UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the quarterly period ended March 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Transition Period From ______ to ______
Commission File Number 000-26867
INFOWAVE SOFTWARE, INC.
(Exact Name Of Registrant As Specified In Its Charter)
BRITISH COLUMBIA, CANADA 98 0183915
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
Suite 188 - 4664 Lougheed Highway
Burnaby, British Columbia,
Canada V5C 5T5
(Address of principal executive offices)
Telephone (604) 473-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes [X] No [ ]
COMMON SHARES OUTSTANDING AT MARCH 31, 2000: 19,089,373
<PAGE>
INFOWAVE SOFTWARE, INC.
INDEX to the FORM 10-Q
For the Three Months Ended March 31, 2000
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Balance Sheets
March 31, 2000 and December 31, 1999.................................................3
b) Statements of Operations and Deficit
For the three months ended March 31, 2000 and 1999...................................4
c) Condensed Statements of Cash Flows
For the three months ended March 31, 2000 and 1999...................................5
d) Notes to Financial Statements........................................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..............................15
Part II. Other Information
Item 1. Legal Proceedings.......................................................................16
Item 2. Changes in Securities and Use of Proceeds...............................................16
Item 3. Defaults upon Senior Securities.........................................................17
Item 4. Submission of Matters to a Vote of Security Holders.....................................17
Item 5. Other Information.......................................................................17
Item 6. Exhibits and Reports on Form 8-K........................................................17
Part III. Signatures............................................................................18
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INFOWAVE SOFTWARE, INC.
Balance Sheets
(expressed in U.S. dollars)
<TABLE>
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March 31, 2000 December 31, 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $3,417,919 $4,359,090
Accounts receivable 1,342,660 1,916,961
Inventory (note 5) 628,530 588,981
Prepaid expenses and deposits 144,932 170,662
- -----------------------------------------------------------------------------------------------------
5,534,041 7,035,694
Capital assets (note 6) 1,577,260 984,698
Deferred charges 24,144 34,100
- -----------------------------------------------------------------------------------------------------
$7,135,445 $8,054,492
=====================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $1,906,657 $1,014,673
Shareholders' equity
Share capital 13,922,875 12,526,949
Authorized: 100,000,000 voting common shares
Issued: 19,089,373 (1999 - 18,297,470)
Deficit (8,934,351) (5,776,773)
Cumulative Translation Account 240,264 289,643
---------------------------------------------------------------------------------------------
5,228,788 7,039,819
- -----------------------------------------------------------------------------------------------------
$7,135,445 $8,054,492
=====================================================================================================
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INFOWAVE SOFTWARE, INC.
Statements of Operations and Deficit
(expressed in U.S. dollars)
<TABLE>
=================================================================================================
Three months ended
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Sales $ 102,434 $ 117,640
Cost of Goods Sold 369 18,875
-----------------------------------------------------------------------------------------
102,065 98,765
Expenses:
Research and Development 610,337 224,025
Sales and Marketing 1,036,405 267,247
General and Administrative 424,080 178,375
Depreciation and Amortization 87,584 37,433
- -------------------------------------------------------------------------------------------------
2,158,406 707,080
- -------------------------------------------------------------------------------------------------
Operating loss from continuing operations 2,056,341 608,315
Other income (expenses):
Interest and other income 46,851 11,341
Foreign exchange 13,782 4,820
-----------------------------------------------------------------------------------------
60,633 16,161
- -------------------------------------------------------------------------------------------------
Loss from continuing operations 1,995,708 592,154
Discontinued operations:
Loss (earnings) from operations (note 4) 486,870 (174,724)
Estimated loss on disposal (note 4) 675,000 -
- -------------------------------------------------------------------------------------------------
Net loss for the quarter 3,157,578 417,430
Deficit, beginning of quarter 5,776,773 2,488,522
- -------------------------------------------------------------------------------------------------
Deficit, end of quarter $ 8,934,351 $ 2,905,952
=================================================================================================
Loss (earnings) per share
Continuing operations $ 0.11 $ 0.04
Discontinued operations $ 0.06 $ (0.01)
- -------------------------------------------------------------------------------------------------
Net loss $ 0.17 $ 0.03
=================================================================================================
Weighted average number of shares outstanding 18,836,313 15,225,999
=================================================================================================
</TABLE>
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<PAGE>
INFOWAVE SOFTWARE, INC.
Condensed Statements of Cash Flows
(expressed in U.S. dollars)
<TABLE>
=================================================================================================
Three months ended
March 31, 2000 March 31, 1999
(Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Net cash provided by (used in) continuing operations ($1,142,314) 106,058
Net cash provided by (used in) discontinued
operations (436,013) 231,327
- -------------------------------------------------------------------------------------------------
Total cash flows provided by (used in) operations (1,578,327) 337,385
Cash flows from investing activities:
Purchase of capital assets (730,897) (100,063)
Cash flows from financing activities:
Issuance of shares for cash, net of issue costs 1,398,635 120,966
Foreign exchange gain (loss) on cash and cash
equivalents held in a foreign currency (30,582) 73,746
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (941,171) 432,034
Cash and cash equivalents, beginning of quarter 4,359,090 1,047,319
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of quarter $3,417,919 $1,479,353
=================================================================================================
</TABLE>
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<PAGE>
INFOWAVE SOFTWARE, INC.
Notes to Financial Statements
(Unaudited)
1. Basis of presentation
The accompanying unaudited financial statements do not include all
information and footnote disclosures required under Canadian or United States
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting solely of normal recurring accruals) considered
necessary for a fair presentation of the financial position, results of
operations and cash flows as at March 31, 2000 and for all periods presented,
have been included.
The unaudited balance sheet, statement of operations and deficit and
condensed statement of cash flows have been prepared in accordance with Canadian
generally accepted accounting principles for interim financial information.
Except as disclosed in note 8, these financial statements comply, in all
material respects, with generally accepted accounting principles in the United
States.
Interim results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
as a whole. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the fiscal year ended December 31, 1999.
2. Loss per share
Basic loss per share has been calculated using the weighted average number
of common shares outstanding including shares held in escrow. Fully diluted loss
per share amounts have not been presented, as the effect of outstanding options
and warrants is anti-dilutive.
3. Change in accounting policy
Effective January 1, 2000 the Canadian Institute of Chartered Accountants
changed the accounting standards relating to the accounting for income taxes.
Under the new standard future income tax assets and liabilities are determined
based on temporary differences between the accounting and tax basis of the
assets and liabilities, and are measured using the tax rates expected to apply
when these differences reverse. A valuation allowance is recorded against any
future income tax asset if it is more likely than not that the assets will not
be realized.
Prior to adoption of this new accounting standard, income tax was
determined using the deferral method whereby deferred income tax expense was
determined based on timing differences between the accounting and tax treatment
of items of expense or income, and was measured using tax rates in effect in the
year the differences originated. Certain deferred tax assets, such as the
benefit of tax losses carried forward were not recognized unless there was
virtual certainty that they would be realized.
-6-
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INFOWAVE SOFTWARE, INC.
Notes to Financial Statements
(Unaudited)
3. Change in accounting policy (Con't.)
The Company has adopted the new income tax accounting standard
retroactively. However, the Company has determined that there is no effect on
prior year results as a valuation allowance has been recorded against all of the
net future tax assets. The Company's future tax assets consist primarily of loss
carryforwards and scientific research and development credits.
4. Discontinued operations
On May 10, 2000 the Company signed a letter of intent to dispose of the net
assets and business operations of its Imaging Division. Under the terms of the
letter of intent, the purchase price will be equal to the net book value of the
net assets of the Division on the date of closing. Approximately $0.35 million
of the purchase price will be paid at closing and the balance will be payable in
quarterly installments comprised of revenue royalties and lump sum payments,
with the first installment due in the fourth quarter of 2000. Any balance
outstanding after January 1, 2001 will bear interest at 7% per annum. The
purchaser of the Division is a company controlled by the existing management of
the Division. The anticipated closing date is June 30, 2000.
The estimated loss on disposition of $675,000 is comprised of expected
operating losses from the Imaging Division of $480,000 from April 1, 2000 until
the closing date, plus other anticipated costs to exit the business, including
employee severance payments, lease termination penalties, and professional fees.
As at March 31, 2000 the net assets of the Imaging Division are comprised of:
================================================================================
March 31, 2000
- --------------------------------------------------------------------------------
Accounts receivable $1,150,185
Inventory 522,501
Prepaid expenses and deposits 88,006
Capital assets 591,694
- --------------------------------------------------------------------------------
2,352,386
Accounts payable and accrued liabilities (524,887)
- --------------------------------------------------------------------------------
$1,827,499
================================================================================
Results for the Imaging Division are as follows:
================================================================================
Three months ended
March 31, 2000 March 31, 1999
================================================================================
Sales $1,127,629 $1,607,486
Cost of Goods Sold 410,869 498,265
- --------------------------------------------------------------------------------
716,760 1,109,221
Research and development 387,095 309,096
Sales and marketing 512,934 363,999
Administration 252,744 204,799
Depreciation and amortization 50,857 56,603
- --------------------------------------------------------------------------------
1,203,630 934,497
- --------------------------------------------------------------------------------
Income (loss) from operations ($486,870) $174,724
================================================================================
-7-
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INFOWAVE SOFTWARE, INC.
Notes to Financial Statements
(Unaudited)
5. Inventory
Inventory consists of:
================================================================================
March 31, 2000 December 31, 1999
- ---------------------------------------------------------- ---------------------
Raw materials $552,587 $503,646
Finished goods 117,223 126,907
- ---------------------------------------------------------- ---------------------
669,810 630,553
Less allowance for obsolete stock (41,280) (41,572)
- ---------------------------------------------------------- ---------------------
$628,530 $588,981
================================================================================
6. Capital assets
<TABLE>
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Accumulated Net Book
March 31, 2000 Cost Depreciation Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $1,977,434 $960,794 $1,016,640
Leasehold improvements 244,267 148,950 95,317
Office equipment 356,546 133,868 222,678
Software licenses and purchased source code 481,312 238,687 242,625
- -----------------------------------------------------------------------------------------------------------
$3,059,559 $1,482,299 $1,577,260
===========================================================================================================
</TABLE>
<TABLE>
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Accumulated Net Book
December 31, 1999 Cost Depreciation Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computer equipment and software $1,521,728 $870,877 $650,851
Leasehold improvements 196,522 137,727 58,795
Office equipment 261,794 124,780 137,014
Software licenses and purchased source code 365,069 227,031 138,038
- -----------------------------------------------------------------------------------------------------------
$2,345,113 $1,360,415 $984,698
===========================================================================================================
</TABLE>
7. Subsequent event
On April 13, 2000 the Company issued 924,000 special warrants at a price of
$22.36 (Cdn.$32.50) per special warrant for gross proceeds of $20.7 million.
Each special warrant is exercisable without payment of additional consideration
for one Common Share of the Company. In addition, the Company issued 46,200
special compensation warrants to the underwriters in connection with this
issuance. Each special compensation warrant is exercisable without additional
consideration into one compensation warrant entitling the holder to acquire one
common share at a price of $22.36 (Cdn.$32.50) per share for a two year period.
A total of $14.2 million of the proceeds were released to the Company on closing
with the remaining proceeds to be held in trust until the filing and receipt of
a prospectus qualifying for distribution in Canada the common shares to be
issued upon exercise of the special warrants.
-8-
<PAGE>
INFOWAVE SOFTWARE, INC.
