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Electronically transmitted to the Securities and Exchange Commission March 24,
2000
Registration No. 333-30406
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JAWS Technologies, Inc.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
7371
(Primary Standard Industrial Classification Code Number)
98-0167013
(I.R.S. Employer Identification Number)
1013-17TH AVENUE S.W.
CALGARY, ALBERTA CANADA T2T 0A7
(403) 508-5055
(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
COPY TO:
LUKE P. IOVINE, III, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
399 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 318-6000
(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: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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(1) $42,395,707(1) $11,193(2)
==================================================================================================================================
Common Stock 941,181 shares $9.906 per share(3) $9,323,339(3) $2,462
==================================================================================================================================
</TABLE>
(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).
(2) This amount was previously paid by the registrant in connection with the
initial filing of this registration statement on February 14, 2000.
(3) 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 March 20, 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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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.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 24, 2000
7,624,248
JAWS TECHNOLOGIES, INC.
Common Stock
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 "JAWZ".
INVESTING IN THIS COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 4.
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.
THE DATE OF THIS PROSPECTUS IS MARCH 24, 2000.
<PAGE> 3
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.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................. 1
Special Note Regarding Forward-looking
Statements..................................................... 3
Risk Factors................................................... 4
Use of Proceeds................................................ 12
Dividend Policy................................................ 12
Capitalization................................................. 13
Selected Financial Data........................................ 14
Selling Stockholders........................................... 16
Plan of Distribution........................................... 19
Description of Capital Stock................................... 21
Business....................................................... 24
Market For Common Equity And Related
Stockholder Matters............................................ 38
Management's Discussion And Analysis of
Financial Condition And Results of
Operations..................................................... 39
Management..................................................... 44
Security Ownership of Certain Beneficial
Owners And Management.......................................... 51
Certain Relationships And Related Transactions................. 53
Registration Rights............................................ 56
Legal Matters.................................................. 57
Experts........................................................ 57
Available Information.......................................... 57
Index to Consolidated Financial Statements..................... F-1
i
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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 SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following sets forth summary selected financial information of the
Company on a historical basis for each of the periods and dates indicated and on
a pro forma basis as of and for the year ended December 31, 1999. The following
information should be read in conjunction with the financial statements and
notes thereto of the Company.
The unaudited selected consolidated pro forma financial information for
the year ended December 31, 1999 is presented as if the acquisitions of Pace,
Offsite and SDTC, and the consummation of the Company's private placement
financing of approximately US$9.25 million on December 31, 1999 (the "Private
Placement Transaction") and the private placement financing of approximately
US$2.5 million on February 22, 2000 (and the application of the net proceeds
therefrom) had all occurred as of January 1, 1999. The unaudited selected
consolidated pro forma balance sheet data as of December 31, 1999 are presented
as if the foregoing events had occurred as of such date. The pro forma financial
information is unaudited and is not necessarily indicative of what the financial
position and results of operations of the Company would have been as of the
dates and for the periods indicated, nor does it purport to represent or project
the financial position or results of operations for future periods. The
information set forth in the table should be read in conjunction with the
financial statements and notes thereto, the pro forma 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.
THE COMPANY (PRO FORMA) AND (HISTORICAL)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------------------
Pro Forma (Unaudited) Historical
-------------------- ----------------------------------
1999 1999 1998 1997
-------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Results of operations
Revenue 1,494 592 29 --
Net loss for the period (13,207) (7,168) (3,076) (137)
Net loss for the period per
share of common stock (0.67) (0.50) (0.42) (0.03)
Financial position
Total assets 28,181 12,606 273 10
Long-term debt 68 68 147 --
Stockholders equity (deficiency) 26,455 11,162 (574) (101)
</TABLE>
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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 the inability to successfully develop and
commercialize products, the Company's limited operating history and continuing
operating losses, recent and potential development strategic alliances, the
Company's liquidity and capital resources, 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
March 20, 2000, the exchange rate was US $1.00 equal Cdn $1.4701.
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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 $5.00 per share but may now and in the future be subject to
the penny stock rules under the Exchange
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Act. These rules regulate broker-dealer practices for transactions in "penny
stocks." Penny stocks generally are equity securities with a price of less than
$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 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 December 31, 1999, JAWS has, on a consolidated basis,
incurred a cumulative loss of $10,380,917. JAWS anticipates that losses with
respect to its operations will continue in the future.
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
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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 and sell 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.
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
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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.
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
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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,
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.
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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.
9
<PAGE> 13
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
10
<PAGE> 14
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.
11
<PAGE> 15
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.
12
<PAGE> 16
CAPITALIZATION
The following table sets forth the historical capitalization of JAWS
and the capitalization of JAWS at December 31, 1999, as adjusted to give effect
to the private placement financing of approximately $2.5 million consummated on
February 22, 2000. 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>
December 31, 1999
----------------------------------
Historical As Adjusted
------------- --------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 1,177,278 1,350,169
Current portion of capital lease obligations 25,235 25,235
Current portion of long term debt 0 242
Due to related parties 172,093 279,853
Due to stockholders 2,066 2,066
------------ ------------
Total Current Liabilities $ 1,376,672 $ 1,657,565
------------ ------------
LONG TERM DEBT:
Capital lease obligations payable 68,277 68,277
Convertible debentures 0 0
------------ ------------
$ 68,277 $ 68,277
------------ ------------
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 25,040 30,503
Additional paid in capital 21,699,106 37,041,492
Cumulative translation adjustment (181,717) (181,717)
Deficit (10,380,917) (10,435,437)
------------ ------------
Total Capitalization $ 11,161,512 $ 26,454,841
------------ ------------
</TABLE>
13
<PAGE> 17
SELECTED FINANCIAL DATA
(in thousands, except per share data)
The following sets forth selected financial information for each of the
Company, Pace and Offsite on a historical basis for each of the periods and
dates indicated and for the Company on a pro forma basis as of and for the year
ended December 31, 1999. The following information should be read in conjunction
with the financial statements and notes thereto of the Company included
elsewhere in this prospectus.
The selected historical financial information for the Company as of
December 31, 1999, 1998 and 1997, and for each of the three years in the period
ended December 31, 1999 has been derived from the Company's historical financial
statements audited by Ernst & Young, LLP, independent auditors, whose report
with respect thereto is included elsewhere in this Prospectus. The selected
historical financial information for Pace as of July 31, 1999, 1998 and 1997,
and for each of the three years in the period ended July 31, 1999 has been
derived from Pace's historical financial statements audited by Ernst & Young,
LLP, independent auditors, whose report with respect thereto is included
elsewhere in this Prospectus. The selected historical financial information for
Offsite as of June 30, 1999, 1998 and 1997, and for each of the three years in
the period ended June 31, 1999 has been derived from Offsite's historical
financial statements audited by PricewaterhouseCoopers, LLP, independent
accountants, whose report with respect thereto is included elsewhere in this
Prospectus.
The unaudited selected consolidated pro forma financial information for
the year ended December 31, 1999 is presented as if the acquisitions of Pace,
Offsite and SDTC, and the consummation of the Company's December 31, 1999 and
February 22, 2000 private placements (and the application of the net proceeds
therefrom) had all occurred as of January 1, 1999. The unaudited selected
consolidated pro forma balance sheet data as of December 31, 1999 are presented
as if the foregoing events had occurred as of such date. The pro forma
information is based upon certain assumptions that are included in the notes to
the pro forma financial statements included elsewhere in this Prospectus. The
pro forma financial information is unaudited and is not necessarily indicative
of what the financial position and results of operations of the Company would
have been as of the dates and for the periods indicated, nor does it purport to
represent or project the financial position or results of operations for future
periods.
THE COMPANY PRO FORMA AND HISTORICAL
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
Pro Forma Historical
------------- --------------------------------------
1999 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 1,494 $ 592 $ 29 --
Loss for the period (13,207) (7,168) (3,076) (137)
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
Pro Forma Historical
------------- --------------------------------------
1999 1999 1998 1997
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss for the period per
share common stock (0.67) (0.50) (0.42) (0.03)
Total assets 28,181 12,606 273 10
Long-term debt 68 68 147 --
Shareholder's equity
(deficiency) 26,455 11,162 (574) (101)
</TABLE>
PACE SYSTEMS GROUP INC. (HISTORICAL)
<TABLE>
<CAPTION>
Two Months Ended Year Ended July 31,
September 30, 1999 -------------------------------------
(Unaudited) 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>
OFFSITE DATA SYSTEMS LTD. (HISTORICAL)
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31,1999 --------------------------------------
(unaudited) 1999 1998 1997
---------------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenue 141 157 98 80
Net loss for the period (483) (352) (184) (180)
Net loss for the period per share common
stock -- -- -- --
Total assets 660 370 146 101
Long-term debt -- -- 2 7
Shareholder's equity (deficiency) 561 (333) (97) 5
</TABLE>
15
<PAGE> 19
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 7,624,248 shares of common stock, including
3,369,592 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.
16
<PAGE> 20
<TABLE>
<CAPTION>
Number of
Shares of Total
Common Number Number of Number of
Stock, not of Shares Shares of Percentage Shares to be
including Represented Common Beneficially Offered for
Warrants, by Warrants Stock Owned the Account
Beneficially Beneficially Beneficially Before of the Selling
Name Owned Owned Owned + Offering Stockholder
---- ----- ----- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
BPI Canadian Small Companies Fund. 235,295 117,647.5 352,942.5 1.43% 352,942.5
956872 Ontario Ltd................ 36,000 18,000 54,000 .22% 54,000
Interward Capital Corporation..... 40,000 20,000 60,000 .25% 60,000
Rockhaven Holdings Ltd............ 20,000 10,000 30,000 .12% 30,000
YMG Capital Management Inc........ 47,058 23,529 70,587 .29% 70,587
Acuity Investment Management Inc.. 470,590** 235,295 705,885 2.82% 705,885
Beluga NV......................... 235,295 117,647.5 352,942.5 1.43% 352,942.5
Pinetree Capital Corp............. 40,000 20,000 60,000 0.25% 60,000
Fallingbrook Investments Ltd...... 35,295 17,647.5 52,942.5 0.22% 52,945.5
Glentel Inc***.................... 1,200,000 934,000 2,134,000 8.1% 2,134,000
Scott Leckie...................... 25,000 12,500 37,500 .15% 37,500
Frank Fini........................ 25,000 12,500 37,500 .15% 37,500
Crothers Leasing Limited.......... 25,000 12,500 37,500 .15% 37,500
Moise Afriat...................... 25,000 12,500 37,500 .15% 37,500
Lionel K. Conacher................ 25,000 12,500 37,500 .15% 37,500
Kehler International Equities (1990)
Inc .............................. 23,530 11,765 35,295 .15% 35,295
Jean Gevaert...................... 47,060 23,530 70,590 .29% 70,590
Ron Kaulbach...................... 25,000 12,500 37,500 .15% 37,500
Andrew Parsons.................... 25,000 12,500 37,500 .15% 37,500
Eldon Guay........................ 25,000 12,500 37,500 .15% 37,500
David J. Grand.................... 36,000 18,000 54,000 .22% 54,000
Murdoch & Co...................... 275,000 137,500 412,500 1.67% 412,500
Royal Trust Corp. of Canada
ITF2363129003..................... 235,295 117,647.5 352,942.5 1.43% 352,942.5
Bristol Asset Management, LLC..... 0 1,000,000 1,000,000 3.9% 1,000,000
Thomas E. Skidmore................ 69,000 57,546 126,546 .52% 125,546
A. Allan Skidmore................. 69,000 57,546 126,546 .52% 125,546
Arthur Skidmore................... 10,000 8,340 18,340 .08% 18,340
Brian Skidmore.................... 7,500 6,255 13,755 .06% 13,755
Cary Skidmore..................... 10,000 8,340 18,340 .08% 18,340
Garry Skidmore.................... 7,500 6,255 13,755 .06% 13,755
Beverly Droulis................... 500 417 917 .004% 917
Margrit Hartman................... 9,000 7,506 16,506 .07% 16,506
Margaret Alexis Kennedy........... 8,500 7,089 15,589 .06% 15,589
Suzanne Lowndes................... 9,000 7,506 16,506 .07% 16,506
Thomson Kernaghan & Co. Limited*** 5,278,099 276,466 5,554,565 22.61% 276,466
ABC Special Family Trust
c/o St. Vincent Trust Service Ltd. 47,059 23,529.5 70,588.5 .29% 70,588.5
Third Point Partners LP........... 107,353 53,676.5 161,029.5 .66% 161,029.5
Third Point Offshore Fund Ltd..... 59,970 29,985 89,955 .37% 89,955
Points West International Investments
Ltd............................... 34,653 17,326.5 51,979.5 .25% 51,979.5
Bonzai Partners LP................ 26,786 13,393 40,179 .16% 40,179
Bonzai Offshore Fund Ltd.......... 6,533 3,266.5 9,799.5 .04% 9,799.5
CALP II LP, c/o Forum Fund Services 235,295 117,647.5 352,942.5 1.43% 352,942.5
David Schecter.................... 47,059 23,529.5 70,588.5 .29% 70,588.5
Kruco Inc. ....................... 23,530 11,765 35,295 .15% 35,295
</TABLE>
<TABLE>
<CAPTION>
Percentage
Number of to be
Shares to Beneficially
be Owned Owned
after this after this
Name Offering Offering
---- -------- --------
<S> <C> <C>
BPI Canadian Small Companies Fund. 0 1.4%
956872 Ontario Ltd................ 0 *
Interward Capital Corporation..... 0 *
Rockhaven Holdings Ltd............ 0 *
YMG Capital Management Inc........ 0 *
Acuity Investment Management Inc.. 0 2.8%
Beluga NV......................... 0 1.4%
Pinetree Capital Corp............. 0 *
Fallingbrook Investments Ltd...... 0 *
Glentel Inc***.................... 0 8.1%
Scott Leckie...................... 0 *
Frank Fini........................ 0 *
Crothers Leasing Limited.......... 0 *
Moise Afriat...................... 0 *
Lionel K. Conacher................ 0 *
Kehler International Equities (1990)
Inc .............................. 0 *
Jean Gevaert...................... 0 *
Ron Kaulbach...................... 0 *
Andrew Parsons.................... 0 *
Eldon Guay........................ 0 *
David J. Grand.................... 0 *
Murdoch & Co...................... 0 1.7%
Royal Trust Corp. of Canada
ITF2363129003..................... 0 1.4%
Bristol Asset Management, LLC..... 0 3.9%
Thomas E. Skidmore................ 0 *
A. Allan Skidmore................. 0 *
Arthur Skidmore................... 0 *
Brian Skidmore.................... 0 *
Cary Skidmore..................... 0 *
Garry Skidmore.................... 0 *
Beverly Droulis................... 0 *
Margrit Hartman................... 0 *
Margaret Alexis Kennedy........... 0 *
Suzanne Lowndes................... 0 *
Thomson Kernaghan & Co. Limited*** 0 17.2%
ABC Special Family Trust
c/o St. Vincent Trust Service Ltd. 0 *
Third Point Partners LP........... 0 *
Third Point Offshore Fund Ltd..... 0 *
Points West International Investments
Ltd............................... 0 *
Bonzai Partners LP................ 0 *
Bonzai Offshore Fund Ltd.......... 0 *
CALP II LP, c/o Forum Fund Services 0 1.4%
David Schecter.................... 0 *
Kruco Inc. ....................... 0 *
</TABLE>
- ---------------
* Less than 1%.
