US$4.25 per Unit)
Name:
- ----------------------------- --------------------------------------------
Dated:
Title:
-------------------------------------------
Address:
-----------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
U.S. Tax Identification Number (if a U.S. Person)
--------------------------------------------------
Date and State or Jurisdiction of Incorporation or
Organization
--------------------------------------------------
Date on which Taxable Year Ends
</TABLE>
ACCEPTED AND AGREED:
JAWS TECHNOLOGIES, INC.
By:
----------------------------
Name:
Title:
Dated:
-----------------------------
897953.8
Exhibit 10.15
--------------
Subscribers Purchasing Subscriptions in Form Set Forth in Exhibit 10.14
The following subscribers purchased subscriptions in a private placement
of securities on December 31, 1999, pursuant to Subscription Agreements that
were substantially similar to the form set forth in exhibit 10.18. The sole
material difference between the agreements was the Subscriber and the amount of
Units (as defined in each Subscription Agreement) purchased.
Name Amount Of Units
---- ---------------
BPI Canadian Small Companies Fund 235,295
956872 Ontario Ltd. 36,000
Interward Capital Corporation.................. 40,000
Rockhaven Holdings Ltd......................... 20,000
YMG Capital Management Inc..................... 47,058
Acuity Investment Management Inc............... 470,590
Beluga NV...................................... 235,295
Pinetree Capital Corp.......................... 40,000
Fallingbrook Investments Ltd................... 35,295
Glentel Inc.................................... 1,200,000
Scott Leckie................................... 25,000
Frank Fini..................................... 25,000
Crothers Leasing Limited....................... 25,000
Moise Afriat................................... 25,000
Lionel K. Conacher............................. 25,000
Kehler International Equities (1990) Inc....... 23,530
Jean Gevaert................................... 47,060
Ron Kaulbach................................... 25,000
Andrew Parsons................................. 25,000
Eldon Guay..................................... 25,000
David J. Grand................................. 36,000
Murdoch & Co................................... 275,000
Robert F. Wilson............................... 235,295
913581.1
EXHIBIT 10.16
DEBENTURE AMENDMENT AND SETTLEMENT AGREEMENT
DATED the 17th day of November, 1999 to be effective the 1st day of
November, 1999.
BETWEEN:
JAWS TECHNOLOGIES, INC.
A corporation incorporated in the State of Nevada, USA
("JAWS")
- and -
THOMSON KERNAGHAN & CO. LTD.
A corporation incorporated in the Province of Ontario, Canada
("TK")
BACKGROUND:
(1) JAWS and TK entered into a debenture acquisition agreement on September
25, 1998 and amended the agreement on April 27, 1999, (the "Debenture
Agreement");
(2) Pursuant to the terms of the Debenture Agreement, TK has advanced and
JAWS has issued debentures as set out in Schedule "A" attached hereto and
JAWS has granted warrants to TK as set out in Schedule "B" hereto; and
(3) JAWS and TK wish to enter into this agreement in order to amend the
Debenture Agreement as required, clarify the number of Warrants to be
exercised and settle all outstanding obligations under the Debenture
Agreement in accordance with the terms set out herein below.
NOW THEREFORE, in consideration of the foregoing facts and the mutual covenants
and agreements contained herein, the parties hereby agree as follows:
(1) Conversion of Debentures
The debentures (the "Debentures"), issued in accordance with the terms of
the Debenture Agreement, shall be converted in accordance with the
calculations set out in Schedule "A" and JAWS will issue 5,127,672 shares
of the common stock of JAWS (the "Debenture Conversion Shares") using
available exemptions pursuant to the Securities Act of 1933, or the
Securities Exchange Act of 1934;
1
<PAGE>
(2) Exercise of $0.28 Warrants
TK shall exercise warrants to purchase 1,428,572 shares in the common
stock of JAWS at an exercise price of $0.28, pursuant to the Debenture
Agreement (the "$0.28 Shares") and shall immediately upon the execution
of this Agreement forward Four Hundred Thousand ($400,000 USD) to JAWS.
(3) Exercise of $0.65 Warrants
TK shall exercise warrants to purchase 923,077 shares in the common stock
of JAWS at an exercise price of $0.65 (the "$0.65 Shares"), pursuant to
the Debenture Agreement. The warrants shall be exercisable in accordance
with the following terms and the warrant agreement shall be amended as
follows by inserting the following provision after paragraph (j) in the
warrant agreement:
(k) Relinquishment Of Warrants.
(a) TK shall have right of relinquishment as hereinafter provided
by this Section (k):
(i) TK, its heirs or other legal representatives to the extent
entitled to exercise the Warrant under the terms thereof, in
lieu of purchasing the entire number of shares subject to
purchase thereunder, shall have the right to relinquish all of
the then unexercised portion of the Warrant (to the extent
then exercisable) in exchange for 751,648 shares of the common
stock of JAWS (the "$0.65 Shares"); and
(ii) such right of relinquishment may be exercised only upon
receipt by JAWS of a written notice of such relinquishment
which shall be dated the date of election to make such
relinquishment; and that, for the purposes of this Agreement,
such date of election shall be deemed to be November 1, 1999.