Notes to Financial Statements
(Unaudited)
8. United States generally accepted accounting principles
These interim financial statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") in Canada. Reference should be
made to note 13 of the Company's annual financial statements filed with the
Securities and Exchange Commission under cover of Form 10-K for a description of
material differences between Canadian and United States GAAP. The following are
the material measurement differences from GAAP in United States as they relate
to the Company's March 31, 2000 financial statements:
(a) Net loss and net loss per share:
<TABLE>
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Three months ended
March 31, 2000 March 31, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss from continuing operations in accordance with Canadian GAAP $1,995,708 $ 592,154
Adjustment for stock-based compensation relating to stock
options issued to non-employees 1,789 5,446
Adjustment for stock-based compensation relating to escrow
shares 3,006 10,225
- -----------------------------------------------------------------------------------------------------------
Loss from continuing operations in accordance with
United States GAAP 2,000,503 607,825
Discontinued operations:
Loss (earnings) from operations 486,870 (174,724)
Estimated loss on disposal 675,000 -
- -----------------------------------------------------------------------------------------------------------
1,161,870 (174,724)
- -----------------------------------------------------------------------------------------------------------
Net loss in accordance with United States GAAP $3,162,373 $ 433,101
===========================================================================================================
===========================================================================================================
Weighted average number of shares outstanding in
accordance with Canadian GAAP 18,836,313 15,225,999
Adjustment for weighted average number of contingently
issued shares pursuant to employee incentive plan (100,250) (331,000)
Adjustment for weighted average number of contingently
issued shares pursuant to employment agreement - (94,444)
- -----------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding in
accordance with United States GAAP 18,736,063 14,800,555
===========================================================================================================
Loss (earnings) per share:
Continuing operations $ 0.11 $ 0.04
Discontinued operations $ 0.06 $ (0.01)
- -----------------------------------------------------------------------------------------------------------
Net loss $ 0.17 $ 0.03
===========================================================================================================
Comprehensive loss:
Net loss in accordance with United States GAAP $3,162,373 $ 433,101
Other comprehensive income:
Foreign currency translation adjustment 49,379 (67,174)
- -----------------------------------------------------------------------------------------------------------
$3,211,752 $ 365,927
===========================================================================================================
</TABLE>
9
<PAGE>
INFOWAVE SOFTWARE, INC.
Notes to Financial Statements
(Unaudited)
(b) Balance sheet:
<TABLE>
===========================================================================================================
March 31, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total assets in accordance with Canadian GAAP $7,135,445 $8,054,492
Adjustments to US GAAP (24,144) (34,100)
- -----------------------------------------------------------------------------------------------------------
Total assets in accordance with U.S. GAAP $7,111,301 $8,020,392
===========================================================================================================
===========================================================================================================
March 31, 2000 December 31, 1999
===========================================================================================================
Shareholders' equity in accordance with Canadian GAAP $5,228,788 $7,039,819
Adjustments to US GAAP (24,111) (34,100)
- -----------------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with U.S. GAAP $5,204,677 $7,005,719
===========================================================================================================
</TABLE>
-10-
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Investors should read the following in conjunction with the unaudited
financial statements and notes thereto included in Part 1 - Item 1 of this
Quarterly Report, and the audited financial statements and notes thereto.
Forward Looking Statements
Statements in this filing about future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in any forward-looking statements.
These factors include, among others, those described in connection with the
forward-looking statements, and the factors listed in Exhibit 99.1 to this
report, which is hereby incorporated by reference in this report.
In some cases, forward-looking statements can be identified by the use of
words such as "may," "will," "should," "could," "expect," "plan," "intend,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or the
negative or other variations of these words, or other comparable words or
phrases.
Although the Corporation believes that the expectations reflected in its
forward-looking statements are reasonable, it cannot guarantee future results,
levels of activity, performance or achievements or other future events.
Moreover, neither the Corporation nor anyone else assumes responsibility for the
accuracy and completeness of forward-looking statements. The Corporation is
under no duty to update any of its forward-looking statements after the date of
this filing. The reader should not place undue reliance on forward-looking
statements.
Corporate Summary
During the first quarter of 2000 Infowave continued to focus on the
execution of its wireless business strategy. Key aspects of this strategy
include continuing research and development of new products and product
enhancements, and the buildup of distribution channels and strategic
partnerships to expedite the introduction of the Corporation's products to
market.
On May 10, 2000 the Corporation entered into a letter of intent to sell the
net assets and business operations of its Imaging Division to a company
controlled by the existing management of the Division. Under the terms of the
letter of intent, the purchase price will be equal to the net book value of the
Division as at the date of closing. Approximately $0.35 million of the purchase
price will be paid at closing and the balance will be payable in quarterly
installments comprised of revenue royalties and lump sum payments, with the
first installment due in the fourth quarter of 2000. Closing is anticipated on
or about June 30, 2000.
The Corporation has estimated its loss on disposition of the net assets and
business operations of the Imaging Division at $675,000, which includes expected
operating losses from the Imaging Division of $480,000 from April 1, 2000 until
the closing date, plus other anticipated costs to exit the business, including
employee severance payments, lease termination penalties, and professional fees.
-11-
<PAGE>
The financial statements of the Corporation have been prepared to present
the Imaging Division as discontinued operations. The results from continuing
operations represent solely those of the Wireless Division and general corporate
activities.
Continuing Operations
Revenue for the first quarter of 2000 was $0.10 million, compared to $0.12
million for the first quarter of 1999. Approximately 31% of 2000 first quarter
revenue was derived from enterprise (Infowave for Exchange and Infowave for the
Net) software license fees and 55% was from Symmetry software license and
branding fees. The remaining revenue in the first quarter of 2000 related to
recurring license fees from hosted service providers and from airtime charge
backs.
During the quarter, the Corporation continued to build its reseller channel
into the enterprise by signing a national reseller agreement with GE Capital IT
Solutions and adding five more regional North American resellers. Infowave had a
roster of 15 resellers heading into the second quarter. The Corporation also
signed marketing alliances with Sierra Wireless Inc., AT&T Wireless Services,
Pivotal Corporation and Nokia in the first quarter of 2000 and completed the
first sale of its Symmetry software to a major carrier, Rogers AT&T Wireless.
Gross profit margin for the first quarter of 2000 was 100% compared to 84%
in the first quarter of 1999. This increase is due to the fact that sales of
third-party hardware components were negligible in 2000. Management expects that
gross margins will continue to fluctuate between quarters as the product mix
normalizes.
Total operating expenses in the first quarter of 2000 totaled $2.16
million, representing a 205% increase over total operating expenses of $0.71
million in the first quarter of 1999. During the first three months of 2000 the
Corporation continued to focus on the buildup of its sales and distribution
infrastructure and on product branding. Total sales and marketing expenses were
$ 1.04 million, representing an increase of 288%, or $0.77 million, compared to
the first quarter of 1999. The majority of the increase in sales and marketing
spending related to new employee salaries, travel and trade show attendance. The
Wireless Division sales and marketing headcount increased to 31 at March 31,
2000 compared to eight at March 31, 1999.
Research and development spending for the first quarter of 2000 was $0.61
million, representing an increase of 172% over the first quarter of 1999.
Products and product enhancements in progress during the quarter included the
addition of scalability features and GSM and CDMA support to Infowave for
Exchange and Infowave for the Net; the creation of WAP versions of the
aforementioned products; as well as various OEM projects. The majority of the
increase in research and development costs related to new employee salaries,
which increased 153% over the comparable period in 1999. The Wireless Division
research and development headcount increased to 43 at March 31, 2000 compared to
18 at March 31, 1999.
-12-
<PAGE>
Administration costs totaled $0.42 million versus $0.18 million in the
first quarter of 1999 due to a buildup in infrastructure to support the growth
initiatives of the Corporation as well as to ongoing Canadian and U.S.
securities reporting obligations.
Depreciation and amortization costs totaled $0.09 million in the first
quarter of 2000 compared to $0.04 million in the comparable 1999 period due to
the depreciation of computer and other acquisitions made during 1999 and 2000.
Interest income increased to $0.05 million in the first three months of
2000 from $0.01 million in the prior year due to interest income earned on
higher cash balances held in 2000.
Discontinued Operations
Imaging Division sales of $1.13 million in the first quarter of 2000
declined 30% from $1.61 million in the first quarter of 1999. This decline was
primarily attributable to a decrease in PowerPrint and StyleScript retail sales,
offset by slightly increased Original Equipment Manufacturers ("OEM") sales. The
average selling price of PowerPrint remained consistent between quarters,
however total units shipped continued to decline, representing a decrease of 30%
from the comparable period in 1999. This decrease is largely due to an increase
in the number of Macintosh compatible printers available in the retail market.
StyleScript sales decreased 70% from the first quarter of 1999 due to the fact
that the printers supported by the current product version have lost market
share. The Corporation expects to ship a mobile version of PowerPrint and a new
version of StyleScript with expanded printer support in the second quarter of
2000.
Imaging Division gross margins for the first quarter of 2000 were 64%
compared with 69% in the first quarter of 1999. This decrease is the result of
higher absolute gross product margins that were offset by inventory write downs
that have been charged against cost of sales. Absolute gross margins increased
due to a greater proportion of higher margin OEM sales in the quarter.
PowerPrint, StyleScript and OEM sales represented 68%, 5% and 27% of sales,
respectively, in the first quarter of 2000 compared to 77%, 12% and 10%,
respectively, in the comparable 1999 period.
Total Imaging Division expenses in the first quarter of 2000 grew 29% to
$1.20 million compared to $0.93 million for the first quarter of 1999. Sales and
marketing expenditures increased 41% to $0.51 million due to a higher number of
employees and increased advertising to support the launch of the newest version
of PowerPrint. The Imaging Division sales and marketing headcount increased to
17 at March 31, 2000 compared to 14 at March 31, 1999.
Research and development spending increased 25% to $0.39 million due to the
hiring of new employees during the latter part of 1999. Key development efforts
during the period included PowerPrint and StyleScript product updates and OEM
contracts. The Imaging Division research and development headcount increased to
29 at March 31, 2000 compared to 22 at March 31, 1999.
-13-
<PAGE>
Imaging Division administrative costs increased 23% to $0.25 million due to
the allocation of increased corporate administrative costs incurred to support
the growth initiatives of the Corporation. Depreciation and amortization costs
decreased due to lower amortization of deferred costs in 2000.
Liquidity and Capital Resources
Infowave's cash position was $3.42 million at March 31, 2000. Working
capital decreased from $5.85 million at December 31, 1999 to $3.48 million at
March 31, 2000. The Corporation used $1.58 million in operations during the
first three months of 2000, primarily due to the loss for the period. The effect
of the loss on cash flows was offset partially by a $0.57 million decrease in
accounts receivable and a $0.89 million increase in accounts payable and accrued
liabilities. The decrease in accounts receivable is attributable to the decrease
in sales within the Imaging Division, while the increase in accounts payable and
accrued liabilities is due to continuing increased expenditures in the Wireless
Division as well as the accrual of the estimated loss on disposal of the Imaging
Division.
Net cash used in investing activities during the three months ended March
31, 2000 was $0.73 million, which consisted primarily of the purchase of $0.46
million in computer equipment; $0.09 million in office equipment and $0.12
million in software license fees. The majority of these purchases are
attributable to staff increases in the Wireless Division and the move of the
Corporation's Bothell, WA office to a permanent location.
During the first quarter of 2000 the Corporation raised $0.98 million from
the exercise of purchase warrants; $0.08 million from the exercise of agents'
warrants; and $0.33 million from the exercise of stock options for total
proceeds from financing activities of $1.39 million.
At March 31, 2000 the Corporation's primary sources of liquidity consisted
of cash and cash equivalents and an uncommitted line of credit of $0.22 million,
which is secured against all present and after acquired property of the
Corporation and bears interest at Canadian prime plus 1%.
On April 13, 2000, the Corporation issued 924,000 special warrants at a
price of $22.36 (Cdn.$32.50) per warrant for gross proceeds of $20.7 million.
Each special warrant is exercisable without payment of additional consideration
for one Common Share of the Corporation. A total of $14.2 million of the
proceeds were released to the Corporation on closing with the remaining proceeds
to be held in trust until the filing and receipt of a prospectus qualifying for
distribution in Canada the common shares to be issued upon exercise of the
special warrants.
The Corporation intends to continue to increase its headcount in 2000 in
order to continue its growth in the Wireless division. Additional resources will
be allocated to sales and marketing and research and development in the Wireless
Division. These additional resources will be used to pursue existing and new
market development opportunities and to continue to enhance and expand the
current product range.