17
<PAGE> 21
** 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 March 1, 2000, JAWS Technologies had 24,293,142 shares of
common stock outstanding. Beneficial ownership information reflected in
the table includes shares issuable upon the exercise of outstanding
warrants issued by JAWS.
18
<PAGE> 22
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
19
<PAGE> 23
-- 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.
20
<PAGE> 24
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 March 1, 2000,
there were 24,293,142 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
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<PAGE> 25
Preferred Voting Stock was issued to a Trustee under a voting and exchange trust
agreement. At such 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 294,119 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 connection with a private placement of
securities consummated on February 22, 2000. 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 February 22, 2000, the Company
issued 58,824 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 this private placement transaction are
subject to adjustment as set forth in the applicable warrant certificates.
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.
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<PAGE> 26
TRANSFER AGENT
JAWS transfer agent for its common stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Glendale, California 91204-2991.
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<PAGE> 27
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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<PAGE> 28
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:
- the encryption and decryption of data files;
- the encryption and decryption of folders, including recursive
folders if desired;
- compatibility with Windows 95/98/NT and Citrix;
- symmetric algorithm mode;
- asymmetric algorithm mode;
- a simple easy-to-use interface developed in accordance with
Microsoft standards of user-interface design;
- a relatively fast speed of execution as compared to
competitors' algorithms;
- a relatively small size of executable, as the operational
execution of L5 requires minimal incremental disk space; and
- the strength of a 4096 bit key length.
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<PAGE> 29
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:
- the encryption and decryption of memos;
- compatibility with Palm Pilot III, V and VII and other
compatible operating systems;
- symmetric algorithm mode;
- a relatively small size of executable as the operational
execution of L5 requires minimal incremental disk space;
- the strength of a 4096 bit key length; and
- 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:
- the ability to send and receive secure e-mail messages over
the internet;
- compatibility with Windows 95/98/NT;
- centralized key management;
- compatibility with most POP3-based e-mail servers including
Microsoft Outlook, Microsoft Outlook Express, Eudora, Pegasus,
and Netscape Communicator;
- the encryption and decryption of e-mail messages and
attachments;
- public and private key mode;
- temporary caching of password phrase;
- transparency to the user during operation as the application
works in the background, on-line help;
- the strength of a 4096 bit key length; and
- 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:
- review and development;
- security policy review and development;
- security system architecture, review and development;
- intrusion detection and testing;
- system penetration testing to uncover areas of risk and
weakness;
- mapping of security systems currently in place;
- client data valuation; and
- 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:
- a 1-800 help desk;
- onsite (as demand grows, it is intended that technicians will
be available through regional JAWS offices);
- frequently asked questions documents on the JAWS website;
- e-mail support; and
- 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,
stationery, 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:
- 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
- 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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- direct sales to potential clients by employees;
- resellers and VARs;
- online stores;
- the JAWS website; and
- 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 bits to
specific client requests. 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 Currently the key size for DES is 56 bit, for Triple
than its competitors. 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 March 1, 2000, JAWS employs approximately 100 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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<PAGE> 37
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 which the
Company does not believe is material.
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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<PAGE> 38
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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<PAGE> 39
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, entered
into in November 1998, between Offsite and HARBOR, Offsite has exclusive rights
for a period of five years from August 16, 1998 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
36
<PAGE> 40
PC-based. Offsite does not provide back-up services to businesses that are
mainframe-based. Pursuant to the 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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<PAGE> 41
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of March 16, 2000, there were approximately 130 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.
<TABLE>
<CAPTION>
PRICE RANGE
-----------
HIGH LOW
---- ---
<S> <C> <C>
Fourth Quarter 1999 10.75 1.32
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)
</TABLE>
On March 22, 2000, the last reported sales price for shares of JAWS
common stock was $8.22 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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<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
JAWS is currently the parent corporation of three operating
subsidiaries, JAWS Alberta, JAWS Delaware and JAWS Ontario. 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.
The shares of JAWS common stock trade on the over-the-counter bulletin
board under the symbol "JAWZ".
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 Alberta develops proprietary encryption software using what is currently
one of the world's strongest encryption algorithms, L5, to secure binary data in
various forms, including streamlining or blocking data.
JAWS Alberta's business plan is to become a full service information
security solution provider. In accordance with this plan, JAWS Alberta currently
markets both information security products and professional information security
services.
JAWS' financial information technology security solutions services are
provided through its wholly-owned subsidiary, JAWS Ontario, and include services
in the area of payment systems, including POS/ABM EFT switch implementation,
point of sale application and device integration, network architecture and
design, system integration and project management.
In addition, JAWS, through its wholly-owned subsidiary JAC, has
purchased all of the outstanding shares of common stock of Offsite. Offsite
offers secure, fully automated on-line backup, retrieval and storage services
through the internet from its data centre in Calgary.
RESULTS OF OPERATIONS
Year ended December 31, 1999 compared with the year ended December 31, 1998
JAWS' revenue increased by $562,978 (1,937%) for the year ended
December 31, 1999 from $29,068 in the year ended December 1998. This increase is
primarily due to the acquisition of Pace on November 3, 1999.
Selling, general and administrative expenses increased 254% to
$5,577,447 for the year ended December 31, 1999 from $1,574,022 in the year
ended December 31, 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
39
<PAGE> 43
preparation of various marketing and sales documents and materials, wages and
benefits, requirements for office space, supplies and other office related
expenses.
Advertising and promotion expenses increased 66% to $363,916 for the
year ended December 31, 1999 from $218,574 in the year ended December 31, 1998.
This increase was directly attributable to increased sales and marketing
activities related to moving JAWS products toward and into the commercialization
stage.
Interest expense, financing fees and amortization of deferred financing
fees/debt discount increased by approximately 307% to $1,587,237 for the year
ended December 31, 1999 from $389,715 for the year ended December 31, 1998. The
increase was due almost entirely to the retirement of the convertible debentures
and the associated accelerated amortizations of the deferred financing fees and
debt discount.
Depreciation and amortization expense increased by approximately 1,547%
to $231,222 for the year ended December 31, 1999 from approximately $14,041 for
the year ended December 31, 1998. This increase was primarily due to the
amortization of goodwill associated with the PACE acquisition and 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 year ended December 31, 1999 was
$7,167,776 as compared with $3,076,287 ending December 31, 1998. The increase in
the net loss is primarily due to the retirement of the convertible debentures
and by 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.
Selling, general and administrative expenses increased 2,148% to
$3,076,287 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 operational
growth.
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
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<PAGE> 44
incurring significant development costs, including, but not limited to, a
one-time write-off of software development costs to bring the product from
development to commercialization stage.
PRO FORMA OPERATING RESULTS
For the year ended December 31, 1999, pro forma revenue would have been
$1,494,265 compared to historical revenue of $592,046 for the same period. This
increase is due to the full year assumption of the operations of Pace and
Offsite.
Expenses would have increased 17% to $6,414,010 on a pro forma basis
for the year ended December 31, 1999 compared to historical expenses of
$5,349,317 for the same period. This increase was primarily due to the full year
assumption of the expenses related to Offsite and Pace. Specifically,
subcontracting costs would have increased by $897,704 on a pro forma basis as
Pace would have delivered substantially all of its revenue prior to acquisition
via subcontracting. In addition, general and administrative expenses would have
increased by $669,262 on a pro forma basis or 11% due to the costs associated
with the overall operations of both Pace and Offsite.
Interest expense, financing fees and amortization of deferred financing
fees/debt discount increased by approximately 307% to $1,587,237 for the pro
forma year ended December 31, 1999 compared to historical interest expense,
financing fees and amortization of deferred financing fees of $389,715 for the
same period. The increase was due almost entirely to the retirement of the
convertible debentures and the associated accelerated amortizations of the
deferred financing fees and debt discount.
Depreciation and amortization expense would have increased to
$5,205,307 for the pro forma year ended December 31, 1999 compared to historical
depreciation and amortization expense of approximately $231,222 for the same
period. This increase is primarily due to full year assumption of the
amortization of goodwill associated with the Pace and Offsite acquisitions in
the pro forma statement of operations and to the increase in fixed assets
consistent with the expansion of JAWS' operations.
The Company's net loss on a pro forma basis for the year ended December
31, 1999 would have been $13,206,554 as compared with a historical net loss of
$7,167,776 for the same period. The increase in the net loss is primarily due
the full year assumption of the amortization of goodwill relating to the Pace
and the Offsite acquisitions in the pro forma statement of operations and the
full-year assumption of expenses related to the business of Pace and Offsite.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations for the year ended December 31, 1999 was
$4,170,626 as compared with $1,126,975 for the year ended December 31, 1998.
These increases are a result of the increased expenses incurred as noted above.
As at December 31, 1999 JAWS had raised $13,648,043 in additional working
capital for operations.
Cash on hand of $8,430,701 at December 31, 1999, is an increase from
$33,732 at December 31, 1998. This increase is as a result of a series of stock
issuances, including the Private Placement Transaction, and funds advanced under
a convertible debenture agreement. A net amount of $13,648,043 was raised from
financings during the year ended December 31, 1999. These funds will be deployed
primarily to fund operations.
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<PAGE> 45
Accounts payable and accrued liabilities have increased 175% to
$1,177,278 for the year ended December 31, 1999 from $428,600 for the year ended
December 31, 1998. These increases are a result of the efforts of management to
increase sales revenue and grow JAWS' operations and are consistent with the
other expense increases in 1999. JAWS has anticipated and budgeted for these
increases to provide for the organizations' shift from R&D to commercialization
and to provide for the growth of operations. Management has budgeted for this
trend and expects the trend will continue until cash flow from sales is realized
allowing JAWS to reduce the trade accounts in a more timely fashion.
JAWS has not established any lines of credit outside of trade accounts
and will not be in a position to negotiate any lines of credit until sales
contracts have been validated and matured. 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 common shares at $0.28 per common share. These Thomson Kernaghan
warrants were to expire on October 31, 2002 and were to be exercised in whole or
in part, from time to time, prior to October 31, 2002 in accordance with the
terms of the Thomson Kernaghan warrants and the amended debenture agreement. The
Thomson Kernaghan warrants are assignable, and non-callable.
Around this time JAWS also entered into an agreement with Bristol Asset
Management LLC ("Bristol") whereby JAWS was given the right to obligate Bristol
to buy up to 25,000,000 shares of common stock for up to $7,000,000 in "put"
options.
On April 26, 1999, JAWS signed a settlement agreement with and in
consideration of the cancellation of the previous financing arrangement JAWS has
granted warrants to Bristol to purchase 1,000,000 shares of the common stock of
JAWS at $0.70 USD, 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. $1,520,000 of the $5
million available under the amended debenture agreement was advanced in
accordance with the terms of debentures issued by JAWS.
Effective November 1, 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. The Settlement Agreement
settles the conversion terms of the $1,520,000 advanced under Debenture
Agreement and the exercise of outstanding warrants issued under the Debenture
Agreement and terminates all further obligations related to the Debenture
Agreement. Debentures issued pursuant to the Debenture Agreement have been
converted to 5,127,672 restricted shares. Thomson Kernaghan has exercised all of
the outstanding warrants issued pursuant to the Debenture Agreement for the
issuance of 2,180,220 shares in the common stock of JAWS. The parties have
signed a mutual release.
On December 31, 1999, JAWS consummated the Private Placement
Transaction and on February 22, 2000, the JAWS consummated a private placement
financing of approximately US$2.5 million.
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<PAGE> 46
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.
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRATION(1)
- ---- --- -------- -------------
<S> <C> <C> <C>
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
</TABLE>
- ----------
(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.
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<PAGE> 47
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
Bankton Financial 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.
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,
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<PAGE> 48
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 Technology 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.
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
45
<PAGE> 49
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 and 200,000(3)
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.
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<PAGE> 50
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
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>
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
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
Name (#) Fiscal Year (US$/Sh) Date 5% 10% 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 5/17/02 $24,869 $29,955
</TABLE>
(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.
47
<PAGE> 51
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
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.
48
<PAGE> 52
As of March 1, 2000 JAWS had granted options under the stock option
plan to purchase a total of 3,669,679 shares of common stock at exercise prices
ranging from $.15 to $9.25 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.
49
<PAGE> 53
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 March 1, 2000, JAWS had 24,293,142 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 6.29%
Julia Johnson (3) common stock 356,408 1.46%
Arthur Wong (4) common stock 315,208 1.28%
Riaz Mamdani (5) common stock 1,306,000 5.20%
All directors and executive officers common stock 3,564,616 13.87%
as a group (4 persons)
Thomson Kernaghan & Co. Limited (6) common stock 5,495,741 22.37%
365 Bay Street, 10th Floor
Toronto, Ontario M5H 2V2
Canada
Glentel Inc. (7) common stock 2,134,000 8.49%
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 issuable upon the exercise of
options exercisable at $0.48 per share until December 31, 2003.
50
<PAGE> 54
(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 and 58,824 shares of common
stock issuable upon exercise of warrants issued to Thomson Kernaghan,
as placement agent, in connection with JAWS' private placement
financing which was consummated on February 22, 2000.
(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> 55
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:
<TABLE>
<CAPTION>
JAWS Alberta Shareholder Number of E-Biz Shares Received
<S> <C>
Robert Kubbernus 315,000
Bankton Financial Corporation (1) 322,000
Chell McNeill, Inc.(2) 637,000
</TABLE>
(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.
52
<PAGE> 56
TRANSACTIONS WITH THOMSON KERNAGHAN
As of February 22, 2000 Thomson Kernaghan is the holder of 5,278,099
shares of JAWS common stock, representing 21.74% 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 between JAWS and Thomson Kernaghan, dated
February 15, 2000, in connection with the private placement of 588,238 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 "February Canadian Agency Agreement"), Thomson Kernaghan received a sales
commission of 7% of the offering and a 3% financial advisory fee (an aggregate
of $250,001.10). Also pursuant to the February Canadian Agency Agreement,
Thomson Kernaghan also received 58,824 warrants, each warrant exercisable for
one share of common stock at an exercise price of $4.25 per share.
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.
53
<PAGE> 57
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.
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 and 1999 the value of the services provided to JAWS by
FutureLink was $76,612 and $84,420, respectively .
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.
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<PAGE> 58
REGISTRATION RIGHTS
In connection with a private placement of securities, 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 February 22, 2000, to register the
resale of 588,238 shares of common stock issued to investors in this private
placement and the resale of the shares of common stock issuable upon conversion
of the warrants issued to investors in this private placement, 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)
February 22, 2010 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.
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.
55
<PAGE> 59
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 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.
56
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
JAWS Technologies, Inc. Page
----
<S> <C>
Pro Forma Consolidated Balance Sheet as at December 31, 1999 (unaudited) ....................... F-2
Pro Forma Consolidated Statement of Income for the year
ended December 31, 1999 (unaudited) ....................................................... F-3
Notes to Pro Forma Consolidated Financial Statements ........................................... F-4
Independent Auditors' Report ................................................................... F-6
Consolidated Balance Sheets as at December 31, 1999, 1998 and 1997 ............................. F-7
Consolidated Statements of Loss and Deficit and Comprehensive Loss for the
year ended December 31, 1999, 1998 and for the period from the date of inception
(January, 27, 1997) to December 31, 1997 ................................................. F-8
Consolidated Statements of Changes in Stockholders' Deficit for the year ended
December 31, 1999, 1998 and for the period from the date of inception (January, 27, 1997)
to December 31, 1997 ...................................................................... F-9
Consolidated Statements of Cash Flows for the year ended December 31, 1999, 1998 and
for the period from the date of inception (January, 27, 1997) to December 31, 1997 ........ F-10
Notes to Consolidated Financial Statements ..................................................... F-11
Pace Systems Group Inc.