(4) Termination Of All Other Debenture Agreement Terms and Conditions
All other terms, conditions, representations, and warranties as contained
in the Debenture Agreement, or any other document related thereto, shall
be terminated on the date of the issuance of the Debenture Conversion
Shares, the $0.28 Shares and the $0.65 Shares.
2
<PAGE>
(5) Mutual Release
JAWS and TK agree to execute a mutual release relating to the Debenture
Agreement, and the settlement thereof including a settlement of all
penalty provisions, on the date of issuance of the Debenture Conversion
Shares, the $0.28 Shares and the $0.65 Shares.
(6) Further Assurances
Each of the parties hereto shall from time to time execute and deliver
all such further documents and instruments and do all acts and things as
any of the other parties may reasonably require to effectively carry out
or better evidence or perfect the full intent and meaning of this
Agreement.
(7) Time of the Essence
Time shall be of the essence of this Agreement.
(8) Entire Agreement
This Agreement shall constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and cancels and
supersedes any prior understandings and agreements between the parties
hereto with respect thereto. There are no representations, warranties,
terms, conditions, undertakings or collateral agreements, express,
implied or statutory, between the parties with respect to the subject
matter hereof other than as expressly set forth in this Agreement.
(9) Amendments and Waiver
No modification of or amendment to this Agreement shall be valid or
binding unless set forth in writing and duly executed by all of the
parties hereto whose rights are affected by amendment and no waiver of
any breach of any term or provision of this Agreement shall be effective
or binding unless made in writing and signed by the party purporting to
give the same and, unless otherwise provided, shall be limited to the
specific breach waived.
(10) Assignment
This Agreement may not be assigned by any party hereto without the
written consent of the other parties hereto.
3
<PAGE>
(11) Notice
Any demand, notice, statutory declaration, direction or other
communication to be given in connection with this Agreement shall be
given in writing simultaneously to all of the parties hereto and shall be
given by personal delivery, registered mail, or by telecopier addressed
to the recipients as follows:
(a) In the case of Jaws:
Jaws Technologies, Inc.
1013 17th Avenue S.W.
Calgary, Alberta
T2T 0A7
Telecopier: (403) 508-5058
(b) In the case of Thomson Kernaghan:
Thomson Kernaghan & Co. Limited
365 Bay Street
Toronto, Ontario
M5H 2V2
Telecopier: (416)367-8055
or to other such address, individual, or electronic communication number as may
be designated by notice given by any part to the other parties. Any demand,
notice or other communication given by personal delivery shall be conclusively
deemed to have been given on the day of actual delivery thereof and, if given by
registered mail, on the third business day following the deposit thereof in the
mail and, if given by electronic communication, on the day of transmittal
thereof if given during the normal business hours of the recipient and on the
business day during which such normal business hours next occur if not given
during such hours on any day. If the party giving any demand, notice or other
communication knows or ought reasonably to know of any difficulties with the
postal system which might affect the delivery of mail, any such demand, notice
or other communication shall not be mailed but shall be given by personal
delivery or by electronic communication.
(12) Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Alberta and the laws of Canada applicable
therein.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dated effective the day first above written.
JAWS TECHNOLOGIES, INC. THOMSON KERNAGHAN & CO. LTD.
Per: _______________________ Per: __________________________
Robert Kubbernus, CEO
Per: ________________________ Per: __________________________
Riaz Mamdani, CFO
<PAGE>
MUTUAL RELEASE
--------------
KNOW ALL MEN BY THESE PRESENTS THAT:
Thomson Kernaghan & Co. Ltd. their directors, officers and employees,
agents, successors and assigns (all of whom are hereinafter referred to
collectively as the "TK Releasors"), of the City of Toronto, in the Province of
Ontario, in consideration of the fufillment of all the settlement terms, as set
out in the Debenture Amendment and Settlement Agreement, dated effective
November 1, 1999, and all consideration relating thereto being given, the
receipt and sufficiency of which is hereby acknowledged, do hereby remise,
release and forever discharge Jaws Technologies, Inc., their directors, officers
and employees, agents, successors and assigns of and from any and all manner of
action and actions, cause and causes of action, suits, debts, sums of money,
indemnities, expenses, general damages, special damages, interest, costs and
claims of any and every kind and nature whatsoever, at law or in equity, or
under any statute, which the TK Releasors ever had or now have by reason of or
existing out of any cause of action arising out of the debenture acquisition
agreement between JAWS Technologies, Inc. and Thomson Kernaghan & Co. Ltd.,
dated September 25, 1998, as amended on April 27, 1999.
JAWS Technologies Inc., their directors, officers and employees,
agents, successors and assigns (all of whom are hereinafter referred to
collectively as the "JAWS Releasors"), of the City of Calgary, in the Province
of Alberta, in consideration of the sum of One Dollar ($1.00), and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, do hereby remise, release and forever discharge Thomson Kernaghan
& Co. Ltd. their directors, officers and employees, agents, successors and
assigns of and from any and all manner of action and actions, cause and causes
of action, suits, debts, sums of money, indemnities, expenses, general damages,
special damages, interest, costs and claims of any and every kind and nature
whatsoever, at law or in equity, or under any statute, which the JAWS Releasors
ever had or now have by reason of or existing out of any cause of action action
arising out of the debenture acquisition agreement between JAWS Technologies,
Inc. and Thomson Kernaghan & Co. Ltd., dated September 25, 1998, as amended on
April 27, 1999.