-14-
<PAGE>
The Corporation believes that the total amount of cash and cash
equivalents, with the commercial credit facility and special warrant proceeds,
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures through March 31, 2001. Thereafter, depending on the
development of the business, the Corporation may need to raise additional
capital for working capital or other expenses. The Corporation may also
encounter opportunities for acquisitions or other business initiatives that
require significant cash commitments, or unanticipated problems or expenses that
could result in a requirement for additional cash before that time. There can be
no assurance that additional financing will be available on terms favorable to
the Corporation or its shareholders, or on any terms at all. The inability to
obtain such financing would have a material adverse impact on the Corporation's
operations. To the extent that such financing is available, it may result in
substantial dilution to existing shareholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation conducts the majority of its transactions in Canadian
dollars and therefore uses the Canadian dollar as its base currency of
measurement. However, most of the Corporation's revenues and some of its
expenses are denominated in United States dollars which results in an exposure
to foreign currency gains and losses on the resulting US dollar denominated
cash, accounts receivable, and accounts payable balances. As of March 31, 2000,
the Corporation has not engaged in any derivative hedging activities on foreign
currency transactions and/or balances. Although foreign currency gains and
losses have not historically been material, fluctuations in exchange rates
between the United States dollar and other foreign currencies and the Canadian
dollar could materially affect the Corporation's results of operations. To the
extent that the Corporation implements hedging activities in the future with
respect to foreign currency exchange transactions, there can be no assurance
that the Corporation will be successful in such hedging activities.
While the Corporation believes that inflation has not had a material
adverse effect on its results of operations, there can be no assurance that
inflation will not have a material adverse effect on the Corporation's results
of operations in the future.
-15-
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
The Company issued 2,224,647 special warrants (the "Special Warrants") at a
price of Cdn.$3.25 per Special Warrant in two tranches on June 30, 1999 and July
8, 1999 for gross proceeds of Cdn.$7,230,102.75. The Special Warrants were
issued in reliance upon the exemption from registration provided by Rule 506 of
Regulation D and the exclusion from registration provided by Rule 903 of
Regulation S. Each Special Warrant entitled the holder, upon exercise and
without payment of additional consideration, to acquire one Common Share and
one-half of one Common Share purchase warrant (the "Purchase Warrants"). Each
Purchase Warrant entitles the holder to purchase one Common Share at a price of
Cdn.$3.75 per Common Share until expiry on June 30, 2000. In connection with
this financing, the Company issued Agents' Warrants (the "Agents' Warrants") to
Canaccord Capital Corporation, Yorkton Securities Inc., Sprott Securities
Limited and Taurus Capital Markets Ltd. (in exchange for services as agent in
connection with the Special Warrant financing) entitling the agents in the
financing to purchase an aggregate of up to 212,465 Common Shares at a price of
Cdn.$3.25 per Common Share on or before June 30, 2000. The Company in addition
paid Agents' Commission to the Agents of Cdn.$522,882.71.
A final prospectus was receipted in British Columbia, Alberta and Ontario
on September 23, 1999 qualifying the distribution of 2,224,647 common shares and
1,112,324 Purchase Warrants upon the exercise of the 2,224,647 previously issued
Special Warrants. All of the Special Warrants were deemed exercised for Common
Shares and Purchase Warrants on September 28,1999.
As at March 31, 2000 there were 430,420 Purchase Warrants and 106,414
Agents' Warrants outstanding. During the quarter ended March 31, 2000, the
following Purchase Warrants and Agents' Warrants were exercised for Common
Shares:
<TABLE>
Date of Sale Title of Securities Number of Aggregate Name of Purchaser of
Sold Securities Exercise Price Securities
Sold (Cdn.$)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 6, 2000 Purchase Warrants 100,000 375,000.00 Capital Research
January 10, 2000 Purchase Warrants 50,000 187,500.00 Denise McIntosh
January 10, 2000 Purchase Warrants 3,000 11,250.00 Jacques Soroka
January 10, 2000 Purchase Warrants 23,077 86,538.75 Demerie Sui Peng Chan
January 14, 2000 Purchase Warrants 13,500 50,625.00 Jacques Soroka
January 14, 2000 Purchase Warrants 23,000 86,250.00 VMR High Octane Fund Limited
January 14, 2000 Agents' Warrants 37,000 120,250.00 Yorkton Securities Inc.
January 18, 2000 Purchase Warrants 15,000 56,250.00 Christianaia Markets
</TABLE>
-16-
<PAGE>
<TABLE>
Date of Sale Title of Securities Number of Aggregate Name of Purchaser of
Sold Securities Exercise Price Securities
Sold (Cdn.$)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 26, 2000 Purchase Warrants 23,750 89,062.50 Aragon Fondkommission AB
February 1, 2000 Purchase Warrants 50,000 187,500.00 LaMont Asset Management SA
February 3, 2000 Purchase Warrants 50,000 187,500.00 Citibank
March 3, 2000 Purchase Warrants 15,000 56,250.00 Gowlland Towing
March 29, 2000 Purchase Warrants 15,000 56,250.00 Canaccord Capital Corporation /
Index Special Situation Funds
Ltd.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
4.1 Special Warrant Indenture dated April 13,
2000 between the corporation and Montreal Trust
Company of Canada
10.1 Letter of Intent dated May 8, 2000 between the
corporation and Kevin Jampole and Robert Heath
27.1 Financial data schedule
99.1 Private Securities Litigation Reform Act of
1995 - Safe Harbor for Forward-Looking
Statements
(b) Reports of Form 8-K
No reports on Form 8-K were filed during the period.
-17-
<PAGE>
Part III. Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2000
INFOWAVE SOFTWARE, INC.
/s/ Jim McIntosh
----------------------------------------
Jim McIntosh
President, Chief Executive Officer
And Director
/s/ Todd Carter
----------------------------------------
Todd Carter
Chief Financial Officer
-18-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
4.1 Special Warrant Indenture dated April 13, 2000 between the
corporation and Montreal Trust Company of Canada
10.1 Letter of Intent dated May 8, 2000 between the corporation
and Kevin Jampole and Robert Heath
27.1 Financial data schedule
99.1 Private Securities Litigation Reform Act of 1995 - Safe
Harbor for Forward-Looking Statements
EXHIBIT 4.1
SPECIAL WARRANT INDENTURE
Providing for the Issue of
Special Warrants
BETWEEN
INFOWAVE SOFTWARE, INC.
- and -
MONTREAL TRUST COMPANY
OF CANADA
Dated as of April 13, 2000
BLAKE, CASSELS & GRAYDON LLP
Suite 2600, 595 Burrard Street
Vancouver, British Columbia
V7X 1L3
DAVIS & COMPANY
2800 666 Burrard Street
Vancouver, British Columbia
V6C 2Z7
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
ARTICLE I
INTERPRETATION
<S> <C>
1.1 Definitions....................................................................................1
1.2 Gender and Number..............................................................................4
1.3 Interpretation not Affected by Headings, etc...................................................4
1.4 Day not a Business Day.........................................................................5
1.5 Time of the Essence............................................................................5
1.6 Currency.......................................................................................5
1.7 Applicable Law.................................................................................5
ARTICLE II
ISSUE OF SPECIAL WARRANTS
2.1 Issue of Special Warrants......................................................................5
2.2 Terms of Special Warrants......................................................................5
2.3 Warrant Holder not a Shareholder...............................................................5
2.4 Special Warrants to Rank Pari Passu............................................................5
2.5 Form of Special Warrants.......................................................................6
2.6 Signing of Warrant Certificates................................................................6
2.7 Certification by the Trustee...................................................................6
2.8 Issue in Substitution for Warrant Certificates Lost, etc.......................................6
2.9 Exchange of Warrant Certificates...............................................................7
2.10 Transfer of Special Warrants...................................................................7
2.11 Charges for Exchange or Transfer...............................................................7
2.12 Cancellation of Surrendered Special Warrants...................................................8
2.13 U.S. Legends...................................................................................8
2.14 Certain Transfers..............................................................................9
ARTICLE III
EXERCISE OF SPECIAL WARRANTS
3.1 Method of Exercise of Special Warrants.........................................................9
3.2 Effect of Exercise of Special Warrants........................................................10
3.3 Partial Exercise of Special Warrants; Fractions...............................................11
3.4 Expiration of Special Warrants................................................................11
3.5 Accounting and Recording......................................................................11
3.6 Deemed Exercise...............................................................................12
3.7 Securities Restrictions.......................................................................12
ARTICLE IV
ESCROW AND DIVIDEND FUNDS
4.1 Deposit of Escrow Funds with Trustee..........................................................12
4.2 Administration of Escrow Funds................................................................12
4.3 Deposit of Escrow Funds.......................................................................12
4.4 Conditions to Release of Escrow Funds.........................................................13
4.5 Conditions to Release of Dividend Funds and Property..........................................13
4.6 Administration of Dividend Funds and Property.................................................14
</TABLE>
<PAGE>
-ii-
<TABLE>
ARTICLE V
ADJUSTMENT OF NUMBER OF COMMON SHARES
<S> <C>
5.1 Adjustment of Number of Common Shares.........................................................14
5.2 Entitlement to Shares on Exercise of Special Warrant..........................................16
5.3 No Adjustment for Stock Options...............................................................16
5.4 Determination by Corporation's Auditors.......................................................16
5.5 Proceedings Prior to any Action Requiring Adjustment..........................................16
5.6 Certificate of Adjustment.....................................................................17
5.7 Notice of Special Matters.....................................................................17
5.8 No Action after Notice........................................................................17
5.9 Protection of Trustee.........................................................................17
ARTICLE VI
RIGHTS AND COVENANTS OF THE CORPORATION
6.1 Optional Purchases by the Corporation.........................................................18
6.2 General Covenants.............................................................................18
6.3 Trustee's Remuneration and Expenses...........................................................19
6.4 Securities Qualification Requirements.........................................................19
6.5 Performance of Covenants by Trustee...........................................................20
ARTICLE VII
ENFORCEMENT
7.1 Suits by Warrant Holders......................................................................20
7.2 Immunity of Shareholders, etc.................................................................20
7.3 Limitation of Liability.......................................................................20
7.4 Waiver of Default.............................................................................20
ARTICLE VIII
MEETINGS OF WARRANT HOLDERS
8.1 Right to Convene Meetings.....................................................................21
8.2 Notice........................................................................................21
8.3 Chairman......................................................................................21
8.4 Quorum........................................................................................21
8.5 Power to Adjourn..............................................................................22
8.6 Show of Hands.................................................................................22
8.7 Poll and Voting...............................................................................22
8.8 Regulations...................................................................................22
8.9 Corporation and Trustee May be Represented....................................................23
8.10 Powers Exercisable by Extraordinary Resolution................................................23
8.11 Meaning of Extraordinary Resolution...........................................................24
8.12 Powers Cumulative.............................................................................25
8.13 Minutes.......................................................................................25
8.14 Instruments in Writing........................................................................25
8.15 Binding Effect of Resolutions.................................................................26
8.16 Holdings by Corporation Disregarded...........................................................26
</TABLE>
<PAGE>
-iii-
<TABLE>
ARTICLE IX
SUPPLEMENTAL INDENTURES
<S> <C>
9.1 Provision for Supplemental Indentures for Certain Purposes....................................26
9.2 Successor Corporations........................................................................27
ARTICLE X
CONCERNING THE TRUSTEE
10.1 Trust Indenture Legislation...................................................................27
10.3 Indemnification...............................................................................28
10.4 Evidence, Experts and Advisers................................................................28
10.5 Actions by Trustee to Protect Interest........................................................29
10.6 Trustee Not Required to Give Security.........................................................29
10.7 Protection of Trustee.........................................................................29
10.8 Replacement of Trustee; Successor by Merger...................................................30
10.9 Conflict of Interest..........................................................................30
10.10 Acceptance of Trust...........................................................................31
10.11 Trustee Not to be Appointed Receiver..........................................................31
ARTICLE XI
GENERAL
11.1 Notice to the Corporation and the Trustee.....................................................31
11.2 Notice to Warrant Holders.....................................................................32
11.3 Ownership of Special Warrants.................................................................32
11.4 Counterparts..................................................................................32
11.5 Satisfaction and Discharge of Indenture.......................................................33
11.6 Provisions of Indenture and Special Warrants for the Sole Benefit of Parties and
Warrant Holders...............................................................................33
11.7 Common Shares or Special Warrants Owned by the Corporation or its Subsidiaries -
Certificate to be Provided....................................................................33
11.8 Events of Default.............................................................................34
</TABLE>
<PAGE>
THIS SPECIAL WARRANT INDENTURE is made as of the 13th day of April, 2000.