Independent Auditors' Report ................................................................... F-34
Balance Sheets as at July 31, 1999 and 1998 .................................................... F-35
Statements of Income (Loss) and Comprehensive Income (Loss) and Deficit for the
years ended July 31, 1999 and 1998 ........................................................ F-36
Statements of Cash Flows for the years ended July 31, 1999 and 1998 ............................ F-37
Notes to Financial Statements .................................................................. F-38
Balance Sheets as of September 30, 1999 (unaudited) ............................................ F-45
Statement of Income (Loss) and Retained Earnings (Deficit) for the two-month
period ended September 30, 1999 (unaudited) ............................................... F-46
Statement of Cash Flows for the Two-month period ended September 30, 1999
(unaudited) ............................................................................... F-47
Notes to Financial Statements .................................................................. F-48
Offsite Data Services Ltd.
Independent Auditors' Report ................................................................... F-53
Balance Sheets as at June 30, 1999 and 1998 and for the six-month period ended December 31, 1999
(unaudited) ............................................................................... F-54
Statements of Loss and Deficit for the years ended June 30, 1999 and 1998 and for the six-month
periods ended December 31, 1999 and 1998 (unaudited) ...................................... F-55
Statements of Cash Flows for the years ended June 30, 1999 and 1998 and for the six-month
periods ended December 31, 1999 and 1998 (unaudited) ...................................... F-56
Notes to Financial Statements .................................................................. F-57
</TABLE>
F-1
<PAGE> 61
JAWS TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
As at December 31, 1999
Jaws
Technologies, Inc.
JAWS Pace Systems Offsite Data Note Pro Forma Pro Forma
Technologies, Inc. Group Inc. Services Ltd. Reference Adjustments Consolidated
AUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short term deposits $8,430,701 $79,848 $319,596 2.1 $2,234,510 $10,814,655
2.2 ($250,000)
Term deposits $431,729 -- -- -- $431,729
Accounts receivable $340,602 $41,249 $105,022 -- $486,873
Share Subscription A/R -- -- $141,225 -- $141,225
License inventory -- -- $19,435 -- $19,435
Prepaid expenses $75,144 -- $12,902 -- $88,046
--------------------------------------------------------------------------------------------
$9,278,176 $121,097 $598,180 $1,984,510 $11,981,963
Intangible Assets - Goodwill $2,629,000 -- -- 2.2 $12,802,615 $15,431,615
Capital assets $699,235 $6,320 $61,500 -- $767,055
--------------------------------------------------------------------------------------------
TOTAL ASSETS $12,606,411 $127,417 $659,680 $14,787,125 $28,180,633
============================================================================================
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $1,177,278 $74,109 $98,782 -- $1,350,169
Current portion of capital leases $25,235 -- -- -- $25,235
Current portion of long-term debt -- -- $242 -- $242
Due to related parties $172,093 $107,760 -- -- $279,853
Due to shareholders $2,066 -- -- -- $2,066
--------------------------------------------------------------------------------------------
$1,376,672 $181,869 $99,024 $1,657,565
Obligations under capital leases $68,227 -- -- -- $68,227
Convertible debenture -- -- -- -- $0
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES $1,444,899 $181,869 $99,024 $1,725,792
SHAREHOLDERS EQUITY (DEFICIENCY)
Share capital $21,724,146 $68 $1,748,427 2.1 $2,234,510 $37,071,995
2.2 $13,113,271
2.2 ($1,748,427)
Cumulative translation adjustment ($181,717) -- $53,693 2.2 ($53,693) ($181,717)
Deficit ($10,380,917) ($54,520) ($1,241,464) 2.2 $1,241,464 ($10,435,437)
--------------------------------------------------------------------------------------------
$11,161,512 ($54,452) $560,656 $14,787,125 $26,454,841
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS
EQUITY $12,606,411 $127,417 $659,680 $14,787,125 $28,180,633
============================================================================================
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements.
F-2
<PAGE> 62
Jaws Technologies Inc.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
Twelve Month Period ending December 31, 1999
Jaws Technologies,
JAWS Pace Systems Offsite Data Note Pro Forma Inc. Pro Forma
Technologies, Inc. Group Inc. Services Ltd. Reference Adjustments Consolidated
AUDITED UNAUDITED UNAUDITED
<S> <C> <C> <C> <C> <C> <C>
REVENUE $592,046 $667,469 $234,750 -- $1,494,265
COST OF SALES $0 $0 $187,771 -- $187,771
EXPENSES
Advertising & Promotion $363,916 $0 $124,757 -- $488,673
General & Administration $5,577,447 $129,569 $539,693 -- $6,246,709
Sub-contracting Costs $0 $897,704 $0 -- $897,704
Technical Services $0 $0 $87,418 -- $87,418
Software Development Costs $0 $0 $0 -- $0
- ---------------------------------------------------------------------------------------------------------------------------------
Loss before Interest,
Financing Fees,
Depreciation &
Amortization ($5,349,317) ($359,804) ($704,889) ($6,414,010)
Interest Expense &
Amortization of
Deferred Financing
Fees & Debt Discount $1,140,050 $0 $0 -- $1,140,050
Financing Fees $447,187 $0 $0 -- $447,187
Depreciation &
Amortization $231,222 $1,128 $36,443 3.0 $4,936,514 $5,205,307
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD ($7,167,776) ($360,932) ($741,332) ($13,206,554)
Net loss per common share ($0.50) -- -- -- ($0.67)
Weighted avg number of
shares outstanding 14,342,053 -- -- 2.2 4,874,822 19,805,113
2.1 588,238
</TABLE>
See accompanying notes to the unaudited pro forma consolidated financial
statements
F-3
<PAGE> 63
JAWS TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
1. The accompanying unaudited pro forma consolidated financial statements have
been prepared by management from the audited financial statements as at
December 31, 1999 and for the 12 month period then ended of Jaws
Technologies, Inc. (a Nevada corporation) ("Jaws") and the unaudited
financial statements of 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 unaudited 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 unaudited pro forma consolidated balance sheet as at December 31, 1999
gives effect to the following assumptions and transactions outlined in this
S-1 Registration Statement as if the effective dates of those transactions
were December 31, 1999:
2.1 On February 22, 2000, Jaws issued 588,238 shares under a private
placement to a group of investors for net cash of $2,234,510. This
cash will be used to fund operational commitments in the year 2000.
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 ($0.28 USD) which expired 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 ($0.34 USD) to Cdn
$0.55 ($0.38 USD) up to September 29, 2001. Pursuant to this Offer,
910,584 stock options of Offsite are 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 ($0.17 USD) which
expire on March 15, 2004.
The acquisition has been accounted for in these unaudited 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:
<TABLE>
<CAPTION>
Purchase Price
Allocation
-----------
<S> <C>
Net assets acquired $560,656
Goodwill $12,802,615
-----------
Purchase price $13,363,271
===========
Consideration:
Common shares of Jaws $13,113,271
Acquisition costs $250,000
-----------
Total consideration $13,363,271
===========
</TABLE>
F-4
<PAGE> 64
JAWS TECHNOLOGIES INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
3. The unaudited pro forma consolidated statement of income for the twelve
month period ended December 31, 1999 gives effect to the acquisitions by
Jaws as described in 2.0 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 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 2.0 above) calculated on a straight-line basis
over a period of three years.
4. The amounts shown in these unaudited 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.
F-5
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Jaws Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Jaws
Technologies, Inc. (and subsidiaries) as at December 31, 1999, 1998 and 1997 and
the related consolidated statements of loss and deficit and comprehensive loss,
changes in stockholders' equity and cash flows for the years ended December 31,
1999, and 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 auditing standards generally accepted
in the United States. 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 consolidated financial position of Jaws Technologies,
Inc. (and subsidiaries) as at December 31, 1999, 1998 and 1997 and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1999, and 1998 and for the period from the date of
incorporation on January 27, 1997 to December 31, 1997, in accordance with
accounting principles generally accepted in the United States.
Calgary, Canada /s/ Ernst & Young LLP
February 25, 2000 Chartered Accountants
F-6
<PAGE> 66
JAWS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(all amounts are expressed in U.S. dollars)
As at December 31
<TABLE>
<CAPTION>
1999 1998 1997
$ $ $
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT
Cash 8,430,701 33,732 111
Term deposits [note 4] 431,729 -- --
Accounts receivable 338,825 7,243 --
Due from related parties [note 8] 1,777 13,118 --
Prepaid expenses and deposits 75,144 140,456 7,500
- -------------------------------------------------------------------------------------------------------
9,278,176 194,549 7,611
Equipment and leasehold improvements [note 5] 699,235 78,830 2,320
Intangible assets [note 6] 2,629,000 -- --
- -------------------------------------------------------------------------------------------------------
12,606,411 273,379 9,931
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable and accrued liabilities 1,177,278 428,600 32,976
Current portion of capital lease obligations payable [note 12] 25,235 -- --
Due to related parties [note 8] 172,093 197,115 --
Due to stockholders [note 8] 2,066 74,717 78,159
- -------------------------------------------------------------------------------------------------------
1,376,672 700,432 111,135
- -------------------------------------------------------------------------------------------------------
Capital lease obligations payable [note 12] 68,227 -- --
Convertible debentures [note 9] -- 146,606 --
- -------------------------------------------------------------------------------------------------------
68,227 146,606 --
- -------------------------------------------------------------------------------------------------------
COMMITMENTS [NOTE 12]
STOCKHOLDERS' EQUITY (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 7] 25,040 10,612 4,000
Additional paid in capital 21,699,106 2,637,712 31,650
Cumulative translation adjustment (181,717) (8,842) --
Deficit (10,380,917) (3,213,141) (136,854)
- -------------------------------------------------------------------------------------------------------
11,161,512 (573,659) (101,204)
- -------------------------------------------------------------------------------------------------------
12,606,411 273,379 9,931
=======================================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
F-7
<PAGE> 67
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT AND COMPREHENSIVE LOSS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
THE DATE OF
INCORPORATION
ON JANUARY
YEAR ENDED YEAR ENDED 27, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------------------------------
1999 1998 1997
$ $ $
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE 592,046 29,068 --
- ------------------------------------------------------------------------------------------------
COSTS AND EXPENSES
Advertising and promotion 363,916 218,574 35,000
General and administration [note 8] 5,577,447 1,574,022 101,274
Software development costs -- 909,003 --
- ------------------------------------------------------------------------------------------------
Loss before interest, financing fees, depreciation
and amortization (5,349,317) (2,672,531) (136,274)
Interest expense and amortization of deferred
financing fees and debt discount 1,140,050 389,715 --
Financing fees 447,187 -- --
Depreciation and amortization 231,222 14,041 580
- ------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (7,167,776) (3,076,287) (136,854)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment (172,875) (8,842) --
- ------------------------------------------------------------------------------------------------
COMPREHENSIVE LOSS (7,340,651) (3,085,129) (136,854)
- ------------------------------------------------------------------------------------------------
DEFICIT, BEGINNING OF PERIOD (3,213,141) (136,854) --
NET LOSS FOR THE PERIOD (7,167,776) (3,076,287) (136,854)
- ------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (10,380,917) (3,213,141) (136,854)
================================================================================================
NET LOSS PER COMMON SHARE [NOTE 10] (0.50) (0.42) (0.03)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 14,342,053 7,405,421 4,000,000
================================================================================================
</TABLE>
See accompanying notes
F-8
<PAGE> 68
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(ALL AMOUNTS ARE EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
PAR VALUE ADDITIONAL PAID
SHARES IN CAPITAL
$ $
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 27, 1997:
Issuance of common stock for cash 4,000,000 4,000 56,000
Share issue costs -- -- (24,350)
- --------------------------------------------------------------------------------------
Balance December 31, 1997 4,000,000 4,000 31,650
======================================================================================
Issuance of common stock for services
[note 7] 400,000 400 199,600
Issuance of common stock on acquisition
of subsidiary [note 3(a)] 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 9] -- -- 342,857
Equity component of convertible
debentures [note 9] -- -- 118,462
Equity component of financing fees [note 9] -- -- (35,760)
Issue of common stock upon conversion of
convertible debentures [note 9] 1,912,317 1,912 211,886
Financing fees associated with converted
debentures [note 9] -- -- (21,117)
Share issue costs -- -- (65,314)
- --------------------------------------------------------------------------------------
Balance, December 31, 1998 10,612,317 10,612 2,637,712
======================================================================================
Issuance of common stock for cash 7,233,132 7,233 13,340,344
Share issue costs -- -- (988,477)
Equity component of convertible
debentures [note 9] -- -- 617,867
Equity component of financing fees
[note 9] -- -- (143,356)
Warrants issued with issuance of
convertible debentures [note 9] -- -- 341,538
Issuance of common stock for services 360,547 360 309,379
Exercise of employee stock options 15,000 15 2,235
Issuance of stock options recorded as
compensation [note 7] -- -- 810,000
Issuance of common stock for settlement
of debt [note 9] 3,215,355 3,215 1,493,076
Issuance of common stock for cash as a
result of exercise of warrants [note 9] 1,428,572 1,429 398,571
Issuance of common stock for settlement
of warrants [note 9] 751,648 752 258,193
Issuance of common stock on acquisition
of subsidiary [note 3(b)] 1,385,546 1,386 2,354,042
Issuance of common stock on acquisition
of assets [note 3(c)] 38,071 38 267,982
- --------------------------------------------------------------------------------------
Balance, December 31, 1999 25,040,188 25,040 21,699,106
======================================================================================
</TABLE>
See accompanying notes
F-9
<PAGE> 69
JAWS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
PERIOD FROM
THE DATE OF
INCORPORATION
ON JANUARY
YEAR ENDED YEAR ENDED 27, TO
DECEMBER 31 DECEMBER 31, DECEMBER 31,
-------------------------------------------
1999 1998 1997
$ $ $
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (7,167,776) (3,076,287) (136,854)
Adjustments to reconcile loss to cash flows used in
operating activities:
General and administration expense not involving
the payment of cash 99,839 200,000 --
Depreciation and amortization 231,222 14,041 580
Non cash compensation expense [note 7] 810,000 -- --
Non-cash interest expense and amortization of
deferred financing fees and debt discount 1,129,709 386,846 --
Software development costs -- 909,003 --
Non-cash financing fees 447,187 -- --
Changes in non-cash working capital balances
[note 13] 279,193 439,422 25,476
- -------------------------------------------------------------------------------------------------
(4,170,626) (1,126,975) (110,798)
- -------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of equipment and leasehold improvements (648,719) (115,584) (2,900)
Purchase of term deposits (431,729) -- --
- -------------------------------------------------------------------------------------------------
(1,080,448) (115,584) (2,900)
- -------------------------------------------------------------------------------------------------
CASH FLOWS GENERATED BY FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net of
issue costs 12,761,350 954,686 35,650
Repayment of stockholder advances (72,651) (78,159) --
Proceeds from stockholder advances -- 20,273 78,159
Proceeds on issue of convertible debenture 1,100,000 420,000 --
Financing fees on issue of convertible debenture (110,000) (42,000) --
Acquisition costs on purchase of subsidiary (30,656) -- --
- -------------------------------------------------------------------------------------------------
13,648,043 1,274,800 113,809
- -------------------------------------------------------------------------------------------------
INCREASE IN CASH 8,396,969 32,241 111
Cash acquired on acquisition of subsidiary -- 1,380 --
Cash, beginning of period 33,732 111 --
- -------------------------------------------------------------------------------------------------
CASH, END OF PERIOD 8,430,701 33,732 111
=================================================================================================
</TABLE>
See accompanying notes
F-10
<PAGE> 70
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
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
Company's business purpose is to continue to develop as a provider of secure
information management solutions. This is accomplished through offering
proprietary security software products, consulting services and secure Internet
and remote data storage services for key client groups including governments,
law enforcement, healthcare, legal and accounting, financial services,
e-commerce, internet service providers and application service providers. These
activities are carried out through the Company's wholly-owned Canadian
subsidiaries and U.S. subsidiary.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Jaws Technologies, Inc., an Alberta, Canada
corporation ("Jaws Alberta"), Jaws Technologies (Ontario) Inc. an Ontario,
Canada corporation ("Jaws Ontario"), and Jaws Technologies (Delaware) Inc., a
Delaware corporation ("Jaws Delaware"), after elimination of intercompany
accounts and transactions.