This Mutual Release shall be governed by and construed in accordance
with the laws of the Province of Alberta, Canada.
DATED this _______ day of ____________________, 1999.
JAWS TECHNOLOGIES, INC. THOMSON KERNAGHAN & CO. LTD.
Per: ______________________________ Per: ________________________
Robert Kubbernus, CEO
Per: ______________________________
Riaz Mamdani, CFO
<PAGE>
<TABLE>
<CAPTION>
Todays Date
01-Nov-99
Initial 10% 90 day 0.986% 0.1644% Total
Date Advance Annual Penalty free 30 day penalty 90 day penalty Penalties
<S> <C> <C> <C> <C> <C> <C>
25-Sep-98 $ 200,000.00 $ 3,611.00 24-Dec-98 $ - $ - $ -
10-Nov-98 $ 10,000.00 $ 55.55 08-Feb-99 $ - $ - $ -
10-Nov-98 $ 110,000.00 $ 10,729.00 08-Feb-99 $ 1,084.60 $ 42,678.24 $ 43,762.84
12-Dec-98 $ 100,000.00 $ 8,876.71 12-Mar-99 $ 986.00 $ 33,537.60 $ 34,523.60
26-Jan-99 $ 250,000.00 $ 19,109.59 26-Apr-99 $ 2,465.00 $ 65,349.00 $ 67,814.00
26-Jan-99 $ 250,000.00 $ 19,109.59 26-Apr-99 $ 2,465.00 $ 65,349.00 $ 67,814.00
16-Apr-99 $ 600,000.00 $ 32,712.33 15-Jul-99 $ 5,916.00 $ 77,925.60 $ 83,841.60
$ 1,520,000.00 $ 94,203.77 $ 12,916.60 $ 284,839.44 $ 297,756.04
</TABLE>
<TABLE>
<CAPTION>
$3.50
Penalties Total Interest Interest & Total
Forgiven & Penalties Penalty shares Conversion Shares Shares
<S> <C> <C> <C> <C> <C> <C>
25-Sep-98 $ - $ 3,611.00 1,032.00 0.1118 1,788,908.00 1,789,940.00
10-Nov-98 $ - $ 55.55 16.00 0.1118 89,445.00 89,461.00
10-Nov-98 $ (43,762.84) $ 10,729.00 3,065.00 0.28 392,857.00 395,922.00
12-Dec-98 $ (34,523.60) $ 8,876.71 2,536.00 0.28 357,143.00 359,679.00
26-Jan-99 $ (67,814.00) $ 19,109.59 5,460.00 0.28 892,857.00 898,317.00
26-Jan-99 $ (13,562.80) $ 73,360.79 20,960.00 0.4 625,000.00 645,960.00
16-Apr-99 $ (27,947.20) $ 88,606.73 25,316.00 0.65 923,077.00 948,393.00
$ (187,610.44) $ 204,349.37 58,385.00 5,069,287.00 5,127,672.00
</TABLE>
5
<PAGE>
SCHEDULE "B"
- ------------------------ --------------------------- -------------------------
Value of Warrant Exercise Price No. of Shares Issuable
- ------------------------ --------------------------- -------------------------
$ 400,000 $0.28 1,428,572
- ------------------------ --------------------------- -------------------------
$ 600,000 $0.65 923,077
- ------------------------ --------------------------- -------------------------
EXHIBIT 10.17
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
--------------------------------------
THIS EMPLOYMENT AGREEMENT is made and entered into between Jaws
Technologies, Inc. (hereinafter EMPLOYER) and Vera Gmitter (hereinafter
EXECUTIVE).
A. EMPLOYER is engaged in the development, manufacture, sales and
service of various products including, but not limited to: Security
Software and hardware products and Security Consulting.
B. EXECUTIVE desires to be or to continue to be employed by EMPLOYER and
acknowledges that in the course of performing the duties of
employment, EXECUTIVE will come into contact with, learn, acquire and
possibly develop technological information (e.g. patentable and
non-patentable discoveries including software and software codes
which may or may not be copyrightable), product information, business
information (e.g., pricing, customers, employees, suppliers,
financial information), and any other information that a business
similar to EMPLOYER would treat as confidential, and any other
information EMPLOYER informs EXECUTIVE shall be treated as
confidential, all hereinafter referred to as PROPRIETARY INFORMATION.
C. EMPLOYER and EXECUTIVE wish to define their respective rights and
duties with regard to EXECUTIVE's employment and EMPLOYER's
PROPRIETARY INFORMATION, as well as EXECUTIVE's proprietary
information.