BETWEEN:
INFOWAVE SOFTWARE, INC., a corporation incorporated under the laws of
British Columbia, with its registered and records office in the City
of Vancouver, British Columbia (hereinafter referred to as the
"Corporation")
OF THE FIRST PART
AND:
MONTREAL TRUST COMPANY OF CANADA, a trust company incorporated under
the laws of Canada and authorized to carry on business in all
Provinces of Canada (hereinafter referred to as the "Trustee")
OF THE SECOND PART
WHEREAS:
A. the Corporation is proposing to issue 924,000 Special Warrants in the
manner herein set forth;
B. all acts and deeds necessary have been done and performed to make the
Special Warrants, when issued as provided in this Indenture, legal, valid and
binding upon the Corporation with the benefits and subject to the terms of this
Indenture; and
C. the foregoing recitals are made as representations and statements of fact
by the Corporation and not by the Trustee;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
INTERPRETATION
1.1 Definitions
In this Indenture, including the recitals and schedules hereto, and in
all indentures supplemental hereto:
(a) "Applicable Legislation" means the provisions of the Company Act
(British Columbia), as from time to time amended, and any statute of
Canada or a province thereof, and the regulations and rules under any
such named or other statute, relating to trust indentures or to the
rights, duties and obligations of trustees and of corporations under
trust indentures, to the extent that such provisions are at the time
in force and applicable to this Indenture;
(b) "Business Day" means a day which is not Saturday or Sunday or a legal
holiday in the City of Vancouver, British Columbia;
<PAGE>
2
(c) "Closing Date" means April 13, 2000;
(d) "Common Shares" means common shares of the Corporation as presently
constituted;
(e) "Corporation's Auditors" means a firm of chartered accountants duly
appointed as auditors of the Corporation;
(f) "Counsel" means a barrister or solicitor or a firm of barristers and
solicitors retained by the Trustee or retained by the Corporation and
acceptable to the Trustee;
(g) "Current Market Price" of the Common Shares at any date means the
weighted average closing price for such shares for the period of 20
Trading Days ending immediately prior to such date on the TSE (or if
there is not a closing price on any such days, the average of the bid
and ask prices) or, if on any such days the Common Shares are not
listed on the TSE, on such stock exchange upon which such shares are
listed and as selected by the directors, or, if such shares are not
listed on any stock exchange, then on such over-the-counter market as
may be selected for such purpose by the directors;
(h) "Designated Provinces" means the provinces of British Columbia, New
Brunswick and Ontario;
(i) "director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to action "by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by any committee of such board;
(j) "Dividend Funds" means all cash dividends and other distributions
deposited with the Trustee pursuant to subsection 6.2(i);
(k) "Escrow Funds" means an amount equal to 25% of the gross proceeds from
the sale of Special Warrants less the Underwriters' commission and
expenses;
(l) "Exercise Date" means, with respect to any Special Warrant, the date
on which the Warrant Certificate representing such Special Warrant is
surrendered for exercise in accordance with Section 3.1 and includes
the date upon which Special Warrants are deemed to be exercised
pursuant to Section 3.6;
(m) "Expiry Date" means, with respect to any Special Warrant, the date
which is the earlier of:
(i) five Business Days after the Qualification Date;
(ii) the first anniversary of the Closing Date; and
(iii) the date on which all of the Special Warrants have been
exercised.
(n) "extraordinary resolution" has the meaning set forth in Section 8.11;
(o) "person" means an individual, body corporate, partnership, trust,
trustee, executor, administrator, legal representative or any
unincorporated organization;
<PAGE>
3
(p) "Preliminary Prospectus" means the preliminary prospectus to be filed
with the Securities Commissions and any amendments thereto, in respect
of the distribution of Common Shares upon the exercise of Special
Warrants;
(q) "Property" means all property and securities deposited with the
Trustee pursuant to subsection 6.2(i);
(r) "Prospectus" means the (final) prospectus to be filed with the
Securities Commissions and any amendments thereto, in respect of the
distribution of Common Shares upon the exercise of Special Warrants;
(s) "Qualification Date" means the date that the last of the Securities
Commissions issues a receipt for the Prospectus;
(t) "Qualification Deadline" means 90 days following the Closing Date or
such later date as may be agreed to by the Underwriters and the
Corporation with notice to the Trustee;
(u) "Receipts" means the receipts for the Prospectus to be issued by each
of the Securities Commissions;
(v) "Securities Commissions" means the securities regulatory authorities
in the Designated Provinces;
(w) "Shareholder" means a holder of record of one or more Common Shares;
(x) "Special Warrants" means the transferable warrants issued and
certified hereunder and for the time being outstanding entitling the
holder to acquire Common Shares;
(y) "this Special Warrant Indenture", "this Indenture", "herein",
"hereby", "hereof' and similar expressions mean and refer to this
Indenture and any indenture, deed or instrument supplemental hereto;
and the expressions "Article", "Section", "subsection" and "paragraph"
followed by a number, letter or both mean and refer to the specified
article, section, subsection or paragraph of this Indenture;
(z) "Subscription Funds" means the aggregate amount of the funds paid by
purchasers of the Special Warrants for such Special Warrants equal to
the number of such Special Warrants issued hereunder multiplied by
$32.50;
(aa) "Time of Expiry" means 4:00 p.m. (Vancouver time) on the Expiry Date;
(bb) "Trading Day" means, with respect to a stock exchange, a day on which
such exchange is open for the transaction of business;
(cc) "TSE" means The Toronto Stock Exchange;
(dd) "Underwriters" means CIBC World Markets Inc. and Canaccord Capital
Corporation;
(ee) "Underwriting Agreement" means the underwriting agreement dated as of
April 13, 2000, between the Corporation and the Underwriters relating
to the offering of Special Warrants;
<PAGE>
4
(ff) "United States" means the United States of America, its territories
and possessions, any State of the United States, and the District of
Columbia;
(gg) "U.S. Person" means U.S. Person as that term is defined in Regulation
S under the U.S. Securities Act;
(hh) "U.S. Securities Act" means the United States Securities Act of 1933,
as amended;
(ii) "Voting Shares" means shares of the capital stock of any class of any
corporation carrying voting rights under all circumstances, provided
that, for the purposes of such definition, shares which only carry the
right to vote conditionally on the happening of an event shall not be
considered Voting Shares, whether or not such event shall have
occurred, nor shall any shares be deemed to cease to be Voting Shares
solely by reason of a right to vote accruing to shares of another
class or classes by reason of the happening of any such event;
(jj) "Warrant Agency" means the principal office of the Trustee in the City
of Vancouver, British Columbia or in the City of Toronto, Ontario
and/or such other place or places as may be designated in accordance
with subsection 3.1(c);
(kk) "Warrant Certificate" means a certificate issued on or after the
Closing Date to evidence Special Warrants;
(ll) "Warrant Holders", "Warrantholders" or "holders" without reference to
Common Shares, means the persons who are registered owners of Special
Warrants;
(mm) "Warrant Holders' Request" means an instrument signed in one or more
counterparts by Warrant Holders entitled to acquire in the aggregate
not less than 25% of the aggregate number of Common Shares which could
be acquired pursuant to the exercise of all Special Warrants then
unexercised and outstanding, requesting the Trustee to take some
action or proceeding specified therein: and
(nn) "written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation" and "certificate of
the Corporation" mean, respectively, a written order, request, consent
and certificate signed in the name of the Corporation by its Chairman,
President, Chief Executive Officer, Chief Financial Officer or a
Vice-President, and may consist of one or more instruments so
executed.
1.2 Gender and Number
Unless herein otherwise expressly provided or unless the context
otherwise requires, words importing the singular include the plural and vice
versa and words importing gender include both genders.
1.3 Interpretation not Affected by Headings, etc.
The division of this Indenture into Articles and Sections, the
provision of a table of contents and the insertion of headings are for
convenience of reference only and shall not affect the construction or
interpretation of this Indenture.
<PAGE>
5
1.4 Day not a Business Day
In the event that any day on or before which any action is required to
be taken hereunder is not a Business Day, then such action shall be required to
be taken at or before the requisite time on the next succeeding day that is a
Business Day.
1.5 Time of the Essence
Time shall be of the essence of this Indenture.
1.6 Currency
Except as otherwise stated, all dollar amounts herein are expressed in
Canadian dollars.
1.7 Applicable Law
This Indenture and the Warrant Certificates shall be construed in
accordance with the laws of the Province of British Columbia and the federal
laws applicable therein and shall be treated in all respects as British Columbia
contracts.
ARTICLE II
ISSUE OF SPECIAL WARRANTS
-------------------------
2.1 Issue of Special Warrants
A total of 924,000 Special Warrants are hereby created and authorized
to be issued at a price of $32.50 for each Special Warrant.
2.2 Terms of Special Warrants
(a) Each Special Warrant shall entitle the holder thereof, upon exercise
or deemed exercise and at no additional cost to the holder, to
acquire, subject to adjustment in accordance with Article 5 hereof,
one Common Share;
(b) No fractional Special Warrants shall be issued or otherwise provided
for hereunder.
2.3 Warrant Holder not a Shareholder
Except as provided for in subsection 6.2(i), nothing in this Indenture
or in the holding of a Special Warrant or Warrant Certificate or otherwise,
shall, in itself, confer or be construed as conferring upon a Warrant Holder any
right or interest whatsoever as a Shareholder or as any other security holder of
the Corporation, including, but not limited to, the right to vote at, to receive
notice of, or to attend, meetings of shareholders or any other proceedings of
the Corporation, or the right to receive dividends and other distributions.
2.4 Special Warrants to Rank Pari Passu
All Special Warrants shall rank pari passu, whatever may be the actual
date of issue thereof.
<PAGE>
6
2.5 Form of Special Warrants
The Warrant Certificates (including all replacements issued in
accordance with this Indenture) shall be substantially in the form set out in
Schedule "A" hereto, shall be dated as of the Closing Date, shall bear such
distinguishing letters and numbers as the Corporation may, with the approval of
the Trustee, prescribe, and shall be issuable in any denomination excluding
fractions.
2.6 Signing of Warrant Certificates
The Warrant Certificates shall be signed by any one of the directors
and officers of the Corporation and need not be under the seal of the
Corporation. The signatures of any such director or officer may be mechanically
reproduced in facsimile and Warrant Certificates bearing such facsimile
signatures shall be binding upon the Corporation as if they had been manually
signed by such director or officer. Notwithstanding that any person whose manual
or facsimile signature appears on any Warrant Certificate as a director or
officer may no longer hold office at the date of such Warrant Certificate or at
the date of certification or delivery thereof, any Warrant Certificate signed as
aforesaid shall, subject to Section 2.7, be valid and binding upon the
Corporation and the holder thereof shall be entitled to the benefits of this
Indenture.
2.7 Certification by the Trustee
(a) The Trustee shall certify Warrant Certificates upon the written
direction of the Corporation. No Warrant Certificate shall be issued
or, if issued, shall be valid for any purpose or entitle the holder to
the benefit hereof until it has been certified by manual signature by
or on behalf of the Trustee substantially in the form of the
certificate set out in Schedule "A" hereto, and such certification by
the Trustee upon any Warrant Certificate shall be conclusive evidence
as against the Corporation that the Warrant Certificate so certified
has been duly issued hereunder and that the holder is entitled to the
benefits hereof.
(b) The certification of the Trustee on Warrant Certificates issued
hereunder shall not be construed as a representation or warranty by
the Trustee as to the validity of this Indenture or the Warrant
Certificates (except the due certification thereof by the Trustee) and
the Trustee shall in no respect be liable or answerable for the use
made of the Warrant Certificate or any of them or of the consideration
therefor except as otherwise specified herein.
2.8 Issue in Substitution for Warrant Certificates Lost, etc.
(a) If any Warrant Certificate becomes mutilated or is lost, destroyed or
stolen, the Corporation, subject to applicable law, shall issue and
thereupon the Trustee shall certify and deliver, a new Warrant
Certificate of like tenor as the one mutilated, lost, destroyed or
stolen in exchange for and in place of and upon cancellation of such
mutilated Warrant Certificate, or in lieu of and in substitution for
such lost, destroyed or stolen Warrant Certificate, and the
substituted Warrant Certificate shall be in a form approved by the
Trustee and the Special Warrants evidenced thereby shall be entitled
to the benefits hereof and shall rank equally in accordance with its
terms with all other Special Warrants issued or to be issued
hereunder.