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.
F-11
<PAGE> 71
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements 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.
Security equipment - 20% straight line
Furniture and fixtures - 20% declining balance
Computer hardware - 33% straight line
Computer software for internal use - 33% straight line
Leasehold improvements - 20% straight line
CAPITAL LEASES
Leases in which substantially all the benefits and risks of ownership are
transferred to the Company are capitalized with an offsetting amount recorded as
a liability.
LONG-LIVED ASSETS
The Company follows financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of," which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present.
INTANGIBLE ASSETS
Employee and Consultants Base
The employee and consultants base recorded on the acquisition of Pace and of
SDTC are recorded at cost and are being amortized on a straight-line basis over
three years.
Goodwill
Goodwill is recorded at cost and is being amortized on a straight-line basis
over three years. The recoverability of goodwill is assessed periodically based
on management estimates of undiscounted future operating income from each of the
acquired businesses to which the goodwill relates.
F-12
<PAGE> 72
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
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.
REVENUE RECOGNITION
Product Revenue
Revenue from selling encryption software is recognized when the software is
delivered.
Consulting Revenue
Revenue from information technology services and outsourcing contracts is
recognized when the service is rendered or earned.
ADVERTISING
Advertising costs are expensed as incurred.
FINANCING FEES
Financing fees associated with that portion of the convertible debentures
classified as debt are deferred and amortized straight-line over the life of the
debentures. Financing fees associated with that portion of the convertible
debentures classified as additional paid in capital is charged to that account.
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. Future income taxes are recorded at the income tax rates
that are expected to apply when the future tax liability is settled or the
future tax asset is realized. When necessary, valuation allowances are
established to reduce future 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 future income tax assets and liabilities.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Canadian subsidiaries is the Canadian
dollar. Accordingly, assets and liabilities of the Canadian 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.
F-13
<PAGE> 73
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
EARNINGS (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share has been calculated based on the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per common share is calculated by adjusting outstanding shares, assuming
any dilutive effects of options, warrants, and convertible securities.
STOCK BASED COMPENSATION
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 PERIOD AMOUNTS
Certain prior period amounts have been reclassified to conform to the
presentation adopted in 1999.
3. ACQUISITION
a. JAWS ALBERTA
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.
F-14
<PAGE> 74
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
The purchase price and the amounts allocated to software under development and
the common 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:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
NET ASSETS ACQUIRED
Non-cash working capital (5,087)
Software under development 909,003
Equipment 2,891
Due to stockholders (54,443)
- --------------------------------------------------------------------------------
Net assets acquired, excluding cash 852,364
Acquisition costs (13,996)
Cash acquired 1,380
- --------------------------------------------------------------------------------
Net assets acquired for common stock 839,748
================================================================================
</TABLE>
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 year ended December
31, 1998, giving effect to the acquisition of Jaws Alberta as though it had
occurred as at January 1, 1998 do not differ materially from that recorded.
F-15
<PAGE> 75
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
b. PACE SYSTEMS GROUP INC. ("PACE")
Effective November 3, 1999, the Company noticed for issuance 1,385,546
exchangeable common shares at $1.70 per share, which are exchangeable into
1,385,546 common shares of the Company, in exchange for all of the outstanding
common stock of Pace. In addition, there is contingent consideration payable of
346,386 exchangeable common shares subject to the achievement of certain
targets. Fifty percent of the additional share consideration will be released if
on the 12 month anniversary date of the effective date, actual gross revenues
equal or exceed $2,000,000 CDN. ($1,377,505 USD). The remaining additional share
consideration will be released if, on the 24 month anniversary date of the
effective date, actual revenues for the previous twelve months equal or exceed
$2,000,000 CDN. ($1,377,505 USD). The additional consideration has not been
reflected in these consolidated financial statements, as the outcome of the
contingent share consideration cannot be reasonably determined at this time. The
additional share consideration will be recorded as goodwill as it becomes
payable.
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the net assets based on their estimated fair values as
follows:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------------------------
<S> <C>
Employee and consultants base 1,193,042
Goodwill 1,193,042
- ------------------------------------------------------------------------------
NET ASSETS ACQUIRED 2,386,084
==============================================================================
Consideration:
1,385,546 common stock 2,355,428
Acquisition costs 30,656
- ------------------------------------------------------------------------------
TOTAL CONSIDERATION 2,386,084
==============================================================================
</TABLE>
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the date of acquisition.
F-16
<PAGE> 76
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
The following proforma results of operations give effect to the acquisition of
Pace as if the transaction had occurred January 1, 1999, and includes the
amortization of goodwill and employee and consultants base calculated on a
straight-line basis over a period of 3 years:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE 1,259,515 1,655,162
- ---------------------------------------------------------------------------------------------------
Sub-contracting costs 1,328,942 1,604,394
Other costs and expenses 8,128,253 3,223,346
- ---------------------------------------------------------------------------------------------------
9,457,195 4,827,740
- ---------------------------------------------------------------------------------------------------
NET LOSS (8,197,680) (3,172,578)
- ---------------------------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE (0.57) (0.43)
===================================================================================================
</TABLE>
c. SECURE DATA TECHNOLOGIES CORPORATION ("SDTC")
Effective December 31, 1999 the Company purchased substantially all of the
assets of SDTC through the Company's wholly-owned subsidiary Jaws Delaware. SDTC
was incorporated in December 1998 and had no material operations prior to
January 1, 1999. The purchase price provided for a promissory note of $257,214
and 38,071 common shares, noticed for issuance, at $7.04 per share, as well as
contingent consideration of additional 9,516 common shares subject to the
achievement of certain targets. The issuance of 9,516 common stock is dependent
achieving revenues equal to the greater of $200,000 per fiscal year per
employee, or a minimum of $1,200,000 for the fiscal year 2000 only. The
additional consideration has not been reflected in these consolidated financial
statements, as the outcome of the contingent share consideration cannot be
reasonably determined at this time. The additional share consideration will be
recorded as goodwill as it becomes payable.
F-17
<PAGE> 77
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
The acquisition was accounted for using the purchase method. The purchase price
has been allocated to the assets based on their estimated fair values as
follows:
<TABLE>
<CAPTION>
$
- --------------------------------------------------------------------------------
<S> <C>
Equipment 155,932
Employee and consultants base 184,651
Goodwill 184,651
- --------------------------------------------------------------------------------
NET ASSETS ACQUIRED 525,234
==============================================================================
Consideration:
38,071 common stock 268,020
Promissory note 257,214
- --------------------------------------------------------------------------------
TOTAL CONSIDERATION 525,234
==============================================================================
</TABLE>
The operating results of the acquired company are included in the consolidated
statements of loss, deficit and comprehensive loss from the effective date of
acquisition. The following proforma results of operations give effect to the
acquisition of the SDTC assets as if the transaction had occurred January 1,
1999 and includes the amortization of goodwill and employee and consultants base
calculated on a straight-line basis over a period of 3 years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
$
- --------------------------------------------------------------------------------
<S> <C>
REVENUE 954,083
- --------------------------------------------------------------------------------
Sub-contracting expense 1,311,501
Other costs and expenses 7,307,681
- --------------------------------------------------------------------------------
8,619,182
- --------------------------------------------------------------------------------
Loss before income taxes (7,665,099)
Income tax benefit 144,000
- --------------------------------------------------------------------------------
NET LOSS (7,521,099)
==============================================================================
NET LOSS PER COMMON SHARE (0.53)
==============================================================================
</TABLE>
4. TERM DEPOSITS
The term deposits are on deposit with a Canadian Chartered Bank. Of the
deposits, $24,923 have been pledged as collateral for certain corporate credit
cards, and as such are not available for the Company's general use. The term
deposits earn interest at 2.95 percent per annum and mature May 29, 2000.
F-18
<PAGE> 78
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
COST
DECEMBER 31
-------------------------------------------
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Security equipment 26,106 -- --
Furniture and fixtures 206,785 31,758 3,480
Computer hardware 367,301 47,371 --
Computer software for internal use 32,703 13,162 --
Leasehold improvements 184,637 -- --
- --------------------------------------------------------------------------------
817,532 92,291 3,480
- --------------------------------------------------------------------------------
Less accumulated depreciation 118,297 13,461 1,160
- --------------------------------------------------------------------------------
NET BOOK VALUE 699,235 78,830 2,320
================================================================================
</TABLE>
Assets under capital leases at December 31. 1999 include security equipment of
$26,106 (1998 - $nil; 1997 - $nil) and computer hardware of $75,584 (1998 -
$nil; 1997 - $nil), with related accumulated depreciation of $3,613 (1998 -
$nil; 1997 - $nil) and $25,195 (1998 - $nil; 1997 - $nil) respectively.
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1999
----------------------------------------------
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Employee and consultants base 1,377,693 63,193 1,314,500
Goodwill 1,377,693 63,193 1,314,500
- ------------------------------------------------------------------------------
2,755,386 126,386 2,629,000
==============================================================================
</TABLE>
F-19
<PAGE> 79
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
7. 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, 400,000 restricted common shares were 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.
During 1999, the Company issued 141,000 and 11,999 common shares at $1.34 and
$0.90 per common share respectively in settlement of trade payables.
During 1999, the Company issued 207,548 common shares as per the contracted
terms, at $0.53 per common share for settlement of amounts outstanding to two
directors for services provided. The expense has been included in general and
administration expense [See note 8].
COMMON STOCK HELD IN ESCROW
Upon entering into the 10% convertible debenture agreement [see note 9] the
Company placed 9,500,000 common shares in escrow relating to the $2 million of
financing. In addition, 1,071,429 shares and 357,143 common shares were placed
in escrow relating to the purchasers' and agent's warrants issued in relation to
the 10% convertible debenture agreement. Upon settlement of the convertible
debentures November 1, 1999, all of these common shares were released from
escrow [see note 9].
F-20
<PAGE> 80
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
OPTIONS
The Company is authorized to grant employees options to purchase up to an
aggregate of common stock not in excess of 20% of the common stock issued and
outstanding, at prices based on the market price of the shares as determined on
the date of grant.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF PRICE PER AVERAGE
OPTIONS SHARE EXERCISE PRICE
$ $
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1997 -- -- --
Granted 1,667,000 0.15 - 0.69 0.41
- -----------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1998 1,667,000 0.15 - 0.69 0.41
- -----------------------------------------------------------------------------------------
Granted 2,071,590 0.37 - 7.56 1.74
Exercised (15,000) 0.15 0.15
Cancelled (78,267) 0.15 - 0.98 0.41
- -----------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1999 3,645,323 0.15 - 7.56 1.18
=========================================================================================
</TABLE>
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of December 31, 1999
were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------- ----------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE AVERAGE
EXERCISE OPTIONS CONTRACTUAL EXERCISE SHARES EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
$ $ $
- --------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
0.15 - 0.40 444,333 6.15 0.26 293,666 0.21
0.44 - 0.87 1,810,000 4.63 0.59 1,321,333 0.56
1.44 - 2.72 1,267,660 4.34 1.71 1,075,000 1.74
4.81 - 7.56 123,330 3.02 7.49 -- --
- --------------------------------------------------------- ----------------------------
</TABLE>
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 151%, risk-free interest rate of 4.87%; no payment of
common share dividends; and expected life of 3 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 net loss and
net loss per common share for the year ended December 31, 1999 would have been
$9,121,253 and $0.64 respectively (December 31, 1998 - $3,324,618 and $0.45
respectively).
During 1999 the Company granted a total of 500,000 options to two officers of
the Company at an exercise price of $1.88 per share which was calculated based
on the previous three month's average price. The difference between the exercise
price and the trading price on the day prior to the grant date, has been
recognized as compensation expense for the year ended December 31, 1999.
The weighted average fair value of options granted during 1999 and 1998 was
$1.34.
F-21
<PAGE> 81
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
WARRANTS ISSUED
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 1,000,000 share purchase warrants, which
entitle the holder to purchase 1,000,000 common shares at $2.25 per share until
June 20, 2001.
On November 1, 1999, the Company issued 411,765 share purchase warrants, which
entitle the holder to purchase 411,765 common shares at $1.70 per share until
November 30, 2002.
On December 31, 1999, the Company issued 2,176,418 share purchase warrants in
connection with an issuance of 2,176,418 shares of common stock, which entitle
the holder to purchase one-half of one share of common stock of the Company at
an exercise price of $6.50 per share. As a financing fee, the Company issued
217,642 warrants to the placement agent, which entitle the agent to purchase one
share of common stock at an exercise price of $4.25 per share. Each warrant will
expire on the third anniversary date of the effective date of the S-1
Registration Statement. On February 1, 2000, the Company filed an S-1
Registration Statement to register all of the common shares issuable upon
exercise of the warrants. If the S-1 Registration Statement is not declared
effective between March 30, 2000 and June 29, 2000, the exercise price shall be
reduced by $0.25 per month. Until the S-1 Registration Statement is declared
effective after June 30, 2000, the exercise price shall be reduced each month
but will not be reduced to lower than $3.75 per common stock. However, at any
time after the S-1 Registration Statement is declared effective and the share
price of the Company exceeds $9.75 for 30 consecutive days, the Company, with 30
days notice, may repurchase these warrants at a price of $0.001 per warrant.
F-22
<PAGE> 82
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
8. RELATED PARTY TRANSACTIONS
Unless otherwise noted, all related party transactions have been recognized at
their exchange amounts. Amounts due to/from related parties consist of the
following amounts:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DUE FROM RELATED PARTIES
Futurelink Corp. 1,777 13,118 --
- -----------------------------------------------------------------------------------------------
1,777 13,118 --
===============================================================================================
DUE TO RELATED PARTIES
Officers and stockholders 4,821 43,588 --
Futurelink Corp. 42,888 32,175 --
Willson Stationers Ltd. -- 1,352 --
Directors 124,384 120,000 --
- -----------------------------------------------------------------------------------------------
172,093 197,115 --
===============================================================================================
DUE TO STOCKHOLDERS
Bankton Financial Corporation -- 15,775 --
Cameron Chell 2,066 1,957 --
Hampton Park Ltd. -- 56,985 --
Other stockholder -- -- 78,159
- -----------------------------------------------------------------------------------------------
2,066 74,717 78,159
===============================================================================================
</TABLE>
General and administration expense for the year ended December 31, 1999,
includes $84,420 (December 31, 1998 - $76,612; December 31, 1997 - $nil) in fees
associated with computer services provided by Futurelink Corp., an entity of
which certain directors were also directors of the Company. The Company provided
sales to Futurelink Corp. during the year ended December 31, 1999 in the amount
of $1,777 (December 31, 1998 - $13,118; December 31, 1997 - $nil).