NOW THEREFORE, in consideration of the above recitals, and the
following covenants and promises, and EXECUTIVE's employment by EMPLOYER, it is
hereby agreed as follows:
ARTICLE 1
DUTIES
------
1.1 EMPLOYER agrees to employ EXECUTIVE primarily in the capacity of Vice
President of Administration for EMPLOYER. As Vice President of Administration,
EXECUTIVE shall be primarily responsible for those duties described in his or
her job description (as amended from time to time) and as assigned by the
President.
1.2 EXECUTIVE hereby warrants and represents that EXECUTIVE has the
qualifications and experience to duly undertake and perform the employment
duties contemplated in this Agreement.
1.3 EXECUTIVE expressly understands that EXECUTIVE may be required to perform
such other duties within the EXECUTIVE's capabilities, and to work in such other
capacities, as EMPLOYER may deem necessary or advisable, and as may be assigned
to EXECUTIVE by EMPLOYER from time to time.
1.4 EXECUTIVE agrees to undertake and perform all such work as may be required
by the position assigned to EXECUTIVE and to serve EMPLOYER faithfully,
diligently and to the best of their ability. EXECUTIVE agrees that during the
term of this Agreement they will devote their best efforts, attention, energy
and skill to the performance of their employment duties and
<PAGE>
-2-
to furthering the interests of EMPLOYER. President shall be subject to the
oversight of, and shall report to the President of EMPLOYER.
1.5 EXECUTIVE shall faithfully keep and observe all of the rules which may be
prescribed from time to time by the EMPLOYER, and to comply with all applicable
laws, regulations, rules, codes, orders and standards imposed by the appropriate
federal, provincial or local government authorities with respect to the
employment duties contemplated in this Agreement.
ARTICLE 2
TERM OF EMPLOYMENT
------------------
2.1 EXECUTIVE's employment under this Agreement shall commence on Feb 1st,
1998.
ARTICLE 3
AREA OF EMPLOYMENT
------------------
3.1 EXECUTIVE's first assignment is expected to be in the Calgary geographic
area. However, due to the nature of the work, EMPLOYER shall have the right to
change the area to which EXECUTIVE is assigned and the primary work location
(hereinafter referred to as the "Area of Employment") at any time, and from time
to time during the term of this Agreement, by providing at least one months
notice to EXECUTIVE.
ARTICLE 4
COMPENSATION AND BENEFITS
-------------------------
4.1 EMPLOYER shall pay EXECUTIVE a salary of $90,000.00 Dollars per year (the
"Annual Salary"). This salary will be paid by EMPLOYER to EXECUTIVE in
semi-monthly installment payments, less all required withholding taxes and any
other amounts required by law to be deducted or agreed by EXECUTIVE to be
withheld.
4.2 EMPLOYER may, at its option, pay for a policy of key man life insurance on
the life of EXECUTIVE designating EMPLOYER as beneficiary. EXECUTIVE agrees to
fill out any forms and submit to a medical examination, if required. EMPLOYEE is
entitled to the Executive Benefits Program.
4.3 EXECUTIVE shall receive 20 days of vacation per year to increase to 25
days after the completion of 5 years employment.
4.4 EXECUTIVE has been granted parking privileges.
<PAGE>
-3-
ARTICLE 5
STOCK OPTIONS
-------------
5.1 Following satisfactory completion of the probation period, EXECUTIVE may
be granted stock options to purchase shares of common stock of EMPLOYER, to vest
one-third (1/3) on each anniversary date of the Agreement, subject to standard
anti-dilution protections. The stock options granted shall be subject to the
discretion of the Board of Directors of EMPLOYER. The strike price for the
options shall be the bid price for the common stock of EMPLOYER on the date the
options are granted, and the options may be exercised at any time within three
(3) years of the date of vesting. If EXECUTIVE is terminated for any reason, any
unvested options shall immediately become vested. Stock options shall be
governed by the terms and conditions of the stock option agreement, as adopted
and amended by EMPLOYER from time to time. The stock option agreement is
incorporated by reference herein. However, to the extent that there is any
inconsistency between this employment agreement and the stock option agreement,
the employment agreement prevails.
ARTICLE 6
TERMINATION
-----------
6.1 EMPLOYER may terminate this Agreement for just cause at any time. If
EMPLOYER terminates EXECUTIVE's employment for just cause then EMPLOYER shall
not be required to continue the compensation or benefits provided in Article 4
beyond such termination date.
As used herein, "just cause" includes any of the following occurrences:
(a) unexcused absences of EXECUTIVE; or
(b) willful violation by EXECUTIVE of any statute, regulation or ordinance
of the government of Canada or any Provincial or local governing
authority in Canada, the compliance with which is necessary for
operation of the business of EMPLOYER; or
(c) material violations or breach by EXECUTIVE of any of the provisions of
this Agreement; or
(d) commission by EXECUTIVE of one or more acts of misconduct or
disobedience in connection with his duties which, when considered
individually or in the aggregate, are deemed by EMPLOYER to be
material; or
(e) failure to abide by the written rules and regulations of EMPLOYER or
its clients, or failure to observe general rules of good conduct,
whether personal or in the line of duty; or
(f) consistent failure of EXECUTIVE to perform his duties in a reasonably
proficient manner; or
(g) EXECUTIVE being convicted of a criminal offence; or
<PAGE>
-4-
(h) death or disability which prevents EXECUTIVE from fulfilling his
duties; or
(i) any other act or omission by EXECUTIVE which constitutes just cause at
common law.