<PAGE>
7
(b) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.8 shall bear the cost of the issue thereof and in case
of loss, destruction or theft, shall, as a condition precedent to the
issue thereof, furnish to the Corporation and to the Trustee such
evidence of ownership and of the loss, destruction or theft of the
Warrant Certificate so lost, destroyed or stolen as shall be
satisfactory to the Corporation and to the Trustee, in their sole
discretion, and such applicant may also be required to furnish an
indemnity and a surety bond in amount and form satisfactory to the
Corporation and the Trustee, in their sole discretion, and shall pay
the reasonable charges of the Corporation and the Trustee in
connection therewith.
2.9 Exchange of Warrant Certificates
(a) Any one or more Warrant Certificates representing any number of
Special Warrants may, upon compliance with the reasonable requirements
of the Trustee, be exchanged for one or more other Warrant
Certificates representing the same aggregate number of Special
Warrants as represented by the Warrant Certificate or Warrant
Certificates so exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at
any other place that is designated by the Corporation with the
approval of the Trustee. Any Warrant Certificate tendered for exchange
shall be cancelled and surrendered by the Warrant Agency to the
Trustee.
2.10 Transfer of Special Warrants
The Special Warrants may only be transferred on the register kept at
the Warrant Agency by the holder or its legal representatives or its attorney
duly appointed by an instrument in writing in form and execution satisfactory to
the Trustee, upon surrendering to the Trustee the Warrant Certificates
representing the Special Warrants to be transferred and upon compliance with:
(a) the conditions herein;
(b) such reasonable requirements as the Trustee may prescribe;
(c) all applicable securities legislation and requirements of regulatory
authorities including without limitation, any undertaking given to the
TSE as confirmed by the Transferor and Transferee by their execution
of the transfer form attached to the Warrant Certificate; and
(d) Sections 2.13 and 2.14 hereof, if applicable;
2.11 Charges for Exchange or Transfer
Except as otherwise herein provided, a reasonable charge shall be
levied by the Trustee in respect of the exchange of any Warrant Certificate or
the issue of a new Warrant Certificate(s) pursuant hereto provided that the
reimbursement of the Trustee or the Corporation for any and all transfer, stamp
or similar taxes or other governmental charges required to be paid shall be made
by the holder requesting such transfer or exchange as a condition precedent to
such transfer or exchange.
<PAGE>
8
2.12 Cancellation of Surrendered Special Warrants
All Warrant Certificates surrendered pursuant to Sections 2.8, 2.9,
2.10, 3.1, 3.3, 3.6 or 6.1 shall be returned to the Trustee for cancellation,
shall be cancelled by the Trustee and, after the expiry of any period of
retention prescribed by law, shall be destroyed by the Trustee or delivered to
the Corporation if it so requests. Upon request by the Corporation, the Trustee
shall furnish to the Corporation a destruction certificate identifying the
Warrant Certificates so destroyed, the number of Special Warrants evidenced
thereby, the number of Common Shares issued pursuant to such Special Warrants
and the details of any Warrant Certificates issued in substitution or exchange
for such Warrant Certificates destroyed.
2.13 U.S. Legends
(a) The Trustee understands and acknowledges that the Special Warrants and
the Common Shares issuable upon exercise of the Special Warrants have
not been and will not be registered under the U.S. Securities Act.
(b) Each Warrant Certificate originally issued to a U.S. Person or person
in the United States, each Warrant Certificate issued in exchange
therefor or in substitution thereof, and each certificate representing
Common Shares issuable upon exercise of the Special Warrants shall
bear the following legend:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES
ACT") OR UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY
PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES
ACT, IF AVAILABLE, (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF
AVAILABLE, OR (D) IN COMPLIANCE WITH CERTAIN OTHER PROCEDURES
SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF
WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM MONTREAL
TRUST COMPANY OF CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY
EXECUTED DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST COMPANY
OF CANADA AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE
904 OF REGULATION S UNDER THE U.S. SECURITIES ACT",
<PAGE>
9
provided, that if the Special Warrants or Common Shares issuable upon exercise
of Special Warrants are being sold in accordance with Rule 904 of Regulation S
under the U.S. Securities Act, the legend may be removed if the holder provides
a declaration to the Trustee to the following effect (or as the Corporation may
prescribe from time to time):
"The undersigned (a) acknowledges that the sale of the securities of
Infowave Software, Inc. (the "Corporation") to which this declaration
relates is being made in reliance upon Rule 904 of Regulation S under
the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") and (b) certifies that (1) the undersigned is not an
"affiliate" (as defined in Rule 405 under the U.S. Securities Act) of
the Corporation as defined in the U.S. Securities Act, (2) the offer
of such securities was not made to a person in the United States and
either (i) at the time the buy order was originated the buyer was
outside the United States, or the seller and any person acting on its
behalf reasonably believe that the buyer was outside the United States
or (ii) the transaction was executed on or through the facilities of
The Toronto Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been prearranged
with a buyer in the United States, (3) neither the seller nor any
affiliate of the seller nor any person acting on any of their behalf
has engaged or will engage in any directed selling efforts in the
United States in connection with the offer and sale of such
securities. Terms used herein have the meanings given to them by
Regulation S.";
2.14 Certain Transfers
(a) If a Warrant Certificate tendered for transfer bears the legend set
forth in subsection 2.13(b) hereof and the holder thereof has not
obtained the prior written consent of the Corporation, the Trustee
shall not register such transfer unless the holder thereof provides a
declaration to the Trustee to the effect set forth in subsection
2.13(b) hereof.
(b) If a Warrant Certificate tendered for transfer does not bear the
legend set forth in subsection 2.13(b) hereof, the Trustee shall not
register such transfer if it has reason to believe that the transferee
is a U.S. Person, is in the United States or is acquiring the Special
Warrants evidenced thereby for the account or benefit of a U.S. Person
or a person in the United States.
ARTICLE III
EXERCISE OF SPECIAL WARRANTS
3.1 Method of Exercise of Special Warrants
(a) The holder of any Special Warrant may exercise the right conferred on
such holder to acquire Common Shares by surrendering, after the
Closing Date and prior to the Time of Expiry, to the Warrant Agency
the Warrant Certificate with a duly completed and executed exercise
form. Subject to subsection 3.6(b), a Warrant Certificate with the
duly completed and executed exercise form referred to in this
subsection 3.1(a) shall be deemed to be surrendered only upon personal
delivery thereof or, if sent by mail or other means of transmission,
upon actual receipt thereof at, in each case, the Warrant Agency.
<PAGE>
10
(b) Any exercise form referred to in subsection 3.1(a) shall be signed by
the Warrant Holder and shall specify:
(i) the number of Common Shares which the holder wishes to
acquire (being not more than those which the holder is
entitled to acquire pursuant to the Warrant Certificate(s)
surrendered);
(ii) the person or persons in whose name or names such Common
Shares are to be issued;
(iii) the address or addresses of such persons; and
(iv) the number of Common Shares to be issued to each such person
if more than one person is so specified.
If any of the Common Shares subscribed for are to be issued to a
person or persons other than the Warrant Holder, the Warrant Holder
shall pay to the Corporation, or the Warrant Agency, on behalf of the
Corporation, all applicable transfer or similar taxes and the
Corporation shall not be required to issue or deliver certificates
evidencing Common Shares unless or until such Warrant Holder shall
have paid to the Corporation, or the Warrant Agency on behalf of the
Corporation, the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid or that no
tax is due.
(c) In connection with the exchange of Warrant Certificates and exercise
of Special Warrants and compliance with such other terms and
conditions hereof as may be required, the Corporation has appointed
the Warrant Agency as the agency at which Warrant Certificates may be
surrendered for exchange or transfer or at which Special Warrants may
be exercised. The Corporation may from time to time designate
alternate or additional places as the Warrant Agency and shall give
notice to the Trustee of any change of the Warrant Agency.
3.2 Effect of Exercise of Special Warrants
(a) Upon the exercise of Special Warrants pursuant to Section 3.1 or upon
a deemed exercise pursuant to Section 3.6, and subject to Section 3.3,
the Common Shares subscribed for or, in the case of a deemed exercise
pursuant to Section 3.6, all of the Common Shares issuable pursuant to
the Special Warrants deemed to be exercised, shall be deemed to have
been issued and the person or persons to whom such Common Shares are
to be issued shall be deemed to have become the holder or holders of
record of such Common Shares on the Exercise Date, unless the transfer
registers of the Corporation shall be closed on such date, in which
case the Common Shares subscribed for shall be deemed to have been
issued and such person or persons deemed to have become the holder or
holders of record of such Common Shares on the date on which such
transfer registers are reopened.
(b) Subject to Section 3.6, within five Business Days after the Exercise
Date with respect to a Special Warrant, the Corporation shall cause
the Trustee to mail to the person or persons in whose name or names
the Common Shares so subscribed for have been issued, as specified in
the subscription at the address specified in such subscription or, if
so
<PAGE>
11
specified in such subscription, cause to be delivered to such person
or persons at the Warrant Agency where the Warrant Certificate was
surrendered, certificates for the appropriate number of Common Shares
subscribed for.
3.3 Partial Exercise of Special Warrants; Fractions
(a) The holder of any Special Warrants may acquire a number of Common
Shares less than the number which the holder is entitled to acquire
pursuant to the surrendered Warrant Certificate(s). In the event of
any exercise of a number of Special Warrants less than the number
which the holder is entitled to exercise, the holder of the Special
Warrants upon such exercise shall, in addition, be entitled to
receive, without charge therefor, a new Warrant Certificate(s) in
respect of the balance of the Special Warrants represented by the
surrendered Warrant Certificate(s) and which were not then exercised.
(b) Notwithstanding anything herein contained including any adjustment
provided for in Article 5, the Corporation shall not be required, upon
the exercise of any Special Warrants, to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of fractional Common Shares, the Corporation shall pay
to the holder who would otherwise be entitled to receive fractional
Common Shares upon an exercise of Special Warrants, within ten
Business Days after the date upon which the fractional Common Shares
would otherwise have been deemed to have been issued pursuant to
Section 3.2, an amount in lawful money of Canada equal to the Current
Market Price of the Common Shares multiplied by an amount equal to the
fractional interest of Common Shares such holder would otherwise be
entitled to receive upon such exercise, provided that the Corporation
shall not be required to make any payment, calculated as aforesaid,
that is less than $5.00.
3.4 Expiration of Special Warrants
Immediately after the Time of Expiry, all rights under any Special
Warrant in respect of which the right of acquisition herein and therein provided
for shall not have been exercised shall cease and terminate and such Special
Warrant shall be void and of no further force or effect.
3.5 Accounting and Recording
(a) The Trustee shall promptly account to the Corporation with respect to
Special Warrants exercised. Any securities or other instruments, from
time to time received by the Trustee shall be received in trust for,
and shall be segregated and kept apart by the Trustee in trust for,
the Corporation.
(b) The Trustee shall record the particulars of Special Warrants
exercised, which particulars shall include the names and addresses of
the persons who become holders of Common Shares on exercise and the
Exercise Date in respect thereof. The Trustee shall provide such
particulars in writing to the Corporation within five Business Days of
any request by the Corporation therefor.
<PAGE>
12
3.6 Deemed Exercise
(a) Immediately prior to the Time of Expiry, all Special Warrants
outstanding shall be deemed to be exercised without any further action
by the Warrant Holders and the Common Shares shall be issued and made
available to the Warrant Holders.
(b) Upon the issuance of Common Shares upon the deemed exercise of the
Special Warrants, the Warrant Certificates will be deemed to have been
surrendered and cancelled without further action on the part of the
Holder, the Trustee or the Corporation. Unless otherwise directed by
the Warrant Holder, the Trustee will then mail the Common Shares to
the Warrant Holder in accordance with the register maintained at the
Warrant Agency.