General and administration expenses for the year ended December 31, 1999,
include $20,508 (December 31, 1998 - $8,035; December 31, 1997 - $nil) paid to
Willson Stationers Ltd., an entity of which certain directors were also
directors and officers of the Company.
During the year ended December 31, 1999, the Company expensed fees of $22,714
paid to IT Florida.com, the chairman of the government sponsored taskforce is
also a director of the Company.
F-23
<PAGE> 83
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
For the year ended December 31, 1999, general and administration expense
includes $233,643 (December 31, 1998 - $198,168; December 31, 1997 - $nil) of
management fees to officers and stockholders of the Company for services
provided. General and administration for the year ended December 31, 1999
includes $124,384 (December 31, 1998 - $33,333; December 31, 1997 - $nil) of
directors fees.
Due to stockholders represents advances received by the Company. The amount due
to Hampton Park Ltd., a company owned by a stockholder, incurred interest at 8%
per annum and was repaid in 1999. The remaining amount due to stockholders does
not bear interest and has no set repayment terms.
The Company entered into an agreement to lease premises from a stockholder,
commencing on November 1, 1998, 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 for year ended December 31, 1999, that
has been included in general and administration expense, was $129,611 (December
31, 1998 - $3,991; December 31, 1997 - $nil).
F-24
<PAGE> 84
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
9. CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31
1999 1998
$ $
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
PRINCIPAL
Net balance outstanding, beginning of year 146,606 --
Funds advanced to date 1,100,000 420,000
Debentures converted during the year (1,246,606) (210,000)
- -------------------------------------------------------------------------------------------------
-- 210,000
- -------------------------------------------------------------------------------------------------
FINANCING FEES
Fees paid on funds advanced to date (110,000) (42,000)
Intrinsic value associated with equity component of debentures 33,329 11,760
Fees paid through issuance of warrants to agent (341,538) (85,714)
Intrinsic value associated with equity component of debentures 110,027 24,000
Amortization of financing fees to date 75,601 5,158
Financing fees associated with debentures converted to date -- 21,117
Amortization of financing fees on settlement of debt (232,581) --
- -------------------------------------------------------------------------------------------------
-- (65,679)
- -------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Accrued interest expense 77,323 2,285
Interest expense converted on settlement of debt (77,323) --
- -------------------------------------------------------------------------------------------------
NET BALANCE OUTSTANDING, END OF YEAR -- 146,606
=================================================================================================
</TABLE>
In September, 1998 the Company entered into a debenture agreement to issue 10%
convertible debentures up to a total of $2,000,000 which mature on October 31,
2001. The debentures were convertible, at the holders' option, into common
shares of the Company at various prices as outlined in the agreement. The
Company could prepay any or all of the outstanding principal amounts at any
time, subject to the holders' right to convert into common shares. A financing
fee of 10% was charged on the principal sum of each convertible debenture
issued. Interest was payable in cash or common shares at maturity.
The agreement was amended in April, 1999 to include, among others, an increase
in the amount available from $2,000,000 to $5,000,000 and a reduction of the
financing fee to 8% on the additional amount available.
F-25
<PAGE> 85
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
The Company issued $420,000 of debentures in 1998, and an additional $1,100,000
during 1999. Amounts of $118,462 and $617,867, in 1998 and 1999 respectively,
representing the intrinsic value of the conversion option, were recorded as
additional paid in capital with an offsetting charge to interest expense. The
portion of $152,000 of financing fees associated with the equity component of
the debentures were recorded as a reduction to paid in capital. The remainder,
which were recorded as a reduction of the debenture principal, were being
amortized on a straight-line basis over the life of the debentures.
At the time of initial funding in 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 granted the holder the right to purchase
one common share of the Company at $0.28 until October 31, 2001. The estimated
value of the subscriber warrants, in the amount of $342,857, was recorded as
additional paid in capital as they were exercisable upon issuance. The warrants
issued to the agent, with an estimated value of $85,714, were treated as a
financing fee; the portion thereof associated with the equity component of the
debenture ($24,000) was charged to additional paid in capital. The remainder was
being amortized on a straight-line basis over the life of the debentures. The
debenture amendment in April, 1999 included the issuance of an additional
923,077 warrants which granted the holder the right to purchase one common share
of the Company at $0.65. The estimated value of these warrants, in the amount of
$341,538 were recorded as additional paid in capital, reduced by an offsetting
amount of $110,027 attributable to the equity component of the debenture. The
remainder was charged as a discount to debt and was being amortized on a
straight-line basis over the life of the debentures.
During 1998, $210,000 principal amount of debentures, together with $3,798
interest, was converted into 1,912,317 common shares.
Effective November 1, 1999 the Company settled the entire outstanding principal
amount of the debentures in exchange for 3,157,712 common shares, at a
recognized value of $1,091,348. Accrued interest and penalties were settled in
exchange for 57,643 common shares valued at $404,943. As part of the settlement
of the debt, the Company issued 1,428,572 common shares upon exercise of the
1,428,572 common stock purchase warrants, which were granted at the time of the
initial funding of the debt. The warrants were exercised at the stated price of
$0.28 per warrant. The Company also issued 751,648 shares of common stock upon
exercise of the 923,077 common share purchase warrants, which were granted at
the time of the amendment in April 1999. In exchange for issuing 171,429 fewer
shares as per the exercise agreement terms, the warrant holders were not
required to pay cash on the exercise of these warrants; accordingly, the
original amount recognized as additional paid in capital has been reversed and
$258,945 was recognized as financing expense.
F-26
<PAGE> 86
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
10. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is net loss for the period divided by the
weighted average number of common shares outstanding. The effect on earnings
(loss) per share of the exercise of options and warrants, and the conversion of
the convertible debentures is anti-dilutive.
The following table sets forth the computation of earnings (loss) per common
share:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET LOSS (7,167,776) (3,076,287) (136,854)
- ------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Weighted average number of common shares outstanding
14,342,053 7,405,421 4,000,000
- ------------------------------------------------------------------------------------------------------
LOSS PER COMMON SHARE - BASIC AND DILUTED (0.50) (0.42) (0.03)
======================================================================================================
</TABLE>
11. 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>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- ---------------------------------------------------------------------------------------------------
(34%) (34%) (34%)
<S> <C> <C> <C>
Income tax benefit at U.S. statutory rate (2,437,044) (1,045,938) (46,530)
Increase (decrease) in taxes resulting from:
Change in deferred tax asset valuation
allowance 2,500,670 1,106,172 46,530
Non-deductible expenses 322,810 128,162 --
Foreign tax rate differences (368,588) (188,396) --
State tax rate differences 1,508 -- --
Income not previously recognized 2,439 -- --
Foreign exchange (21,795) -- --
- ---------------------------------------------------------------------------------------------------
Income tax benefit -- -- --
===================================================================================================
</TABLE>
F-27
<PAGE> 87
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
For financial reporting purposes, loss before income taxes includes the
following components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax loss:
United States (3,697,076) (1,302,313) (136,854)
Foreign (3,470,700) (1,773,974) -
- -------------------------------------------------------------------------------------------
(7,167,776) (3,076,287) (136,854)
===========================================================================================
</TABLE>
Future 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
future tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future tax assets:
Net operating loss carryforwards 3,209,318 697,768 --
Start-up costs 28,694 37,999 46,333
Depreciation 45,549 5,807 --
Organization costs 591 394 197
Debt issue costs -- 5,137 --
Donations 435 -- --
Software costs 368,785 405,597 --
- --------------------------------------------------------------------------------------------
Net future tax assets 3,653,372 1,152,702 46,530
Valuation allowance (3,653,372) (1,152,702) (46,530)
- --------------------------------------------------------------------------------------------
Net future tax assets -- -- --
============================================================================================
</TABLE>
The Company has provided a valuation allowance for the full amount of future tax
assets in light of its history of operating losses since its inception.
The Company has U.S. operating losses carried forward of $3,630,000 which expire
as follows:
<TABLE>
<CAPTION>
$
--------------
<S> <C>
2018 880,000
2019 2,750,000
</TABLE>
F-28
<PAGE> 88
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
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 $4,393,000. These losses expire as follows:
<TABLE>
<CAPTION>
$
-------------
<S> <C>
2003 45,000
2004 7,000
2005 884,000
2006 3,457,000
</TABLE>
12. CAPITAL AND OPERATING LEASE OBLIGATIONS PAYABLE
The future minimum lease payments at December 31, 1999 under capital and
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
- ---------------------------------------------------------------------------------------
<S> <C> <C>
2000 27,041 327,029
2001 27,041 318,408
2002 26,173 235,927
2003 25,306 172,693
2004 13,852 92,982
- ---------------------------------------------------------------------------------------
Total future minimum lease payments 119,413 1,147,039
---------------------
Less: imputed interest (25,951)
- ------------------------------------------------------------------
Balance of obligations under capital leases 93,462
Less: current portion (25,235)
- ------------------------------------------------------------------
Long term obligation under capital leases 68,227
- ------------------------------------------------------------------
</TABLE>
Rent expense was $269,004 for the year ended December 31, 1999 (December 31,
1998 - $29,637; December 31, 1997 - $nil).
F-29
<PAGE> 89
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
13. NET CHANGE IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accounts receivable (331,582) (7,243) --
Due from related parties 11,341 (13,118) --
Prepaid expenses and deposits 81,979 (132,956) (7,500)
Accounts payable and accrued liabilities 799,691 395,624 32,976
Due to related parties (25,022) 197,115 --
- ---------------------------------------------------------------------------------------------------
536,407 439,422 25,476
Attributable to investing activities 257,214 -- --
- ---------------------------------------------------------------------------------------------------
Attributable to operating activities 279,193 439,422 25,476
===================================================================================================
</TABLE>
F-30
<PAGE> 90
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
14. SEGMENTED INFORMATION
The Company's activities include selling encryption software and providing
consulting services. The activities are conducted in one operating segment and
are carried out in three geographic segments as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------
ALBERTA, ONTARIO,
CANADA CANADA U.S. TOTAL
$ $ $ $
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 85,675 469,001 37,370 592,046
Expenses 3,414,558 610,966 11,098 4,036,622
- -------------------------------------------------------------------------------------------
(3,328,883) (141,965) 26,272 (3,444,576)
Corporate overheads 3,723,200
Net loss (7,167,776)
- -------------------------------------------------------------------------------------------
SELECTED BALANCE SHEET
INFORMATION
Equipment and leasehold
improvements
520,507 27,379 151,349 699,235
Goodwill and employee and
consultants base -- 2,259,698 369,302 2,629,000
===========================================================================================
</TABLE>
F-31
<PAGE> 91
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------
ALBERTA, ONTARIO, TOTAL
CANADA CANADA U.S. $
$ $ $
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS INFORMATION
Revenue 29,068 -- -- 29,068
Expenses 1,835,561 -- -- 1,835,561
- -----------------------------------------------------------------------------------------
(1,809,493) -- -- (1,806,493)
Corporate overheads (1,269,794)
Net loss (3,076,287)
- -----------------------------------------------------------------------------------------
SELECTED BALANCE SHEET
INFORMATION
Equipment and leasehold
improvements
77,090 -- 1,740 78,830
=========================================================================================
</TABLE>
During 1997, all activities were carried out in Canada.
15. FINANCIAL INSTRUMENTS
Financial instruments comprising cash, term deposits, accounts receivable,
amounts due to and from related parties, accounts payable and accrued
liabilities, capital lease obligations, amounts due to related parties 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 December 31, 1999 of the 10% convertible
debentures is $nil (December 31, 1998 - $189,000). This was based on the
estimated present value of the principal and interest of the debenture.
Until November 1, 1999, the Company was 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% for the year ended December 31,
1999 (December 31, 1998 - 10%).
F-32
<PAGE> 92
JAWS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(all amounts are expressed in U.S. dollars)
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.
17. SUBSEQUENT EVENTS
a) On January 28, 2000, the Company finalized the acquisition of Offsite Data
Services Ltd. (Offsite), a company incorporated in the Province of Alberta,
Canada. The Company purchased all of the outstanding shares of Offsite in
exchange for 4,874,822 exchangeable shares of the Company with an ascribed
value of $13,113,271 and 2,318,550 warrants in exchange for the outstanding
Offsite warrants. 1,818,550 of these warrants entitle the holder to acquire
0.3524 of one of the Company's common shares at $0.40 CDN. ($0.28 USD) up
to March 15, 2000. The remaining 500,000 warrants entitle the holder to
acquire 0.3524 of one of the Company's common shares for prices ranging
from $0.50 CDN. ($0.34 USD) to $0.55 CDN. ($0.38 USD) up to September 29,
2001. In addition, 910,584 stock options to purchase shares of Offsite have
been exchanged for 910,584 stock options to purchase shares of the Company.
The options entitle the holder to purchase 0.3524 of an exchangeable share
of the Company, at a price of $0.25 CDN. ($0.17 USD) which expire on March
15, 2004.
The acquisition will be accounted for using the purchase method. The aggregate
purchase price of $13,363,271 will be allocated to the net assets acquired
based on their estimated fair values, as follows:
<TABLE>
<CAPTION>
$
-------------------------------------------------------------------------
<S> <C>
Net assets acquired 313,041
Goodwill 13,050,230
-------------------------------------------------------------------------
NET ASSETS ACQUIRED 13,363,271
=========================================================================
Consideration:
4,874,822 common stock 13,113,271
Acquisition costs 250,000
-------------------------------------------------------------------------
TOTAL CONSIDERATION 13,363,271
=========================================================================
</TABLE>
b) On January 6, 2000, the Company exercised their option to purchase
2,000,000 of Cobra Tech Industries Inc. ("Cobra Tech") common shares (25%
of Cobra Tech) for $20,000, and granted Cobra Tech the exclusive right to
market and sell the Company's products in Asia for a four year period
commencing October 19, 1999. The Company will receive a 25% royalty on all
products sold by Cobra Tech. No royalties have been received to date.
c) On February 23, 2000, the Company closed a private placement agreement to
issue 588,238 common stock at $4.25 per share. The Company received
$2,500,012 less share issue costs of $265,501. The proforma loss and
proforma loss per common share for the year ended December 31, 1999 giving
effect to the private placement as though it had occurred as at January 1,
1999 would have been $6,281,921 and ($0.43) respectively.
F-33
<PAGE> 93
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, /s/ Ernst & Young LLP
October 1, 1999. Chartered Accountants
F-34
<PAGE> 94
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
As at July 31
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
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
F-35
<PAGE> 95
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
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue
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
F-36
<PAGE> 96
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
F-37
<PAGE> 97
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.
F-38
<PAGE> 98
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>
F-39
<PAGE> 99
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
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Authorized
100 common shares
Issued
100 common shares 100 100
====================================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
F-40
<PAGE> 100
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
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities:
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.
F-41
<PAGE> 101
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.
F-42
<PAGE> 102
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.