6.2 EMPLOYER may terminate this Agreement for any reason, by providing
EXECUTIVE with one month's notice of termination for each full year of completed
service with EMPLOYER. Alternatively, at EMPLOYER's option, EMPLOYER may provide
the equivalent number of months of base salary in lieu of notice of termination.
All of EXECUTIVE's compensation (including commissions and benefits) will cease
at the end of the notice period or EXECUTIVE's effective date of termination,
whichever first occurs. However, when this Agreement is terminated without cause
following a change of control, the EXECUTIVE is entitled to the payment pursuant
to Article 8.2 (and Article 6.0 does not apply).
6.3 At EMPLOYER's option, and following the provision of sufficient notice of
termination pursuant to Article 6.2, EMPLOYER may relieve EXECUTIVE of his
duties immediately to enable EXECUTIVE to pursue alternative employment
opportunities. In that event, EXECUTIVE shall be under a duty to mitigate his or
her damages by diligently searching for alternative employment and will advise
the EMPLOYER as soon as alternative employment is obtained. EXECUTIVE will only
receive salary and benefits until alternative employment is obtained.
6.4 EXECUTIVE may terminate this Agreement by written notice to EMPLOYER. A
notice of voluntary termination shall specify a proposed effective date of
termination at least ten (10) days after the date received by EMPLOYER. EMPLOYER
may accept the proposed termination date or may establish termination date by
providing notice of such earlier date to EXECUTIVE. In the event EXECUTIVE
voluntarily terminates this Agreement, he will receive the compensation and
benefits due hereunder through the effective date of termination only.
ARTICLE 7
OTHER ACTIVITIES
----------------
7.1 EXECUTIVE shall devote substantially all of his working time and efforts
during the EMPLOYER's normal business hours (reasonable vacations and sick leave
excluded) to the business and affairs of EMPLOYER and to the duties and
responsibilities assigned to him pursuant to this Agreement. EXECUTIVE may
devote a reasonable amount of his time to civic, community, or charitable
activities, so long as this does not conflict with his duties to EMPLOYER.
<PAGE>
-5-
7.2 EXECUTIVE shall not, without first having obtained the written consent of
EMPLOYER, perform any work or render any services to any third party or receive
any compensation of any kind from any third party with whom he may come into
contact in connection with his employment under this Agreement.
ARTICLE 8
CHANGE OF CONTROL
-----------------
8.1 In this Agreement, the following words and phrases have the following
meanings:
"Monthly Salary" means the sum of:
(a) the Annual Salary paid to EXECUTIVE for the calendar year immediately
preceding the date of a Change of Control, divided by twelve (12); and
(b) if EXECUTIVE has received or is entitled to receive any remuneration
pursuant to any profit sharing, officer or employee incentive,
compensation or bonus program, or otherwise from EMPLOYER or any
subsidiary at any time during the twelve (12) completed calendar
months immediately preceding the date of a Change of Control, the
maximum aggregate amount that EXECUTIVE was entitled to receive or did
receive in respect of any fiscal year of EMPLOYER that ended during
such twelve (12) month period;
"Change of Control" shall mean either of:
(a) any change in the holding, direct or indirect, of shares of EMPLOYER
as a result of which a person, or a group of persons, or persons
acting jointly or in concert, or persons associated or affiliated with
any such person or group within the meaning of the Business
Corporations Act (Alberta), are in a position to exercise effective
control of EMPLOYER. For the purposes of this Agreement, a person or
group of persons holding shares and/or other securities in excess of
the number that, directly or indirectly (assuming the conversion of
any convertible securities and the exercise of any option, warrant or
other right to acquire shares of EMPLOYER), would entitle the holders
thereof to cast more than 40% of the votes attaching to all shares of
EMPLOYER that may be cast to elect directors of EMPLOYER, shall be
deemed to be in a position to exercise effective control of EMPLOYER;
or
(b) Incumbent Directors ceasing to constitute a majority of the board of
directors of EMPLOYER;
"Change of Control Resignation" means EXECUTIVE'S resignation from
EMPLOYER within six (6) months of the date of a Change of Control;
"Incumbent Director" means any member of the board of directors of the
EMPLOYER who was a member of the board of directors of EMPLOYER prior to
the occurrence of the transaction or transactions giving rise to a Change
of Control and any successor to an
<PAGE>
-6-
Incumbent Director who was recommended or elected or appointed to succeed
an Incumbent Director by the affirmative vote of a majority of the
Incumbent Directors then on the board of directors of EMPLOYER;
"Unexercised Rights" means securities held by EXECUTIVE that are
convertible into or exchangeable for securities or shares of EMPLOYER or
any affiliate thereof or holds options, rights, warrants or other
entitlements for the purchase or acquisition of shares of EMPLOYER or any
affiliate thereof that are not then exerciseable.