3.7 Securities Restrictions
Notwithstanding anything herein contained, Common Shares will only be
issued upon exercise of the Special Warrants in compliance with the securities
laws of any applicable jurisdiction, and without limiting the generality of the
foregoing, in the event that the Special Warrants are exercised pursuant to
Section 3.1 prior to the issuance of the Receipts, the certificates representing
the Common Shares thereby issued will bear such legend as may, in the opinion of
counsel to the Corporation, be necessary in order to avoid a violation of any
securities laws of any province in Canada or to comply with the requirements of
any stock exchange on which the Common Shares are listed, provided that if, at
any time, in the opinion of counsel to the Corporation, such legends are no
longer necessary in order to avoid a violation of any such laws, or the holder
of any such legended certificate, at the holder's expense, provides the
Corporation with evidence satisfactory in form and substance to the Corporation
(which may include an opinion of counsel satisfactory to the Corporation) to the
effect that such holder is entitled to sell or otherwise transfer such Common
Shares in a transaction in which such legends are not required such legended
certificate may thereafter be surrendered to the Corporation in exchange for a
certificate which does not bear such legend.
ARTICLE IV
ESCROW AND DIVIDEND FUNDS
4.1 Deposit of Escrow Funds with Trustee
On the Closing Date and upon issuance of the Special Warrants, the
Underwriters will deliver or cause to be delivered the Escrow Funds to the
Trustee by certified cheque payable to the Trustee in Vancouver, British
Columbia.
4.2 Administration of Escrow Funds
All Escrow Funds shall be held at or administered through the Warrant
Agency. The Trustee shall not be entitled to deal with the Escrow Funds except
in accordance with the terms of this Special Warrant Indenture.
4.3 Deposit of Escrow Funds
As soon as practicable following receipt of the Escrow Funds on the
Closing Date, the Trustee shall deposit the Escrow Funds in one or more of a
daily interest-bearing term deposit or Government of Canada treasury bills or
banker's acceptances, or in an interest bearing trust account with the Trustee,
as specified by the Corporation, provided that the Escrow Funds will only be
invested in
<PAGE>
13
securities having a maturity date of 60 days or less and in the case of any
deposit other than in the Government of Canada treasury bills, such deposit
shall be with one of Royal Bank of Canada, Canadian Imperial Bank of Commerce,
Bank of Montreal, Bank of Nova Scotia, Toronto-Dominion Bank, the trust account
of the Trustee or in such other investment or account as specified in writing by
the Corporation and the Underwriters. Subject to Section 4.4, interest accruing
on the Escrow Funds shall accrue to the benefit of the Corporation and shall be
disbursed by the Trustee in accordance with the provisions of Section 4.4 of
this Agreement.
4.4 Conditions to Release of Escrow Funds
The Escrow Funds shall be released in the following manner:
(a) In the event that any Special Warrants are exercised prior to the Time
of Expiry, the Trustee shall release from the Escrow Funds to the
Corporation an amount equal to the product of (i) $32.50 multiplied by
a fraction the numerator of which is equal to the initial amount of
the Escrow Funds and the denominator of which is equal to the amount
of the Subscription Funds, multiplied by (ii) the number of Special
Warrants so exercised, together with the proportion of the interest
accrued on the Escrow funds relating to the Special Warrants so
exercised up to the date of exercise, less applicable withholding tax,
if any;
(b) Upon receipt by the Corporation of the last of the Receipts, the
Trustee shall, as soon as practicable, release all unreleased Escrow
Funds and interest accrued thereon to the Corporation;
(c) The Trustee shall release any remaining unreleased Escrow Funds and
interest accrued thereon to the Corporation immediately after the Time
of Expiry; and
(d) Any portion of the Escrow Funds and interest accrued thereon to be
released pursuant to this Section shall be released by delivery of a
trust cheque or bank draft payable at par in the City of Vancouver
representing such released portion of the Escrow Funds and interest
accrued thereon.
4.5 Conditions to Release of Dividend Funds and Property
(a) If any Warrant Holder, at any time prior to the Time of Expiry, elects
to exercise Special Warrant(s) held by it, the Trustee shall within
five Business Days:
(i) pay to such Warrant Holder from Dividend Funds and interest
earned by the Trustee thereon an amount equal to the product
obtained by multiplying the amount of Dividend Funds held by
the Trustee thereon to the date immediately preceding the
date of payment (less any Dividend Funds and interest
thereon paid out by the Trustee pursuant to this Agreement
prior to the date of payment) by a fraction of which the
numerator is the number of Special Warrants tendered to the
Trustee by such Warrant Holder and the denominator is the
number of Special Warrants outstanding on the date of
payment (such number to be the number of Special Warrants
outstanding immediately prior to the deemed exercise
pursuant to Section 3.6 if such date of payment is the
Expiry Date); and
<PAGE>
14
(ii) deliver to such Warrant Holder its pro rata share of the
Property determined on the same basis as the calculation set
forth in (i) above;
(b) The Trustee shall within five Business Days after a deemed exercise of
Special Warrants pursuant to Section 3.6:
(i) pay to each Warrant Holder, in respect of Special Warrants
held by it deemed to be exercised, from Dividend Funds and
interest earned by the Trustee thereon an amount equal to
the product obtained by multiplying the amount of Dividend
Funds and interest earned by the Trustee thereon to the date
immediately preceding the date of payment (less any Dividend
Funds and interest thereon paid out by the Trustee pursuant
to this Indenture prior to the date of payment) by a
fraction of which the numerator is the number of Special
Warrants deemed to be exercised held by the Warrant Holder
and the denominator is the number of Special Warrants deemed
to be exercised; and
(ii) deliver to such Warrant Holder its pro rata share of the
Property determined on the same basis as the calculation set
forth in (i) above;
(c) Provided that the Trustee shall have paid and delivered, or set aside
for payment and delivery, all Dividend Funds, interest earned thereon
and Property required to be paid or delivered to Warrant Holders
pursuant to subsections 4.5(a) and (b), the Trustee shall pay to the
Corporation all remaining Dividend Funds together with all interest
accrued thereon to the date of payment and shall deliver to the
Corporation all remaining Property held by the Trustee.
4.6 Administration of Dividend Funds and Property
All Dividend Funds and Property shall be held by the Trustee and
administered through the Warrant Agency. The Trustee shall not be entitled to
deal with the Dividend Funds and Property except in accordance with the terms of
this Indenture. The Trustee is hereby specifically authorized, and granted such
powers as are necessary, to deal with the Property as it shall determine in its
sole discretion to be in the best interests of the Warrant Holders. In the event
that the Trustee determines the necessity for the approval of the Warrant
Holders of any matter, an extraordinary resolution of the Warrant Holders shall
provide sufficient authority upon which the Trustee may act and the Trustee
shall not be responsible for any loss occasioned by so doing.
ARTICLE V
ADJUSTMENT OF NUMBER OF COMMON SHARES
5.1 Adjustment of Number of Common Shares
The acquisition rights in effect at any date attaching to the Special
Warrants shall be subject to adjustment from time to time as follows:
(a) if a Receipt has not been issued in a Designated Province on or before
the Qualification Deadline, a Warrant Holder who was resident in such
province at the time of purchase of the Special Warrants (as
determined by reference to the Warrant Holder's subscription
agreement) shall, notwithstanding section 2.2, be entitled, upon
exercise, to acquire 1.1 Common Shares per Special Warrant exercised
or deemed exercised by such holder,
<PAGE>
15
subject to adjustment in accordance with the following provisions of
this Article 5, at any time after the Qualification Deadline until the
Time of Expiry at no additional cost to the Warrant Holder;
(b) if and whenever at any time from the Closing Date until the Time of
Expiry, the Corporation shall:
(i) subdivide, redivide or change its outstanding Common Shares
into a greater number of shares; or
(ii) reduce, combine or consolidate its outstanding Common Shares
into a smaller number of shares;
the number of Common Shares obtainable under each Special Warrant
shall be adjusted immediately after the effective date of such
subdivision, redivision, change, reduction, combination or
consolidation, by multiplying the number of Common Shares theretofore
obtainable on the exercise thereof by a fraction of which the
numerator shall be the total number of Common Shares outstanding
immediately after such date and the denominator shall be the total
number of Common Shares outstanding immediately prior to such date.
Such adjustment shall be made successively whenever any event referred
to in this subsection shall occur;
(c) if and whenever at any time from the Closing Date and prior to the
Time of Expiry, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation other than as described in
subsection 5.1(b) or a consolidation, amalgamation or merger of the
Corporation with or into any other body corporate, trust, partnership
or other entity, or a sale or conveyance of the property and assets of
the Corporation as an entirety or substantially as an entirety to any
other body corporate, trust, partnership or other entity, any Warrant
Holder who has not exercised its right of acquisition, as to the
effective date of such reclassification, capital reorganization,
consolidation, amalgamation, merger, sale or conveyance, upon the
exercise of such right thereafter, shall be entitled to receive and
shall accept, in lieu of the number of Common Shares such Warrant
Holder would otherwise be entitled to acquire, the number of shares or
other securities or property of the Corporation or of the body
corporate, trust, partnership or other entity resulting from such
merger, amalgamation or consolidation, or to which such sale or
conveyance may be made, as the case may be, that such Warrant Holder
would have been entitled to receive on such reclassification, capital
reorganization, consolidation, amalgamation, merger, sale or
conveyance, if, on the record date or the effective date thereof, as
the case may be, the Warrant Holder had been the registered holder of
the number of Common Shares sought to be acquired by it. If determined
appropriate by the Trustee to give effect to or to evidence the
provisions of this subsection 5.1(c), the Corporation, its successor,
or such purchasing body corporate, partnership, trust or other entity,
as the case may be, shall, prior to or contemporaneously with any such
reclassification, capital reorganization, consolidation, amalgamation,
merger, sale or conveyance, enter into an indenture which shall
provide, to the extent possible, for the application of the provisions
set forth in this Indenture with respect to the rights and interests
thereafter of the Warrant Holders to the end that the provisions set
forth in this Indenture shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, with respect to any
shares, other securities or property to which a
<PAGE>
16
Warrant Holder is entitled on the exercise of its acquisition rights
thereafter. Any indenture entered into between the Corporation and the
Trustee pursuant to the provisions of this subsection 5.1(c) shall be
a supplemental indenture entered into pursuant to the provisions of
Article 9 hereof. Any indenture entered into between the Corporation,
any successor to the Corporation or such purchasing body corporate,
partnership, trust or other entity and the Trustee shall provide for
adjustments which shall be as nearly equivalent as may be practicable
to the adjustments provided in this Section 5.1 and which shall apply
to successive reclassification, reorganizations, amalgamations,
consolidations, mergers, sales or conveyances; and
(d) the adjustments provided for in this Article 5 in the number of Common
Shares and classes of securities which are to be received on the
exercise of Special Warrants are cumulative. After any adjustment
pursuant to this Section, the term "Common Shares" where used in this
Indenture shall be interpreted to mean securities of any class or
classes which, as a result of such adjustment and all prior
adjustments pursuant to this Section, the Warrant Holder is entitled
to receive upon the exercise of its Special Warrant, and the number of
Common Shares indicated by any exercise made pursuant to a Special
Warrant shall be interpreted to mean the number of Common Shares or
other property or securities a Warrant Holder is entitled to receive,
as a result of such adjustment and all prior adjustments pursuant to
this Section, upon the full exercise of a Special Warrant.
5.2 Entitlement to Shares on Exercise of Special Warrant
All shares of any class or other securities which a Warrant Holder is
at the time in question entitled to receive on the exercise of its Special
Warrant, whether or not as a result of adjustments made pursuant to this Article
5, shall, for the purposes of the interpretation of this Indenture, be deemed to
be shares which such Warrant Holder is entitled to acquire pursuant to such
Special Warrant.
5.3 No Adjustment for Stock Options
Notwithstanding anything in this Article 5, no adjustment shall be
made in the acquisition rights attached to the Special Warrants if the issue of
Common Shares is being made pursuant to this Indenture or pursuant to any stock
option or stock purchase plan in force from time to time for directors, officers
or employees of the Corporation.