F-43
<PAGE> 103
FINANCIAL STATEMENTS
Pace Systems Group
Unaudited
September 30, 1999 and 1998
F-44
<PAGE> 104
Pace Systems Group
BALANCE SHEETS
[all amounts are expressed in Cdn. dollars]
<TABLE>
<CAPTION>
As at September 30 Unaudited Unaudited
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
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
F-45
<PAGE> 105
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
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
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
F-46
<PAGE> 106
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
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
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>
F-47
<PAGE> 107
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.
F-48
<PAGE> 108
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
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------
Accumulated Net book
Cost depreciation value
$ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 65,192 56,871 8,321
Computer hardware 1,279 919 360
- ------------------------------------------------------------------------------------------------------------------------------------
66,471 57,790 8,681
====================================================================================================================================
</TABLE>
F-49
<PAGE> 109
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
====================================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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]
F-50
<PAGE> 110
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
====================================================================================================================================
</TABLE>
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:
<TABLE>
<CAPTION>
$
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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.
F-51
<PAGE> 111
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.
F-52
<PAGE> 112
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 each of
the years in the three year period ended June 30, 1999. 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 each of the years in the
three year period ended June 30, 1999 in accordance with Canadian generally
accepted accounting principles.
/s/PriceWaterhouseCoopers LLP
- -----------------------------
CHARTERED ACCOUNTANTS
F-53
<PAGE> 113
OFFSITE DATA SERVICES LTD.
Balance Sheets
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------
1999 1999 1998
$ $ $
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 650,605 379,817 22,417
Accounts receivable 151,578 77,473 45,326
Share subscription receivable (note 8(h)) 14,500 -- --
License inventory (note 6) 28,050 30,140 39,490
Prepaid and deposits 18,622 4,241 4,540
-----------------------------------------------
863,355 491,671 111,773
DEFERRED INITIAL PUBLIC OFFERING COSTS -- -- 58,839
CAPITAL ASSETS (note 3) 87,430 50,415 41,412
-----------------------------------------------
950,785 542,086 212,024
-----------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 142,573 54,605 59,683
Current portion of long-term debt (note 5) 350 2,452 6,626
Harbor License liability (note 6) -- -- 3,562
-----------------------------------------------
142,923 57,057 69,871
LONG-TERM DEBT (note 5) -- -- 2,455
-----------------------------------------------
142,923 57,057 72,326
-----------------------------------------------
SHAREHOLDERS' EQUITY
CAPITAL STOCK (note 8) 2,558,211 1,520,038 704,665
DEFICIT (1,750,349) (1,035,009) (564,967)
---------------------------------------------
807,862 485,029 139,698
-----------------------------------------------
950,785 542,086 212,024
-----------------------------------------------
</TABLE>
F-54
<PAGE> 114
OFFSITE DATA SERVICES LTD.
Statements of Loss and Deficit
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31, YEARS ENDED JUNE 30,
-------------------------------------- ---------------------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE
Backup services 203,921 91,344 224,032 123,816 35,813
License sales 5,015 5,865 13,830 15,235 6,155
------------------------------------------------------------------------------------------
208,936 97,209 237,862 139,051 41,968
COST OF SALES 150,599 87,576 215,948 116,266 60,080
------------------------------------------------------------------------------------------
GROSS MARGIN 58,337 9,633 21,914 22,785 (18,112)
------------------------------------------------------------------------------------------
EXPENSES
General and administrative 483,338 74,182 251,118 172,652 237,304
Sales and marketing 106,380 26,278 93,899 62,171 --
Technical services 77,634 52,307 118,010 48,939 --
Corporate services 106,325 995 28,929 -- --
------------------------------------------------------------------------------------------
773,677 153,762 491,956 283,762 237,304
------------------------------------------------------------------------------------------
LOSS FOR THE PERIOD (715,340) (144,130) (470,042) (260,977) (255,416)
DEFICIT - BEGINNING OF PERIOD (1,035,009) (564,967) (564,967) (303,990) (48,574)
------------------------------------------------------------------------------------------
DEFICIT - END OF PERIOD (1,750,349) (709,097) (1,035,009) (564,967) (303,990)
------------------------------------------------------------------------------------------
LOSS PER SHARE ($0.06) ($0.02) ($0.05) ($0.04) ($0.05)
------------------------------------------------------------------------------------------------
</TABLE>
F-55
<PAGE> 115
OFFSITE DATA SERVICES LTD.
Statements of Cash Flows
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED JUNE 30,
------------------------------- --------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period (715,340) (144,130) (470,042) (260,977) (255,416)
Item not affecting cash
Employee compensation (note 8(g)) 150,000 -- -- -- --
Amortization 12,625 7,301 18,507 16,613 14,558
Loss on disposal of capital assets -- -- -- -- 6,665
----------------------------------------------------------------------------
(552,715) (136,829) (451,535) (244,364) (234,193)
Changes in non-cash working capital balances
Accounts receivable (74,105) 1,914 (32,147) (31,010) (9,767)
License inventory 2,090 3,410 9,350 10,890 3,630
Prepaids and deposits (14,381) (7,555) 299 288 (4,828)
Accounts payable and accrued liabilities 87,968 80,448 (5,078) 2,432 47,684
----------------------------------------------------------------------------
(551,143) (58,612) (479,111) (261,764) (197,474)
----------------------------------------------------------------------------
FINANCING ACTIVITIES
Initial public offering costs -- -- -- (58,839) --
Increase (decrease) in long-term debt (2,102) (3,565) (6,629) (10,328) 1,993
Repayment of Harbor license liability -- (3,562) (3,562) (27,050) (24,607)
Issuance of capital stock, net of share
issue costs 873,673 29,379 874,212 394,659 250,000
Repayment of shareholder loans -- -- -- (2,199) --
----------------------------------------------------------------------------
871,571 42,252 864,021 296,243 227,386
----------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (49,640) (1,060) (27,510) (8,842) (32,811)
----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH DURING THE PERIOD 270,788 (17,420) 357,400 25,637 (2,899)
CASH AND CASH EQUIVALENTS (BANK OVERDRAFT) -
BEGINNING OF PERIOD 379,817 22,417 22,417 (3,220) (321)
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (BANK OVERDRAFT) -
END OF PERIOD 650,605 4,997 379,817 22,417 (3,220)
----------------------------------------------------------------------------
INTEREST PAID ON LONG-TERM DEBT 59 365 842 3,574 6,072
----------------------------------------------------------------------------
</TABLE>
F-56
<PAGE> 116
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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 capital stock.
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-57
<PAGE> 117
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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 December 31, 1999 are
12,431,275 (December 31, 1998 - 7,478,300) June 30, 1999 -
8,841,220; June 30, 1998 - 6,274,550; June 30, 1997 -
5,002,740. 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>
DECEMBER 31,
1999
----------------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
<S> <C> <C> <C>
Computer equipment 94,299 34,740 59,559
Computer equipment under capital lease 9,370 7,772 1,598
Furniture and fixtures 24,333 3,449 20,884
Software licenses 29,448 24,059 5,389
----------------------------------------------------------------
157,450 70,020 87,430
----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1999
----------------------------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
<S> <C> <C> <C>
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-58
<PAGE> 118
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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 December 31,
1999, the overdraft balance was $nil (June 30, 1999 - $Nil; June 30,
1998 - $Nil).
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------- ---------------------------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
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 instalments of $350, plus
interest to January, 2000 350 2,452 6,656
Small business investment loan bearing interest at prime
plus 2.5%, collateral provided by computer equipment,
repayable in monthly instalments of $244 plus
interest to April 1999 -- -- 2,425
Obligations under capital lease with implicit interest at
9.5%, collateral provided by computer equipment under
capital lease, repayable in blended monthly
instalments of $546 to December 31, 1997 -- -- --
-----------------------------------------------------------
350 2,452 9,081
Less: Current portion (350) (2,452) (6,626)
-----------------------------------------------------------
350 2,452 9,081
-----------------------------------------------------------
</TABLE>
F-59
<PAGE> 119
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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 instalments 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.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------------------------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Harbour license liability -- -- 3,562
Less: Current portion -- -- (3,562)
-----------------------------------------------------------
-- -- --
-----------------------------------------------------------
</TABLE>
7. RELATED PARTY TRANSACTIONS
For the period ended December 31, 1999, the company paid $9,000 (December
31, 1998 - $18,359; June 30, 1999 - $45,056; June 30, 1998 - $5,600; June
30, 1997 - $nil) in consulting fees to a company owned by a principal
shareholder.
During 1997, management services were provided by the principal
shareholders at no cost to the company. No recognition of these services
has been given in these financial statements.
At June 30, 1997, amounts due to shareholders were the result of
expenditures made on behalf of the company, and were non-interest bearing
and payable on demand.
F-60
<PAGE> 120
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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 AMOUNT
SHARES $
<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 1,130,919 282,730
Exercise of "B" warrants 839,900 335,960
Share issuance to employee (note (g)) 500,000 250,000
Exercise of stock options 584,611 169,483
----------------------------------------
Balance - December 31, 1999 14,716,518 2,558,211
----------------------------------------
</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-61
<PAGE> 121
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
b) REORGANIZATION OF CAPITAL STOCK
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 tradable, 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.
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.
F-62
<PAGE> 122
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
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 December 31, 1999, options were outstanding to purchase
944,584 common shares (June 30, 1999 - 1,037,584; June 30,
1998 - nil; June 30, 1997 - nil) at a price of $0.25 to $0.43
per share. These options expire on March 15, 2004. During the
period July 1 to December 31, 1999, 171,611 options were
granted (June 30, 1999 - 1,101,584; June 30, 1998 - nil; June
30, 1997 - nil) 264,611 options (June 30, 1999 - 49,000; June
30, 1998 - nil; June 30, 1997 - nil) were exercised and nil
(June 30, 1999 - 15,000; June 30, 1998 - nil; June 30, 1997 -
nil) were cancelled.
e) AGENT UNIT OPTIONS
At December 31, 1999, the company's agent had options to
purchase nil (June 30, 1999 - 320,000; June 30, 1998 nil; June
30, 1997 - nil) common shares with an exercise price of $0.25
per share. During the period July 1 to December 31, 1999,
320,000 options (June 30, 1999, June 30, 1998, and June 30,
1997 - 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-63
<PAGE> 123
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
f) WARRANTS
<TABLE>
<CAPTION>
OTHER WARRANTS
A WARRANTS B WARRANTS (note 8(g)) TOTAL
---------- ---------- -------------- -----
<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 (1,130,919) (839,900) -- (1,970,819)
Expired (12,500) -- -- (12,500)
------------------------------------------------------------------------------
Balance - December 31, 1999 -- 1,068,350 500,000 1,568,350
------------------------------------------------------------------------------
</TABLE>
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 six months ended December 31, 1999.
h) SHARE SUBSCRIPTION RECEIVABLE
The share subscription receivable at December 31, 1999 was
non-interest bearing, unsecured and due on demand.
F-64
<PAGE> 124
OFFSITE DATA SERVICES LTD.
Notes to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
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>
DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Provision for income taxes at the
statutory rate (44.6%; 1998
- - 44.6%) (319,042) (64,282) (209,639) (116,396) (113,916)
Benefit of losses not recognized 319,042 64,282 209,639 116,396 113,916
----------------------------------------- --------------------------
-- -- -- -- --
========================================= ==========================
</TABLE>
The company has approximate non-capital tax losses available
for carryforward against future taxable income as follows:
<TABLE>
<CAPTION>
AMOUNT AVAILABLE
YEAR OF LOSS $ UNTIL
------------ ------ -----
<S> <C> <C>
1999 513,200 2006
1998 261,000 2005
1997 249,700 2004
1996 45,600 2003
------------------
1,069,500
==================
</TABLE>
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.
F-65
<PAGE> 125
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
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.
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.
F-66
<PAGE> 126
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 is unaudited
- -------------------------------------------------------------------------------
(expressed in Canadian dollars, unless otherwise noted)
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:
a) STATEMENT OF LOSS AND DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------------------------------------
1999 1998 1999 1998 1997
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Loss for period in
accordance with
Canadian GAAP (715,340) (144,130) (470,042) (260,977) (255,416)
Impact of U.S.
adjustments
Stock based
compensation(c) -- -- (61,142) -- --
---------------------------------------------------------------------------------------
Loss for the period
and
comprehensive
loss in
accordance with
U.S. GAAP (715,340) (144,130) (531,184) (260,977) (255,416)
---------------------------------------------------------------------------------------
</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>
DECEMBER 31, JUNE 30,
------------------- --------------------------------------
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Net book value of capital assets in excess
of tax basis 1,330 1,330 1,471
Loss carryforwards 796,039 476,997 248,110
Share issue costs 86,201 86,201 --
----------------------------------------------------------
883,570 564,528 249,581
Less: Valuation allowance (883,570) (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-67
<PAGE> 127
OFFSITE DATA SERVICES LTD.
Note to Financial Statements
Information as at and for the periods ended
December 31, 1999 and 1998 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-68
<PAGE> 128
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Special Note Regarding Forward-looking Statements.......................... 3
Risk Factors............................................................... 4
Use of Proceeds............................................................ 12
Dividend Policy............................................................ 12
Capitalization............................................................. 13
Selected Financial Data.................................................... 14
Selling Stockholders....................................................... 16
Plan of Distribution....................................................... 19
Description of Capital Stock............................................... 21
Business................................................................... 24
Market for Common Equity and Related Stockholder Matters................... 38
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................. 39
Management................................................................. 44
Security Ownership of Certain Beneficial
Owners and Management...................................................... 51
Certain Relationships and Related Transactions............................. 53
Registration Rights........................................................ 56
Legal Matters.............................................................. 57
Experts.................................................................... 57
Available Information...................................................... 57
Index to Consolidated Financial Statements................................. f-1
</TABLE>
7,624,248 SHARES
JAWS TECHNOLOGIES, INC.
PROSPECTUS
___________, 2000
<PAGE> 129
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:
<TABLE>
<S> <C>
SEC Registration Fee US$............................. $ 11,193
Accounting Fees and Expenses......................... $ 45,000
Legal Fees and Expenses ............................. $150,000
Printing expenses.................................... $ 10,000
Miscellaneous ...................................... $ 5,000
-------
TOTAL $221,193
=======
</TABLE>
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
- breach of the director's duty of loyalty to JAWS or its
shareholders, or
- 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.
II-1
<PAGE> 130
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 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
1,000,000 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;
II-2
<PAGE> 131
(a) 5,127,672 shares of common stock in conversion of the
debentures;
(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
II-3
<PAGE> 132
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.
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
II-4
<PAGE> 133
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
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.
21. Sale on February 22, 2000 of 588,238 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
$2,500,012. The sales were made to 9 accredited. 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 following documents are filed as exhibits to this registration
statement on Form S-1:
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.
II-5
<PAGE> 134
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.
4.12* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated December
31, 1999.
4.13 Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated February
15, 2000.
4.14 Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and SmallCaps Online LLC, dated February 15, 2000.
4.15* 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.
4.16 Schedule of Subscribers that purchased subscriptions pursuant to the
Form of Subscription Agreement set forth above in 4.15.
5.1 Opinion of Lionel Sawyer & Collins LLP.
II-6
<PAGE> 135
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 10.09.
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.
10.16* 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.,
JAWS Technologies, Inc., an Ontario corporation, JAWS
II-7
<PAGE> 136
Technologies (Delaware), Inc., a Delaware 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.
- ---------------------
* Previously filed in JAWS' registration statement on Form S-1 (File No.