8.2 In the event of a Change of Control, and in the event that EXECUTIVE
resigns from EMPLOYER or is terminated without cause, within six (6) months of
the date of a Change of Control:
(a) EMPLOYER shall pay to or to the order of EXECUTIVE in a lump sum
payment equal to Eighteen (18) times EXECUTIVE'S Monthly Salary within
ten (10) days after the effective date of the Change of Control
Resignation (less any deductions required by law); and
(b) all Unexercised Rights held by EXECUTIVE shall be accelerated so that,
notwithstanding any provisions of any resolution, by-law, agreement,
contract or instrument pertaining to or evidencing the Unexercised
Rights to the contrary, the Unexercised Rights shall become
immediately exerciseable and shall remain exercisable for a period of
ninety (90) days following the date of the Change of Control
Resignation, and this Agreement shall evidence any such agreement of
EMPLOYER and EXECUTIVE to such acceleration as may be required under,
pursuant to or in connection with the Unexercised Rights or any
documents or instruments creating or governing such Unexercised
Rights;
(c) EMPLOYER will continue to maintain all of EXECUTIVE's benefits
(excluding short and long-term disability) at the level existing at
the date of the Change of Control Resignation, until the earlier of:
(i) the obtaining by EXECUTIVE of alternative employment that
provides employment benefits of a comparable nature;
(ii) the death of EXECUTIVE; or
(iii) eighteen (18) months following the effective date of the Change
of Control Resignation; or
at the option of EMPLOYER or EXECUTIVE, EMPLOYER will pay to EXECUTIVE an
amount equal to the cost to EMPLOYER of providing such benefits for the
applicable period.
8.3 Alternative Employment. The benefits payable to EXECUTIVE under this
Article 8 shall not be reduced in any respect in the event that EXECUTIVE shall
secure, or shall not reasonably pursue, alternative employment following the
date of the Change of Control
<PAGE>
-7-
Resignation, except for those benefits conferred under Article 8.2(c) above,
which shall be governed by the provisions of that paragraph.
ARTICLE 9
CONFIDENTIAL INFORMATION
------------------------
9.1 EMPLOYER has agreed to provide EXECUTIVE with specialized skills,
techniques, information and background relating to EMPLOYER's business. In
addition, EXECUTIVE will acquire information (the "Confidential Information")
with respect to certain matters related to EMPLOYER'S business, which
Confidential Information is and shall remain the exclusive property of EMPLOYER,
including, without being limited to, the following:
(a) trade secrets;
(b) the names, addresses, telephone numbers and telefax(s) of the present
and prospective clients of EMPLOYER and individual contacts at such
clients;
(c) information as to the requirements of EMPLOYER'S clients;
(d) pricing and sales information, policies and concepts;
(e) financial information;
(f) capital structure and shareholder information;
(g) business plans;
(h) market strategies;
(i) industry information; and
(j) technical information.
9.2 EXECUTIVE acknowledges that the Confidential Information could be used to
the detriment of EMPLOYER and that the disclosure of such Confidential
Information could cause irreparable harm to EMPLOYER. Accordingly, EXECUTIVE
undertakes to treat confidentially all Confidential Information and not to
disclose or provide such Confidential Information to any third party, or to use
it for any purpose, either during or after the termination of his employment
with EMPLOYER, for any reason, except as may be necessary for the proper
discharge of EXECUTIVE's duties.
9.3 Records, electronically stored information and any other notes, data,
tapes, reference items, sketches, drawing, memoranda, records and other
materials in anyway related to any of the Confidential Information or to
EMPLOYER's business, which is produced by EXECUTIVE or comes into EXECUTIVE's
possession as a result of his employment with EMPLOYER, shall be the exclusive
property of EMPLOYER. EXECUTIVE agrees to turn over to EMPLOYER all copies of
any such materials in his possession or under his control forthwith at the
request of
<PAGE>
-8-
EMPLOYER or, in the absence of a request, on the date that his employment with
EMPLOYER ends, for any reason.
ARTICLE 10
NON-SOLICITATION AND NON-COMPETITION
------------------------------------
10.1 EXECUTIVE acknowledges and agrees that during employment he or she will be
encouraged to maintain a close working relationship with EMPLOYER's clients and
will gain a knowledge of EMPLOYER's clients which would injure EMPLOYER if made
available to a competitor or used for competitive purposes.
10.2 Accordingly, EXECUTIVE agrees that during employment with EMPLOYER and for
a period of 12 months from the date that his or her employment with EMPLOYER
ends, regardless of the reason it does so, EXECUTIVE will not, directly or
indirectly, whether personally or as an EXECUTIVE, principal, partner, agent,
shareholder or in any other capacity whatsoever, of any other person, firm,
corporation, association or other entity:
(a) provide services similar to any of those provided by EMPLOYER to any
person, firm, corporation, association or other entity for which
services were performed by EMPLOYER at or through the office at which
EXECUTIVE was located on the date that EXECUTIVE ceased to be an
EXECUTIVE;
(b) knowingly solicit, sell, promote or assist in the solicitation, sale
or promotion of services similar to any of those provided by EMPLOYER,
from any clients of EMPLOYER with whom EXECUTIVE had direct contact or
provided services within the twelve month period immediately prior to
the date that EXECUTIVE ceased to be an EXECUTIVE and;
(c) make or attempt to make any offer of employment or partnership to any
EXECUTIVE of EMPLOYER in any business or enterprise that provides a
service or services to the public similar to any of those provided by
EMPLOYER while EXECUTIVE was an EXECUTIVE of EMPLOYER.