5.4 Determination by Corporation's Auditors
In the event of any question arising with respect to the adjustments
provided for in this Article 5, such question shall be conclusively determined
by the Corporation's Auditors who shall have access to all necessary records of
the Corporation, and such determination shall be binding upon the Corporation,
the Trustee, all Warrant Holders and all other persons interested therein.
5.5 Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of any action which would
require an adjustment in any of the acquisition rights pursuant to any of the
Special Warrants, including the number of Common Shares which are to be received
upon the exercise thereof, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
or a successor corporation has unissued and reserved in its authorized capital
and may validly and legally issue as fully
<PAGE>
17
paid and non-assessable all the shares which the holders of such Special
Warrants are entitled to receive on the full exercise thereof in accordance with
the provisions hereof.
5.6 Certificate of Adjustment
The Corporation shall from time to time immediately after the
occurrence of any event which requires an adjustment or readjustment as provided
in this Article 5, deliver a certificate of the Corporation to the Trustee
specifying the nature of the event requiring the same and the amount of the
adjustment necessitated thereby and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
5.7 Notice of Special Matters
The Corporation covenants with the Trustee that, so long as any
Special Warrant remains outstanding, it will send notice to the Trustee and to
the Warrant Holders of its intention to fix a record date that is prior to the
Expiry Date for the issuance of rights, options or warrants (other than the
Special Warrants) to all or substantially all the holders of its outstanding
Common Shares or for determining the shareholders of record who would be
entitled to vote on a special resolution of shareholders respecting or affecting
in any way the Corporation's share capital. Such notice shall specify the
particulars of such event and the record date for such event, provided that the
Corporation shall only be required to specify in the notice such particulars of
the event as shall have been fixed and determined on the date on which the
notice is given. The notice shall be sent in each case not less than 14 days
prior to such applicable record date.
5.8 No Action after Notice
The Corporation covenants with the Trustee that it will not close its
transfer books or take any other corporate action which might deprive the holder
of a Special Warrant of the opportunity to exercise its right of acquisition
pursuant thereto during the period of 14 days after the giving of the
certificate or notices set forth in Section 5.7.
5.9 Protection of Trustee
The Trustee shall not:
(a) be under any duty or responsibility to any Warrant Holder to determine
whether any facts exist which may require any adjustment contemplated
by this Article 5, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed in making
the same;
(b) be accountable with respect to the validity or value (or the kind or
amount) of any Common Shares or of any shares or other securities or
property which may at any time be issued or delivered upon the
exercise of the rights attaching to any Special Warrant;
(c) be responsible for any failure of the Corporation to issue, transfer
or deliver Common Shares or certificates for the same upon the
surrender of any Special Warrants for the purpose of the exercise of
such rights or to comply with any of the covenants contained in this
Article; and
<PAGE>
18
(d) incur any liability or responsibility whatsoever or be in any way
responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants
herein contained or of any acts of the directors, officers, employees,
agents or servants of the Corporation.
ARTICLE VI
RIGHTS AND COVENANTS OF THE CORPORATION
6.1 Optional Purchases by the Corporation
The Corporation may from time to time purchase by private contract or
otherwise any of the Special Warrants. Any Warrant Certificates representing the
Special Warrants purchased pursuant to this Section 6.1 shall forthwith be
delivered to and cancelled by the Trustee. No Special Warrants shall be issued
in replacement thereof.
6.2 General Covenants
The Corporation covenants with the Trustee that so long as any Special
Warrants remain outstanding:
(a) it will reserve and keep available a sufficient number of Common
Shares for the purpose of enabling it to satisfy its obligations to
issue Common Shares upon the exercise of the Special Warrants in the
event that the Corporation does not have an unlimited number of Common
Shares authorized;
(b) it will cause the Common Shares and the certificates representing the
Common Shares from time to time acquired pursuant to the exercise of
the Special Warrants to be duly issued and delivered in accordance
with the Warrant Certificates and the terms hereof;
(c) all Common Shares which shall be issued upon exercise of the right to
acquire provided for herein and in the Warrant Certificates shall be
fully paid and non-assessable;
(d) it will maintain its corporate existence and will carry on and conduct
its business in accordance with industry standards and good business
practice;
(e) it will ensure that all Common Shares outstanding or issuable from
time to time (including without limitation the Common Shares issuable
on the exercise of the Special Warrants) continue to be or are listed
and posted for trading on the TSE or on another Canadian stock
exchange;
(f) it will maintain its status as a reporting issuer in each of the
Designated Provinces and it will make all requisite filings under
applicable Canadian securities legislation and stock exchange rules to
report the exercise of the right to acquire Common Shares pursuant to
Special Warrants;
(g) it will use its commercially reasonable efforts to have the Receipts
issued by the Securities Commissions on or before the Qualification
Deadline and will, in the event that the Receipts are not issued on or
before the Qualification Deadline, continue to use its commercially
reasonable efforts to obtain the Receipts thereafter;
<PAGE>
19
(h) it will send a written notice to the Trustee and to each holder of
Special Warrants of the issuance of the Receipts, together with a
commercial copy of the Prospectus, as soon as practicable but, in any
event, not later than five Business Days after the issuance of such
Receipts (and, in the case of the Trustee, copies of such Receipts
together with confirmation that there has not been any adjustment to
the number of shares issuable pursuant to Article 5);
(i) if the Corporation pays a dividend or makes any other distribution in
cash or property or securities of the Corporation (including rights,
options or warrants to acquire Common Shares or securities convertible
into or exchangeable for Common Shares and including evidences of its
indebtedness) to all or substantially all of the holders of Common
Shares prior to the Expiry Date, the Corporation agrees that it will
pay the same amount of such dividend or make the same distribution of
cash, property or securities as a deposit to the Trustee, as if the
Warrant Holders were the holders of the number of Common Shares which
the Warrant Holders are entitled to receive upon the exercise of the
Special Warrants and such payments or other distributions shall be
held and dealt with by the Trustee in accordance with Sections 4.5 and
4.6;
(j) it will send a written notice to each Warrant Holder specifying the
particulars of each payment or distribution made in accordance with
subsection 6.2(i), within two Business Days of such payment or
distribution; and
(k) generally, it will well and truly perform and carry out all of the
acts or things to be done by it as provided in this Indenture.
6.3 Trustee's Remuneration and Expenses
The Corporation covenants that it will pay to the Trustee from time to
time reasonable remuneration for its services hereunder and will pay or
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in the administration
or execution of the trusts hereby created (including the reasonable compensation
and the disbursements of its Counsel and all other advisers and assistants not
regularly in its employ) both before any default hereunder and thereafter until
all duties of the Trustee hereunder shall be finally and fully performed, except
any such expense, disbursement or advance as may arise out of or result from the
Trustee's negligence or fraud.
6.4 Securities Qualification Requirements
(a) If, in the opinion of Counsel, any instrument (not including a
prospectus, except as required by subsection 6.2(g)) is required to be
filed with, or any permission is required to be obtained from the
Securities Commissions or the TSE or any other step is required under
the laws of the Designated Provinces before any Common Shares which a
Warrant Holder is entitled to acquire pursuant to the exercise of any
Special Warrant may properly and legally be issued upon due exercise
thereof and thereafter traded, without further formality or
restriction, the Corporation covenants that it will take such required
action.
(b) The Corporation or, if required by the Corporation, the Trustee will
give notice of the issue of Common Shares pursuant to the exercise of
Special Warrants, in such detail as may be required, to the Securities
Commissions and the TSE.
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6.5 Performance of Covenants by Trustee
If the Corporation shall fail to perform any of its covenants
contained in this Warrant Indenture, the Trustee may notify the Warrant Holders
of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 10.2, shall
be under no obligation to perform said covenants or to notify the Warrant
Holders of such performance or non-performance by it. All sums expended or
advanced by the Trustee in so doing shall be repayable as provided in Section
6.3. No such performance, expenditure or advance by the Trustee shall relieve
the Corporation of any default hereunder or of its continuing obligations under
the covenants herein contained.
ARTICLE VII
ENFORCEMENT
7.1 Suits by Warrant Holders
All or any of the rights conferred upon any Warrant Holder by any of
the terms of the Warrant Certificates or of this Indenture, or of both, may be
enforced by the Warrant Holder by appropriate proceedings but without prejudice
to the right which is hereby conferred upon the Trustee to proceed in its own
name to enforce each and all of the provisions herein contained for the benefit
of the Warrant Holders.
7.2 Immunity of Shareholders, etc.
The Trustee and, by the acceptance of the Warrant Certificates and as
part of the consideration for the issue of the Special Warrants, the Warrant
Holders hereby waive and release any right, cause of action or remedy now or
hereafter existing in any jurisdiction against any incorporator or any past,
present or future shareholder, director, officer, employee or agent of the
Corporation or any successor Corporation (as defined in Section 9.2) on any
covenant, agreement, representation or warranty by the Corporation herein or in
the Warrant Certificates contained.
7.3 Limitation of Liability
The obligations hereunder are not personally binding upon, nor shall
resort hereunder be had to, the private property of any of the past, present or
future directors or shareholders of the Corporation or any successor Corporation
or any of the past, present or future officers, employees or agents of the
Corporation or any successor Corporation, but only the property of the
Corporation or any successor Corporation shall be bound in respect hereof.
7.4 Waiver of Default
Upon the happening of any default hereunder:
(a) the holders of not less than 51% of the Special Warrants then
outstanding shall have the power (in addition to the powers
exercisable by extraordinary resolution) by requisition in writing to
instruct the Trustee to waive any default hereunder and the Trustee
shall thereupon waive the default upon such terms and conditions as
shall be prescribed in such requisition; or
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(b) the Trustee shall have the power to waive any default hereunder upon
such terms and conditions as the Trustee may deem advisable if, in the
Trustee's opinion, which may be based on the advice of counsel, the
same shall have been cured or adequate provision made therefor;
provided that no delay or omission of the Trustee or of the Warrant Holders to
exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver of any such default or
acquiescence therein and provided further that no act or omission either of the
Trustee or of the Warrant Holders in the premises shall extend to or be taken in
any manner whatsoever to affect any subsequent default hereunder of the rights
resulting therefrom.
ARTICLE VIII
MEETINGS OF WARRANT HOLDERS
8.1 Right to Convene Meetings
The Trustee may at any time and from time to time, and shall on
receipt of a written request of the Corporation or of a Warrant Holders' Request
and upon being indemnified and provided with security to its reasonable
satisfaction by the Corporation or by the Warrant Holders signing such Warrant
Holders' Request against the cost which may be incurred in connection with the
calling and holding of such meeting, call and hold a meeting of the Warrant
Holders. In the event of the Trustee failing to so call and hold a meeting
within seven days after receipt of such written request of the Corporation or
such Warrant Holders' Request and indemnity and security given as aforesaid, the
Corporation or such Warrant Holders, as the case may be, may call and hold such
meeting. Every such meeting shall be held in the City of Vancouver or at such
other place as may be approved or determined by the Trustee.
8.2 Notice
At least ten days' prior notice of any meeting of Warrant Holders
shall be given to the Warrant Holders in the manner provided for in Section 11.2
and a copy of such notice shall be sent by mail to the Trustee (unless the
meeting has been called by the Trustee) and to the Corporation (unless the
meeting has been called by the Corporation). Such notice shall state the time
when and the place where the meeting is to be held, shall state briefly the
general nature of the business to be transacted thereat and shall contain such
information as is reasonably necessary to enable the Warrant Holders to make a
reasoned decision on the matter, but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article 8.
8.3 Chairman
An individual (who need not be a Warrant Holder) designated in writing
by the Trustee shall be chairman of the meeting and if no individual is so
designated, or if the individual so designated is not present within 15 minutes
from the time fixed for the holding of the meeting, the Warrant Holders present
in person or by proxy shall choose some individual present to be chairman.