333-30406), filed with the Securities and Exchange Commission on
February 14, 2000.
(b) The financial statements included in this registration statement on
form S-1 are listed in the Prospectus. See "Index to Financial Statements" in
the Prospectus on page F-1. Information required by financial statement
schedules is not applicable or the required information is included in the
financial statements or the notes thereto.
II-8
<PAGE> 137
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 not 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.
II-9
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to 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 March 24, 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
Pursuant to the requirements of the Securities Act of 1933, this
amendment to 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 March 24, 2000
- ------------------------------------- Executive Officer, President and
Robert J. Kubbernus Director (Principal Executive Officer)
/s/ Riaz Mamdani Chief Financial Officer and Director March 24, 2000
- ------------------------------------- (Principal Financial Officer and
Riaz Mamdani Principal Accounting Officer)
* Director March 24, 2000
- -------------------------------------
Julia L. Johnson
* Director March 24, 2000
- -------------------------------------
Arthur Wong
</TABLE>
*By:/s/ Riaz Mamdani
-----------------------------
Riaz Mamdani
Attorney-In-Fact
II-10
<PAGE> 139
EXHIBIT INDEX
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.
4.12* Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated December
31, 1999.
4.13 Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and Thomson Kernaghan & Co. Limited, dated February
15, 2000.
<PAGE> 140
4.14 Placement Agency Agreement by and between JAWS Technologies, Inc., a
Nevada corporation, and SmallCaps Online LLC, dated February 15, 2000.
4.15* 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.
4.16 Schedule of Subscribers that purchased subscriptions pursuant to the
Form of Subscription Agreement set forth above in 4.15.
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 10.09.
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.
<PAGE> 141
10.13* 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..
10.14* Form of Employment Agreement.
10.15* Schedule of officers of JAWS Technologies, Inc., a Nevada corporation,
who executed employment agreements the form of which is set forth in
Exhibit 10.20.
21 Subsidiaries of JAWS Technologies, Inc., a Nevada corporation: JAWS
Technologies Inc., an Alberta corporation, Pace Systems Group Inc.,
JAWS Technologies, Inc., an Ontario corporation, JAWS Technologies
(Delaware), Inc., a Delaware 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.
- ----------------
* Previously filed with JAWS' registration statement on Form S-1 (File
No. 333-30406), filed with the Securities and Exchange Commission on
February 14, 2000.
<PAGE> 1
Exhibit 4.13
JAWS TECHNOLOGIES, INC.
1013 17TH AVENUE, S.W.
CALGARY, ALBERTA T2T0A7
CANADA
PLACEMENT AGENCY AGREEMENT
Thomson Kernaghan & Co. Limited
356 Bay Street, 10th Floor
Toronto, M5H 2V2
Attention: Lionel Conacher
Gentlemen:
This Placement Agency Agreement (the "Agreement") confirms the
retention by JAWS Technologies, Inc., a Nevada corporation (the "Company"), of
Thomson Kernaghan & Co. Limited, (the "Canadian Placement Agent"), to act as the
sales agent in Canada and outside of Canada and 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 Canadian
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 Canadian Placement Agent understands that all
subscriptions for Units are subject to acceptance by the Company. The Company
and the Canadian 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 Canadian Memorandum. Any subscription monies
received by the Canadian Placement Agent from investors will be handled in
accordance with Rule 15 c2-4 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") , whether or not the Canadian
1
<PAGE> 2
Placement Agent is subject to the Exchange Act, and as otherwise may be
prescribed by the terms of the Canadian Memorandum. Without limiting the
generality of the foregoing, the Canadian Placement Agent agrees with the
Company that, in connection with the Placement and the Concurrent Offering, it
will receive all funds in connection therewith and promptly deposit the same in
a separate bank account, as agent or trustee for the persons who have a
beneficial interest therein, until the closing occurs, the offerings are
terminated or another appropriate event or contingency has occurred, at which
time the funds shall be promptly transmitted or retained, as the case may be, to
the Company or the person entitled thereto.
(b) The Company is making an offering of the Units, concurrent with the
making of the private placement of Units in Canada and outside Canada and the
United States as described herein (the "Placement"), in the United States
through the Company's US Placement agent, SmallCaps Online LLC ("SmallCaps").
Such concurrent United States offering is referred to herein as the "Concurrent
Offering." The Canadian Placement Agent will only offer Units to prospective
investors in Canada and outside of Canada and the United States and SmallCaps
will only offer Units to prospective investors in the United States. 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,
Canada and/or outside of Canada and the United States require special disclosure
in the Canadian Memorandum and/or terms in this Agreement for the placement
agent agreement with SmallCaps and/or terms in the Subscription Agreement (as
defined below) or the subscription agreement between the Company and United
States investors. The Units, Shares and Warrants sold in the United States,
Canada and outside of Canada and the United States will be identical in all
respects. For purposes of calculating the minimum and maximum sizes of the
offering, Units sold in the United States, Canada and outside of Canada and the
United States 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 "Canadian 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 the authorities in the United States
and provincial securities regulatory authorities in Canada prior to (and
subsequent to, if required by the laws of such jurisdiction) the distribution of
the Canadian 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 the United States by reason of an
"accredited investor" exemption). The Canadian 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 Canadian and other
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 Canadian Placement Agent and its counsel shall have an
opportunity to review the final form of the Canadian
2
<PAGE> 3
Memorandum and Subscription Agreement prior to the distribution thereof to
prospective investors, and the Canadian Memorandum and the Subscription
Agreement will be the only offering documents (other than cover letters which
may be used by the Canadian Placement Agent, and any documents made available to
investors in accordance with the terms of the Canadian Memorandum) shown to
prospective investors. The Company and its counsel will advise the Canadian
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 lawfully
be offered and sold in each such jurisdiction, in connection with the Placement,
and the Canadian 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 Canadian Placement Agent as
its sales agent in Canada and outside of the United States and Canada 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 Canada and
outside of the United States without the Canadian Placement Agent's express
prior written consent (other than SmallCaps with respect to the Concurrent
Offering); provided that this Agreement shall not give the Canadian 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 Canadian 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 Canadian Placement Agent agrees
to use its best efforts to assist in arranging for sales of Units. The Canadian
Placement Agent will also assist the Company in the preparation of the Canadian
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 Canadian Placement Agent and the
Company, that the Canadian Placement Agent is acting only as a sales agent and
that, except as specifically set forth in Schedule A, there is no undertaking on
the Canadian 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 Canadian Placement Agent hereunder, the
Company will pay or cause to be paid to the Canadian Placement Agent the
commissions, fees and expenses ("fees") stated in Schedule A (it being
understood and agreed that the Placement Agent may deduct such fees from the
aggregate amount of subscriptions received by the Placement Agent in respect of
any Closing).
(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
3
<PAGE> 4
as the Company requests, the Company and the Canadian 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 Canadian 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 Schedule 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 Canadian
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 maximum sizes of the offering, Units
sold in the United States, Canada and outside of the United States will be
aggregated.
(e) The Company and the Canadian 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 Canadian Placement Agent in connection with the Placement as
provided in Schedule A. Reimbursement of the Canadian Placement Agent's
reasonable, accountable out-of-pocket costs and expenses hereunder shall be made
promptly in full in the event the Canadian 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 Canadian 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 Canadian 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 Canadian Placement Agent 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, and (iv) the filing
fees, if any, payable to the applicable securities regulatory authorities.
4
<PAGE> 5
5. TERMINATION OF PLACEMENT
The Placement may be terminated by the mutual consent of the Canadian
Placement Agent and SmallCaps at any time by them giving written notice to the
Company if (a) in the opinion of the Canadian Placement Agent, the Canadian
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 Canadian Placement
Agent and SmallCaps 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
hereunder until the Canadian Placement Agent and SmallCaps 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 500,000 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 February 18, 2000 or at such other place, time and/or date as
the Company and the Canadian Placement Agent shall agree upon. The Company shall
provide the notice required by the preceding sentence as promptly as
practicable. 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 Canadian 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 Canadian Placement Agent shall
agree upon. The Company shall notify the Canadian 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) Promptly after the Closing Date or an Additional Closing
Date, as the case may be, the Company shall deliver to the purchasers (or the
Canadian Placement Agent,
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on behalf of 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
Canadian Placement Agent that:
(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, directly or indirectly, any material subsidiaries other
than Jaws Technologies Inc. an Alberta corporation ("Jaws Canada"), Pace Systems
Group Inc., an Ontario corporation ("Pace"), Jaws Technologies (Delaware), Inc.,
a Delaware corporation ("Jaws Delaware"), Offsite Data Services Ltd., an Alberta
corporation ("Offsite"), Jaws Technologies, Inc., an Ontario corporation ("Jaws
Ontario") and Jaws Acquisition Corp., an Alberta corporation ("JAC" and
collectively with Jaws Canada, Pace, Jaws Delaware, and Offsite, 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 Canadian Memorandum nor the Subscription Agreement
contain any untrue statement of a material fact, and the Canadian 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 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 Placement is completed or terminated or before all subscriptions are
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accepted by the Company, there should be any change which would cause the
Canadian Memorandum or the Subscription Agreement not to comply with this
paragraph 7(b), the Company will promptly advise the Canadian Placement Agent
thereof and prepare and furnish the Canadian 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 the Subscription Agreement as will cause the Canadian Memorandum
and the Subscription Agreement, as so supplemented or amended, to comply with
this paragraph 7(b), 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.
(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 Canadian 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, authorization 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, has not taken and shall not take any
action (except for actions contemplated by the Canadian Memorandum) that would
cause the Placement to be integrated with other transactions under Rule 502(a)
of Regulation D.
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(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 hereunder on the
basis of any communications or documents relating to the Canadian Placement
Agent or the Units except the Canadian 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 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 Canadian 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 THE
CANADIAN PLACEMENT AGENT
The Canadian 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 Canadian 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
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<PAGE> 9
other similar laws and related court decisions relating to or affecting
creditors' rights generally).
(b) The Canadian 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 Canadian
Placement Agent, and the Canadian 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 Canadian Placement Agent to offer or sell securities.
(c) The Canadian Placement Agent is a 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.
(d) The Canadian 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 Canadian 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 Canadian 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
Canadian Memorandum. The Placement Agent will deliver a copy of the Canadian
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 Canadian 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 Canadian 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 Canadian Placement Agent has not and will not
supply in writing for inclusion in the Canadian Memorandum or any related sales
materials any information relating to the Canadian 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.
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<PAGE> 10
(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 Canadian 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 Canadian Placement Agent by the Company.
(h) The Canadian 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 Canadian 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 States laws and all applicable securities laws of
those jurisdictions listed in Schedule A of which the Company advises the
Canadian 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 Canadian Placement Agent has delivered or caused to be
delivered to each prospective investor the Canadian Memorandum.
9. COVENANTS
(a) Covenants of the Company. The Company covenants to the
Canadian Placement Agent that it will:
(i) Notify the Canadian 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 Canadian 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
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<PAGE> 11
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 Canadian Memorandum
unless the Canadian 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
Canadian 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 Canadian Placement Agent, it is necessary at any time
to supplement or amend the Canadian 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.
(iii) Deliver without charge to the Canadian
Placement Agent such number of copies of the Canadian Memorandum and any
supplement or amendment thereto as may reasonably be requested by the Canadian
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 Canadian
Placement Agent or SmallCaps.
(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 Canadian 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 in 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 Canadian Placement Agent promptly of
the acceptance or rejection of any subscription. Any subscription unreasonably
rejected shall
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be deemed to have been accepted for purposes of determining whether at least
500,000 Units have been sold solely for the purpose of determining whether the
Canadian 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, if
required by law. 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 province 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, 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
Canadian 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 Canadian Placement Agent
and SmallCaps, 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.
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10. CONDITIONS OF THE CANADIAN PLACEMENT AGENT'S OBLIGATIONS
The obligations of the Canadian 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 Canadian Placement Agent, 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 each
of Battle Fowler LLP, Bennett Jones, Sonfield & Sonfield LLP, Lionel, Sawyer &
Collins LLP, and Beard Winter LLP, in each case, as counsel for the Company, in
form and substance reasonably satisfactory to the Placement Agents.
(b) On or prior to the Closing Date and each Additional
Closing Date, as the case may be, the Canadian 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 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 Canadian 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
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(a) The Company agrees to indemnify and hold harmless the Canadian
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 Canadian
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.
(b) The Canadian 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 Canadian 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 Canadian Placement Agent, expressly for use in and used in the
Canadian Memorandum, or any omission in any information provided to the Company
in writing by, and relating to, the Canadian Placement Agent, expressly for use
in and used in the Canadian 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 Canadian 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
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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 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 Canadian 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.
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(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 Canadian 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 Canadian Placement Agent, Thomson Kernaghan & Co. Limited, 356
Bay Street, 10th Floor, Toronto, M5H 2V2 Attention: Lionel Conacher, or at such
other address as any party may designate to the others in accordance with this
paragraph.
(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]
16
<PAGE> 17
This Agreement is executed and shall be effective as of
February 15, 2000, 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/ Riaz Mamdani
-------------------------------------
Name: Riaz Mamdani
Title:
Agreed and accepted:
THOMSON KERNAGHAN & CO. LIMITED
By: /s/ Lionel F. Concher
---------------------------
Name: Lionel F. Conacher
Title: Executive Vice President and Director
<PAGE> 18
SCHEDULE A
JAWS TECHNOLOGIES, INC.
The parties hereto enter into this Schedule A to the Placement Agency
Agreement (the "Agreement") effective as of February 15, 2000 (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 purchase 1/2(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 500,000 Units (aggregate gross
proceeds of $2,125,000) and a maximum of
900,000 Units (gross proceeds of
$3,825,000).
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 February 15, 2000 to February 22, 2000,
unless extended by the Company in its sole
discretion. The anticipated date of the
initial closing is February 18, 2000.
Sales Commissions, Warrants An aggregate cash payment to the Placement
and Financial Advisory Fees Agents of a 7% sales commission and a 3%
to Placement Agents: financial advisory fee,
A-1
<PAGE> 19
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 will constitute 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
Canada: Ontario
Bermuda, Isle of Man, St. Vincent and the
Grenadines
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,
A-2
<PAGE> 20
but prior to 180 days, following the final
closing date, the 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.
A-3
<PAGE> 1
Exhibit 4.14
JAWS TECHNOLOGIES, INC.
1013 17TH AVENUE, S.W.
CALGARY, ALBERTA T2T0A7
CANADA
PLACEMENT AGENCY AGREEMENT
SmallCaps Online LLC
1285 Avenue of the Americas
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 (the "U.S. 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 U.S.
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 U.S. Placement Agent understands that all
subscriptions for Units are subject to acceptance by the Company. The Company
and the U.S. 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 U.S. Memorandum. Any subscription monies
received by the U.S. 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 U.S. Placement Agent is
subject to the Exchange Act, and as otherwise may be prescribed by the terms of
the U.S. Memorandum.
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<PAGE> 2
Without limiting the generality of the foregoing, the U.S. Placement Agent
agrees with the Company that, in connection with the Placement and the
Concurrent Offering, the Canadian Placement Agent (as defined below) will
receive all funds in connection therewith and promptly deposit the same in a
separate bank account, as agent or trustee for the persons who have a beneficial
interest therein, until the closing occurs, the offerings are terminated or
another appropriate event or contingency has occurred, at which time the funds
shall be promptly transmitted or retained, as the case may be, to the Company or
the person entitled thereto.