ARTICLE 11
INTELLECTUAL PROPERTY
---------------------
11.1 EXECUTIVE agrees that EMPLOYER acquires by virtue of the employment
relationship all intellectual property rights to all writings, products,
developments or services (the "Works") that EXECUTIVE makes, conceives,
discovers or develops at any time while employed by EMPLOYER, whether during
working hours or at any other time, which relate to or are used or intended for
use in connection with any business carried on by EMPLOYER, and EXECUTIVE hereby
unequivocally assigns to EMPLOYER all rights, including all domestic and foreign
patents and copyrights and any other proprietary rights which EXECUTIVE has, in
such Works.
11.2 EXECUTIVE agrees to make full disclosure to EMPLOYER of all Works and to
do all things that may be necessary to make EMPLOYER the owner of such Works.
EXECUTIVE
<PAGE>
-9-
agrees that he shall not be entitled to any payment in regard to the Works.
EXECUTIVE also agrees to do whatever is necessary to enable EMPLOYER to apply
for and secure any copyright in Canada or elsewhere with respect to the Works.
11.3 EXECUTIVE hereby waives any moral rights that EXECUTIVE may have in any
Works, or any part or parts thereof. EMPLOYER shall be entitled to transfer its
rights in the Works either separately or in connection with a transfer of the
business.
11.4 EXECUTIVE agrees that in the event his employment is terminated by
EMPLOYER for any reason, EXECUTIVE shall continue to cooperate with EMPLOYER at
all times in the prosecution or defence of any lawsuit related to EMPLOYER's
activities in connection with any copyright or patent in the Works.
11.5 Notwithstanding any other provision in this Article 11, all inventions, if
any, which EXECUTIVE makes prior to EXECUTIVE's employment by EMPLOYER are
excluded from the scope of this AGREEMENT. As a matter of record, EXECUTIVE has
set forth on Exhibit "A" attached hereto a complete list of all inventions,
discoveries or improvements relating to EMPLOYER's business which have been made
by EXECUTIVE prior to his employment with EMPLOYER. EXECUTIVE represents and
covenants that such list is complete.
ARTICLE 12
PATENTS
-------
12.1 If EMPLOYER files an application for Letters Patent on any invention made
by EXECUTIVE, EMPLOYER shall pay to EXECUTIVE a cash award of $5,000.00 upon
completion and registration of such application and the formal written
assignment of EXECUTIVE's rights therein to EMPLOYER, and any and all
instruments and documents requested by EMPLOYER relating to said invention
ARTICLE 13
ENFORCEMENT
-----------
13.1 EXECUTIVE agrees that the restrictions and covenants contained in this
Agreement are reasonably required for the protection of EMPLOYER and its
goodwill, and that EXECUTIVE's agreement to same by his or her execution of this
Agreement are of the essence to this Agreement and constitute a material
inducement to EMPLOYER to employ EXECUTIVE, and that EMPLOYER would not employ
EXECUTIVE absent such an inducement.
13.2 EXECUTIVE agrees that it would be difficult to measure damages to EMPLOYER
for any breach by EXECUTIVE of the promises set forth in this AGREEMENT and that
injury to EMPLOYER from any such breach would be impossible to calculate, and
that money damages would be an inadequate remedy for any such breach.
Accordingly, EXECUTIVE agrees that if any provision of this AGREEMENT is
breached, EMPLOYER shall be entitled, in addition to other any remedies it may
have, to an injunction or other appropriate order to restrain any such breach by
EXECUTIVE without having to show or prove any actual damages sustained by
<PAGE>
-10-
EMPLOYER, and that an interim injunction may be granted immediately on the
commencement of any suit.
ARTICLE 14
SEVERABILITY
------------
14.1 In the event that any clause herein should be declared unenforceable or
invalid for any reason whatsoever, such enforceable or invalid clause shall be
severable from the remainder of the Agreement, which shall continue to have full
force and effect.
ARTICLE 15
GOVERNING LAW
-------------
15.1 This Agreement shall be construed and enforced in accordance with the laws
of the Province of Alberta.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 This AGREEMENT shall be binding upon EXECUTIVE and his/her heirs,
executors, assigns and administrators and shall inure to the benefit of
EMPLOYER, its successors and assigns and any subsidiary.
16.2 This AGREEMENT may be signed in two counterparts, each of which shall be
deemed an original and together shall constitute one instrument.
16.3 The use of the singular of this agreement includes the plural, as
appropriate.
16.4 This AGREEMENT represents the entire agreement between EXECUTIVE and
EMPLOYER with respect to the subject matter hereof, superseding all previous
oral or written communications, representations or agreements. This AGREEMENT
may be modified only by a writing duly authorized and executed by the party to
be bound.