(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 and outside of the United States and Canada
as described herein through the Company's Canadian Placement agent, Thomson
Kernaghan & Co. Limited (the "Canadian Placement Agent"). Such concurrent
offering is referred to herein as the "Concurrent Offering." The U.S. Placement
Agent will only offer Units to prospective investors in the United States and
the Canadian Placement Agent will only offer Units to prospective investors in
Canada and outside of the United States and Canada as described herein. 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,
Canada and/or outside of Canada and the United States require special disclosure
in the U.S. Memorandum and/or terms in this Agreement for the placement agent
agreement with the Canadian Placement Agent and/or terms in the Subscription
Agreement (as defined below) or the subscription agreement between the Company
and applicable investors. The Units, Shares and Warrants sold in the United
States, Canada and outside of Canada and the United States will be identical in
all respects. For purposes of calculating the minimum and maximum sizes of the
offering, Units sold in the United States, Canada and outside of Canada and the
United States 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 "U.S. 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 the authorities in the United States and
provincial securities regulatory authorities in Canada prior to (and subsequent
to, if required by the laws of such jurisdiction) the distribution of the U.S.
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 the United States by reason of an "accredited
investor" exemption). The U.S. 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 U.S. and other 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 institutional accredited investors. The U.S. Placement Agent
and its counsel shall have an
2
<PAGE> 3
opportunity to review the final form of the U.S. Memorandum and Subscription
Agreement prior to the distribution thereof to prospective investors, and the
U.S. Memorandum and the Subscription Agreement will be the only offering
documents (other than cover letters which may be used by the U.S. Placement
Agent, and any documents made available to investors in accordance with the
terms of the U.S. Memorandum) shown to prospective investors. The Company and
its counsel will advise the U.S. 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 lawfully be offered and sold in each such
jurisdiction, in connection with the Placement, and the U.S. 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 U.S. 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 U.S. Placement Agent's
express prior written consent (other than the Canadian Placement Agent with
respect to the Concurrent Offering); provided that this Agreement shall not give
the U.S. 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 U.S. 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 U.S.
Placement Agent agrees to use its best efforts to assist in arranging for sales
of Units. The U.S. Placement Agent will also assist the Company in the
preparation of the U.S. 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 U.S. Placement
Agent and the Company, that the U.S. Placement Agent is acting only as a sales
agent and that, except as specifically set forth in Schedule A, there is no
undertaking on the U.S. 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 U.S. Placement Agent hereunder, the Company
will pay or caused to be paid to the U.S. Placement Agent the commissions, fees
and expenses ("Fees") stated in Schedule A (it being understood and agreed that
the U.S. Placement Agent may deduct such Fees from the aggregate amount of
subscriptions received by the U.S. Placement Agent in respect of any Closing).
(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
3
<PAGE> 4
as the Company requests, the Company and the U.S. 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 U.S. 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 Schedule 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 U.S. 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 maximum sizes of the offering, Units sold in the United States,
Canada and outside of the United States will be aggregated.
(e) The Company and the U.S. 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 U.S. Placement Agent in connection with the Placement as
provided in Schedule A. Reimbursement of the U.S. Placement Agent's reasonable,
accountable out-of-pocket costs and expenses hereunder shall be made promptly in
full in the event the U.S. 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 U.S. 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 U.S. 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 U.S. Placement Agent, 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, and (iv) the filing fees, if any, payable to the
applicable securities regulatory authorities.
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<PAGE> 5
5. TERMINATION OF PLACEMENT
The Placement may be terminated by the mutual consent of the U.S.
Placement Agent and the Canadian Placement Agent at any time by them giving
written notice to the Company if (a) in the opinion of the U.S. Placement Agent,
the U.S. 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 U.S.
Placement Agent and the Canadian Placement Agent 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 hereunder until the U.S. Placement Agent and the Canadian
Placement Agent 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 500,000 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 February 18, 2000 or at such other place, time and/or date as
the Company and the U.S. Placement Agent shall agree upon. The Company shall
provide the notice required by the preceding sentence as promptly as
practicable. 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 U.S. 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 U.S. Placement Agent shall
agree upon. The Company shall notify the U.S. 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."
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<PAGE> 6
(c) Promptly after the Closing Date or an Additional Closing
Date, as the case may be, the Company shall deliver to the purchasers (or the
U.S. Placement Agent, on behalf of 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 U.S.
Placement Agent that:
(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, directly or indirectly, any material subsidiaries other
than Jaws Technologies Inc. an Alberta corporation ("Jaws Canada"), Pace Systems
Group Inc., incorporated under the laws of the Province of Ontario ("Pace"),
Jaws Technologies (Delaware), Inc., a Delaware corporation ("Jaws Delaware"),
Offsite Data Services Inc., an Alberta corporation ("Offsite"), Jaws
Technologies, Inc., an Ontario corporation ("Jaws Ontario") and Jaws Acquisition
Corp., an Alberta corporation ("JAC" and collectively with Jaws Canada, Pace,
Jaws Delaware, and Offsite, 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 U.S. Memorandum nor the Subscription Agreement contain
any untrue statement of a material fact, and the U.S. 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 U.S. Placement Agent, for use in and used in the U.S.
Memorandum. It is understood that any summary in the U.S. 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,
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<PAGE> 7
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 U.S. Memorandum or the Subscription Agreement not to comply with
this paragraph 7(b), the Company will promptly advise the U.S. Placement Agent
thereof and prepare and furnish the U.S. Placement Agent with, for distribution
to investors, after prior review and approval by the U.S. Placement Agent and
its counsel (such approval not to be unreasonably withheld), such copies of such
supplements or amendments to the U.S. Memorandum and the Subscription Agreement
as will cause the U.S. Memorandum and the Subscription Agreement, as so
supplemented or amended, to comply with this paragraph 7(b), and will authorize
the U.S. Placement Agent to make to investors, if (i) deemed necessary by
counsel to the U.S. Placement Agent and approved by the U.S. Placement Agent or
(ii) if deemed necessary by counsel to the Company, an offer of rescission.
(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 U.S. 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, authorization 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, has not taken and shall not take any
action (except for actions contemplated by the U.S. Memorandum) that would cause
the Placement to be integrated with other transactions under Rule 502(a) of
Regulation D.
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<PAGE> 8
(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 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).
(f) The Company will not offer the Units for sale hereunder on the
basis of any communications or documents relating to the U.S. Placement Agent or
the Units except the U.S. 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 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 U.S. 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 THE U.S. PLACEMENT AGENT
The U.S. 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 U.S. 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
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<PAGE> 9
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 U.S. 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 U.S.
Placement Agent, and the U.S. 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 U.S. Placement Agent to offer or sell securities.
(c) The U.S. Placement Agent is (i) a registered broker-dealer under
the Exchange Act, (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.
(d) The U.S. 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 U.S. 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 U.S. 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
U.S. Memorandum. The Placement Agent will deliver a copy of the U.S. 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 U.S.
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 U.S. 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 U.S. Placement Agent has not and will not
supply in writing for inclusion in the U.S. Memorandum or any related sales
materials any information relating to the U.S. 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.
9
<PAGE> 10
(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 U.S. 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 U.S. Placement Agent by the Company.
(h) The U.S. 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 U.S. 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 States laws and all applicable securities laws of
those jurisdictions listed in Schedule A of which the Company advises the U.S.
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 U.S. Placement Agent has delivered or caused to be delivered to
each prospective investor the U.S. Memorandum.
9. COVENANTS
(a) Covenants of the Company. The Company covenants to the
U.S. Placement Agent that it will:
(i) Notify the U.S. 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 U.S. 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
10
<PAGE> 11
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 U.S. Memorandum
unless the U.S. 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
U.S. 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 U.S. Placement Agent, it is necessary at any time to
supplement or amend the U.S. 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.
(iii) Deliver without charge to the U.S. Placement
Agent such number of copies of the U.S. Memorandum and any supplement or
amendment thereto as may reasonably be requested by the U.S. 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 U.S.
Placement Agent or the Canadian Placement Agent.
(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 U.S. 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 in 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.
11
<PAGE> 12
(vii) Notify the U.S. 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 500,000 Units have been sold solely for the purpose of
determining whether the U.S. 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, if
required by law. 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 province 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, 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 U.S.
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 U.S. Placement Agent and
the Canadian Placement Agent, 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
12
<PAGE> 13
or any other securities in violation of the provisions of Regulation M under the
Exchange Act.
10. CONDITIONS OF THE U.S. PLACEMENT AGENT'S OBLIGATIONS
The obligations of the U.S. 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 U.S. Placement Agent, 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 each
of Battle Fowler LLP, Bennett Jones, Sonfield & Sonfield LLP, Lionel, Sawyer &
Collins LLP, and Beard Winter LLP, in each case, as counsel for the Company, in
form and substance reasonably satisfactory to the Placement Agents.
(b) On or prior to the Closing Date and each Additional
Closing Date, as the case may be, the U.S. 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 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 U.S. 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.
13
<PAGE> 14
11. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless the U.S.
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 U.S.
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.
(b) The U.S. 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 U.S. 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
U.S. Placement Agent, expressly for use in and used in the U.S. Memorandum, or
any omission in any information provided to the Company in writing by, and
relating to, the U.S. Placement Agent, expressly for use in and used in the U.S.
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 U.S. 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"
14
<PAGE> 15
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 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 U.S. 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
15
<PAGE> 16
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 U.S. 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 U.S. Placement Agent, SmallCaps Online LLC, 1285 Avenue of the
Americas, 35th Floor, New York, NY 10019, Attention: Jeffrey B. Davis, or at
such other address as any party may designate to the others in accordance with
this paragraph.
(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]
16
<PAGE> 17
This Agreement is executed and shall be effective as of
February 15, 2000, 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/ Riaz Mamdani
--------------------------------
Name:
Title:
Agreed and accepted:
SMALLCAPS ONLINE LLC
By: /s/ Jeffrey B. Davis
-----------------------------
Name: Jeffrey B. Davis
Title: President
<PAGE> 18
SCHEDULE A
JAWS TECHNOLOGIES, INC.
The parties hereto enter into this Schedule A to the Placement Agency
Agreement (the "Agreement") effective as of February 15, 2000 (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 purchase 1/2 (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 500,000 Units (aggregate gross
proceeds of $2,125,000) and a maximum of
900,000 Units (gross proceeds of
$3,825,000).
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 February 15, 2000 to February 22, 2000,
unless extended by the Company in its sole
discretion. The anticipated date of the
initial closing is February 18, 2000.
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,
A-1
<PAGE> 19
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 will constitute 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
Canada: Ontario
Bermuda, Isle of Man, St. Vincent and the
Grenadines
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,
A-2
<PAGE> 20
but prior to 180 days, following the final
closing date, the 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.
A-3
<PAGE> 1
Exhibit 4.16
SCHEDULE OF SUBSCRIBERS
BPI Canadian Small Companies Fund
956872 Ontario Limited
Interward Corporation
Rockhaven Holdings Limited
YMG Capital Management Incorporated
Acuity Investment Management Incorporated
Beluga NV
Pinetree Capital Corp.
Fallingbrook Investments Limited
Glentel Incorporated
Scott Leckie
Frank Fini
Crothers Leasing Limited
Moise Afriat
Lionel K. Conacher
Kehler International Equities (1990) Incorporated
Jean Gevaert
Ron Kaulbach
Andrew Parsons
Eldon Guay
David J. Grand
Merdoch & Company
Robert F. Wilson
ABC Family Trust
Third Point Partners LP
Third Point Offshore Fund Limited
Points West International Investments Limited
Banzai Partners LP
Banzai Offshore Fund Limited
<PAGE> 1
[Letterhead of Lionel Sawyer & Collins LLP]
EXHIBIT 5.1
March 24, 2000
JAWS Technologies, Inc.
1013 17th Avenue SW
Calgary T2T 087
Alberta, Canada
Re: JAWS Technologies, Inc.
Registration Statement on Form S-1
Gentlemen:
We have acted as counsel for JAWS Technologies, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-1, and any amendments thereto (the
"Registration Statement"), as filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration under the Securities Act for resale of (i) 3,376,418 shares of
common stock, par value $.001 per share, of the Corporation (the "Common
Stock"), and (ii) 3,306,649 shares of Common Stock (the "Warrant Shares")
issuable by the Corporation upon conversion of certain warrants (the "Warrants")
by certain of the selling stockholders named in the Registration Statement.
Capitalized terms used and not defined in this opinion have the meanings
ascribed to them in the Registration Statement.
In rendering this opinion, we have relied upon, among other
things, our examination of such records of the Company, including without
limitation, the Company's Articles of Incorporation, and amendments thereto, and
the Company's Bylaws as we have deemed necessary for the purpose of the opinion
expressed below.
In addition, we have assumed the genuineness of all signatures
and the authenticity of all documents submitted to us as originals, and the
conformity to original documents of all documents submitted to us as certified
or photostatic copies. As to various questions of fact material to this opinion,
we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments furnished to us by the Company.
We are not admitted to the practice of law in any jurisdiction
but the State of Nevada, and we do not express any opinion as to the laws of
other states or jurisdictions other
<PAGE> 2
than the General Corporation Law of the State of Nevada and the federal law of
the United States. No opinion is expressed as to the effect that the law of any
other jurisdiction may have upon the subject matter of the opinion expressed
herein under conflicts of law principles, rules and regulations or otherwise.
Based on the foregoing, we are of the opinion that:
1. the shares of Common Stock of the Corporation which are
currently issued and outstanding have been validly issued and are fully paid and
nonassessable; and
2. the shares of Common Stock of the Corporation which are
issuable upon exercise of the Warrants will, when issued in accordance with the
Warrants, be validly issued, fully paid and nonassessable.
We consent to the filing of this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement and to the
use of our name under the caption "Legal Matters" included therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933 or the rules and
regulations promulgated thereunder by the Securities and Exchange Commission.
Very truly yours,
/s/ Lionel Sawyer & Collins LLP
LIONEL SAWYER & COLLINS LLP
<PAGE> 1
Exhibit 21
Subsidiaries of JAWS Technologies, Inc. a Nevada corporation:
JAWS Technologies Inc., an Alberta corporation
Pace Systems Group Inc.
JAWS Technologies, Inc., an Ontario corporation
JAWS Technologies (Delaware), Inc., a Delaware corporation
JAWS Acquisition Corp., an Alberta corporation
<PAGE> 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 February 25, 2000 with respect to the financial
statements of Jaws Technologies, Inc., in Amendment No. 1 to the Registration
Statement (Form S-1 No. 333-30406) and related prospectus of Jaws Technologies,
Inc., dated March 24, 2000, for the registration of 7,624,248 shares of its
common stock.
/s/ Ernst & Young LLP
Calgary, Canada
March 24, 2000 Chartered Accountants
<PAGE> 1
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 Amendment No.1 to the Registration
Statement (Form S-1 No. 333-30406) and related prospectus of Jaws Technologies,
Inc., dated March 23, 2000, for the registration of 7,624,248 shares of its
common stock.
Calgary, Canada /s/ Ernst & Young LLP
March 24, 2000 Chartered Accountants
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this 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, 1998 and 1997 and the
statements of loss and deficit and cash flows for the years then ended of
Offsite Data Services Ltd., which appear in such form. We also consent to the
reference to us under the heading "Experts" in this form.
"PricewaterhouseCoopers LLP"
Chartered Accountants
Calgary, Alberta, Canada
March 23, 2000
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