16.5 With the exception of Articles 9-13 of this Agreement, any dispute as to
the rights and duties of the parties under this Agreement, or to its
construction, validity or enforcement shall be submitted to binding arbitration
in Calgary, Alberta before a single arbitrator pursuant to the Arbitration Act
(Alberta). The decision of the arbitrator shall be final and binding on the
parties. The prevailing party in such arbitration or any proceeding in respect
thereof or challenging such arbitration, shall be entitled to receive their
solicitor and own client fees incurred in connection therewith. Articles 9 - 13
of this Agreement may be enforced by a court having jurisdiction over the
matter.
16.6 The waiver by EMPLOYER of a breach or violation of any provision of this
Agreement by EXECUTIVE shall not operate as, or be construed as, a waiver by
EMPLOYER of any subsequent breach of the same or other provisions hereof.
<PAGE>
-11-
16.7 Any notices provided for in this Agreement shall be given in writing and
transmitted by personal delivery or prepaid first class registered or certified
mail to the following address:
EMPLOYER: Jaws Technologies, Inc.
1013 - 17th Ave. S.W.
Calgary, Alberta T2T 0A7
Attn.: Vice-President of Human Resources
EXECUTIVE: Vera Gmitter
169 Riverwood Crescent
Calgary, Alberta T2C 4G1
16.8 If EMPLOYER institutes any proceedings to enjoin, restrain or seek damages
from EXECUTIVE by reason of EXECUTIVE's failure to comply with the terms or
conditions set forth in this AGREEMENT or EXECUTIVE's breach of any duty to
EMPLOYER, EXECUTIVE (i) agrees to pay damages, all expenses incurred, costs and
solicitor and client fees as may be determined by the court or arbitration board
(as applicable) with respect to enforcement of any of the rights of EMPLOYER and
(ii) EMPLOYER shall not have to post any bond.
DATED: This _____ day of __________, 1999
JAWS TECHNOLOGIES, INC.
/s/Vikki Robinson By:/s/Riaz Mandani
- ---------------------------- ------------------------------
Witness Name: Riaz Mamdani
Office: CFO
The undersigned has read and understands the above AGREEMENT, acknowledges
full knowledge of the contents thereof and the truth of the recitals therein,
and agrees to perform in accordance with each and every term thereof. Further,
the undersigned is and was advised to seek the advice of a lawyer prior to
executing this AGREEMENT. The undersigned further acknowledges receipt of a copy
of this AGREEMENT together with all applicable Exhibits.
Vera Gmitter
/s/Vikki Robinson /s/Vera Gmitter
- ---------------------------- ----------------------------
Witness
<PAGE>
EXHIBIT A
---------
The following is a list of all inventions, discoveries or improvements relating
to EMPLOYER's business which have been made by EXECUTIVE prior to his/her
employment with EMPLOYER.
EXECUTIVE's Initials
- --------------------
(one line only)
_____ None
_____ As listed below:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Exhibit 10.18
Schedule of Officers Who Executed Form of Employment Agreement Evidenced in
Exhibit 10.17
Robert J. Kubbernus
Riaz Mamdani
Vera Gmitter
Tej Minhas
923400.1
Exhibit 21
----------
Subsidiaries of JAWS Technologies, Inc. a Nevada corporation
The following is a list of all the subsidiaries of JAWS Technologies,
Inc., a Nevada corporation. JAWS owns 100% of the issued and outstanding common
stock of these entities.
JAWS Acquisition Corp., an Alberta corporation
JAWS Technologies, Inc., an Alberta corporation
JAWS Technologies, Inc., an Ontario corporation
JAWS Technologies (Delaware), Inc. a Delaware corporation
Pace Systems Group Inc., an Ontario corporation
914296.1
Exhibit 23.2
------------
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 22, 1999 except for Note 17 which is at December
2, 1999, with respect to the financial statements of Jaws Technologies, Inc., in
the Registration Statement (Form S-1 No. 333-____) and related prospectus of
Jaws Technologies, Inc., dated February __, 2000, for the registration of
6,683,067 shares of its common stock.
/s/Ernst & Young LLP
Calgary, Canada ----------------------
February 14, 2000 Chartered Accountants
906592.9
Exhibit 23.3
------------
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 1, 1999, with respect to the financial
statements of Pace Systems Group Inc. in the Registration Statement (Form S-1
No. 333-____) and related prospectus of Jaws Technologies, Inc., dated February
__, 2000, for the registration of 6,683,067 shares of its common stock.
/s/Ernst & Young LLP
Calgary, Canada -------------------------
February 14, 2000 Chartered Accountants
906592.9
Exhibit 23.4
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Mr. David Luci
Battle Fowler LLP
75 East 55th Street
New York, New York
USA 10022
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Form S-1 of our
report dated August 9, 1999, except for note 13 which is as at January 28, 2000
relating to the balance sheets included herein as at June 30, 1999 and 1998 and
the statements of loss and deficit and cash flows of Offsite Data Services Ltd.,
which appear in such registration statement. We also consent to the reference to
us under the heading "Experts" in this registration statement.
/s/PricewaterhouseCoopers LLP
- ------------------------------
"PricewaterhouseCoopers LLP"
Calgary, Alberta, Canada
February 11, 2000
906592.9
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