8.4 Quorum
Subject to the provisions of Section 8.11, at any meeting of the
Warrant Holders a quorum shall consist of Warrant Holders present in person or
by proxy and entitled to purchase at least 10% of the aggregate number of Common
Shares which could be acquired pursuant to the exercise of all
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22
of the then outstanding Special Warrants, provided that at least two persons
entitled to vote thereat are personally present. If a quorum of the Warrant
Holders shall not be present within 30 minutes from the time fixed for holding
any meeting, the meeting, if summoned by Warrant Holders or on a Warrant
Holders' Request, shall be dissolved; but in any other case the meeting shall be
adjourned to the same day in the next week (unless such day is not a Business
Day, in which case it shall be adjourned to the next following Business Day) at
the same time and place and no notice of the adjournment need be given. Any
business may be brought before or dealt with at an adjourned meeting which might
have been dealt with at the original meeting in accordance with the notice
calling the same. No business shall be transacted at any meeting unless a quorum
be present at the commencement of business. At the adjourned meeting the Warrant
Holders present in person or by proxy shall form a quorum and may transact the
business for which the meeting was originally convened, notwithstanding that
they may not be entitled to acquire at least 10% of the aggregate number of
Common Shares which may be acquired pursuant to the exercise of all of the then
outstanding Special Warrants.
8.5 Power to Adjourn
The chairman of any meeting at which a quorum of the Warrant Holders
is present may, with the consent of the meeting, adjourn any such meeting, and
no notice of such adjournment need be given except such notice, if any, as the
meeting may prescribe.
8.6 Show of Hands
Every question submitted to a meeting shall be decided in the first
place by a majority of the votes given on a show of hands except that votes on
an extraordinary resolution shall be given in the manner hereinafter provided.
At any such meeting, unless a poll is duly demanded as herein provided, a
declaration by the chairman that a resolution has been carried or carried
unanimously or by a particular majority or lost or not carried by a particular
majority shall be conclusive evidence of the fact.
8.7 Poll and Voting
On every extraordinary resolution, and on any other question submitted
to a meeting and after a vote by show of hands when demanded by the chairman or
by one or more of the Warrant Holders acting in person or by proxy and entitled
to acquire in the aggregate at least 5% of the aggregate number of Common Shares
which could be acquired pursuant to the exercise of all the Special Warrants
then outstanding, a poll shall be taken in such manner as the chairman shall
direct. Questions other than those required to be determined by extraordinary
resolution shall be decided by a majority of the votes cast on the poll.
On a show of hands, every person who is present and entitled to vote,
whether as a Warrant Holder or as proxy for one or more absent Warrant Holders,
or both, shall have one vote. On a poll, each Warrant Holder present in person
or represented by a proxy duly appointed by instrument in writing shall be
entitled to one vote in respect of each whole Common Share which he is entitled
to acquire pursuant to the Special Warrant or Special Warrants then held or
represented by it. A proxy need not be a Warrant Holder. The chairman of any
meeting shall be entitled, both on a show of hands and on a poll, to vote in
respect of the Special Warrants, if any, held or represented by him.
8.8 Regulations
The Trustee, or the Corporation with the approval of the Trustee, may
from time to time make and from time to time vary such regulations as it shall
think fit for:
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(a) the setting of the record date for a meeting for the purpose of
determining Warrant Holders entitled to receive notice of and to vote
at the meeting;
(b) the issue of voting certificates by any bank, trust company or other
depositary satisfactory to the Trustee stating that the Warrant
Certificates specified therein have been deposited with it by a named
person and will remain on deposit until after the meeting, which
voting certificate shall entitle the persons named therein to be
present and vote at any such meeting and at any adjournment thereof or
to appoint a proxy or proxies to represent them and vote for them at
any such meeting and at any adjournment thereof in the same manner and
with the same effect as though the persons so named in such voting
certificates were the actual bearers of the Warrant Certificates
specified therein.
(c) the deposit of voting certificates and instruments appointing proxies
at such place and time as the Trustee, the Corporation or the Warrant
Holders convening the meeting, as the case may be, may in the notice
convening the meeting direct;
(d) the deposit of voting certificates and instruments appointing proxies
at some approved place or places other than the place at which the
meeting is to be held and enabling particulars of such instruments
appointing proxies to be mailed or telecopied before the meeting to
the Corporation or to the Trustee at the place where the same is to be
held and for the voting of proxies so deposited as though the
instruments themselves were produced at the meeting;
(e) the form of the instrument of proxy; and
(f) generally for the calling of meetings of Warrant Holders and the
conduct of business thereat.
Any regulations so made shall be binding and effective and the votes
given in accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, the only persons who shall be recognized at any meeting
as a Warrant Holder, or be entitled to vote or be present at the meeting in
respect thereof (subject to Section 8.9), shall be Warrant Holders or their
counsel, or proxies of Warrant Holders.
8.9 Corporation and Trustee May be Represented
The Corporation and the Trustee, by their respective directors and
officers, the counsel for the Corporation and the Counsel for the Trustee may
attend any meeting of the Warrant Holders, but shall not be entitled to vote
thereat, whether in respect of any Special Warrants held by them or otherwise.
8.10 Powers Exercisable by Extraordinary Resolution
In addition to all other powers conferred upon them by any other
provisions of this Indenture or by law, the Warrant Holders at a meeting shall,
subject to the provisions of Section 8.11, have the power, exercisable from time
to time by extraordinary resolution:
(a) to agree to any modification, abrogation, alteration, compromise or
arrangement of the rights of Warrant Holders or the Trustee in its
capacity as trustee hereunder or on behalf of the Warrant Holders
against the Corporation whether such rights arise under this Indenture
or the Warrant Certificates or otherwise;
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(b) to amend, alter or repeal any extraordinary resolution previously
passed or sanctioned by the Warrant Holders;
(c) to direct or to authorize the Trustee to enforce any of the covenants
on the part of the Corporation contained in this Indenture or the
Warrant Certificates or to enforce any of the rights of the Warrant
Holders in any manner specified in such extraordinary resolution or to
refrain from enforcing any such covenant or right:
(d) to waive, and to direct the Trustee to waive, any default on the part
of the Corporation in complying with any provisions of this Indenture
or the Warrant Certificates either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Warrant Holder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of
any of the covenants on the part of the Corporation in this Indenture
or the Warrant Certificates or to enforce any of the rights of the
Warrant Holders;
(f) to direct any Warrant Holder who, as such, has brought any suit,
action or proceeding to stay or to discontinue or otherwise to deal
with the same upon payment of the costs, charges and expenses
reasonably and properly incurred by such Warrant Holder in connection
therewith;
(g) to assent to any change in or omission from the provisions contained
in the Warrant Certificates and this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and
to authorize the Trustee to concur in and execute any ancillary or
supplemental indenture embodying the change or omission;
(h) with the consent of the Corporation, not to be unreasonably withheld,
to remove the Trustee or its successor in office and to appoint a new
trustee or trustees to take the place of the Trustee so removed; and
(i) to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
otherwise, and with holders of any shares or other securities of the
Corporation.
8.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter provided in this Section 8.11 and in
Section 8.14, a resolution proposed at a meeting of Warrant Holders
duly convened for that purpose and held in accordance with the
provisions of this Article 8 and passed by the affirmative votes of
Warrant Holders entitled to acquire not less than two-thirds of the
aggregate number of Common Shares which may be acquired pursuant to
the exercise of all of the then outstanding Special Warrants
represented at the meeting and voted on the poll upon such resolution.
(b) If, at the meeting at which an extraordinary resolution is to be
considered, Warrant Holders entitled to acquire at least 10% of the
aggregate number of Common Shares which may be acquired pursuant to
the exercise of all of the then outstanding Special Warrants are not
present in person or by proxy within 30 minutes after the time
appointed for the meeting, then the meeting, if convened by Warrant
Holders or on a Warrant
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25
Holders' Request, shall be dissolved; but in any other case it shall
stand adjourned to such day, being not less than 15 or more than 60
days later, and to such place and time as may be appointed by the
chairman. Not less than 10 days' prior notice shall be given of the
time and place of such adjourned meeting in the manner provided for in
Section 11.2. Such notice shall state that at the adjourned meeting
the Warrant Holders present in person or by proxy shall form a quorum
but it shall not be necessary to set forth the purposes for which the
meeting, was originally called or any other particulars. At the
adjourned meeting the Warrant Holders present in person or by proxy
shall form a quorum and may transact the business for which the
meeting was originally convened and a resolution proposed at such
adjourned meeting and passed by the requisite vote as provided in
subsection 8.11(a) shall be an extraordinary resolution within the
meaning of this Indenture notwithstanding that Warrant Holders
entitled to acquire at least 10% of the aggregate number of Common
Shares which may be acquired pursuant to the exercise of all of the
then outstanding Special Warrants are not present in person or by
proxy at such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll
and no demand for a poll on an extraordinary resolution shall be
necessary.
8.12 Powers Cumulative
Any one or more of the powers or any combination of the powers in this
Indenture stated to be exercisable by the Warrant Holders by extraordinary
resolution or otherwise may be exercised from time to time and the exercise of
any one or more of such powers or any combination of powers from time to time
shall not be deemed to exhaust the right of the Warrant Holders to exercise such
power or powers or combination of powers then or thereafter from time to time.
8.13 Minutes
Minutes of all resolutions and proceedings at every meeting of Warrant
Holders shall be made and duly entered in books to be provided from time to time
for that purpose by the Trustee at the expense of the Corporation, and any such
minutes as aforesaid, if signed by the chairman or the secretary of the meeting
at which such resolutions were passed or proceedings had shall be prima facie
evidence of the matters therein stated and, until the contrary is proved, every
such meeting in respect of the proceedings of which minutes shall have been made
shall be deemed to have been duly convened and held, and all resolutions passed
thereat or proceedings taken shall be deemed to have been duly passed and taken.
8.14 Instruments in Writing
All actions which may be taken and all powers that may be exercised by
the Warrant Holders at a meeting held as provided in this Article 8 may also be
taken and exercised by Warrant Holders entitled to acquire at least two-thirds
of the aggregate number of Common Shares which may be acquired pursuant to the
exercise of all of the then outstanding Special Warrants by an instrument in
writing signed in one or more counterparts by such Warrant Holders in person or
by attorney duly appointed in writing, and the expression "extraordinary
resolution" when used in this Indenture shall include an instrument so signed.
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8.15 Binding Effect of Resolutions
Every resolution and every extraordinary resolution passed in
accordance with the provisions of this Article 8 at a meeting of Warrant Holders
shall be binding upon all the Warrant Holders, whether present at or absent from
such meeting, and every instrument in writing signed by Warrant Holders in
accordance with Section 8.14 shall be binding upon all the Warrant Holders,
whether signatories thereto or not, and each and every Warrant Holder and the
Trustee (subject to the provisions for indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
8.16 Holdings by Corporation Disregarded
In determining whether Warrant Holders holding Warrant Certificates
evidencing the entitlement to acquire the required number of Common Shares are
present at a meeting of Warrant Holders for the purpose of determining a quorum
or have concurred in any consent, waiver, extraordinary resolution, Warrant
Holders' Request or other action under this Indenture, Special Warrants owned
legally or beneficially by the Corporation or any Subsidiary of the Corporation
shall be disregarded in accordance with the provisions of Section 11.7 and shall
not be entitled to vote on any matter considered at such a meeting of Warrant
Holders.
ARTICLE IX
SUPPLEMENTAL INDENTURES
9.1 Provision for Supplemental Indentures for Certain Purposes
From time to time the Corporation (when authorized by action of the
directors) and the Trustee may, subject to the provisions hereof, and they
shall, when so directed in accordance with the provisions hereof, execute and
deliver by their proper officers, indentures or instruments supplemental hereto,
which thereafter shall form part hereof, for any one or more or all of the
following purposes:
(a) setting forth any adjustments resulting from the application of the
provisions of Article 5;
(b) adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of Counsel, are necessary or
advisable, provided that the same are not in the opinion of the
Trustee, based on the advice of Counsel, prejudicial to the interests
of the Warrant Holders;
(c) giving effect to any extraordinary resolution passed as provided in
Article 8;
(d) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder or for the purpose of obtaining a listing or quotation of
the Special Warrants on any stock exchange, provided that such
provisions are not, in the opinion of the Trustee, based on the advice
of Counsel, prejudicial to the interests of the Warrant Holders;
(e) adding to or altering the provisions hereof in respect of the transfer
of Special Warrants, making provision for the exchange of Warrant
Certificates, and making any modification in the form of the Warrant
Certificates which does not affect the substance thereof;
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(f) modifyingany of the provisions of this Indenture, including relieving
the Corporation from any of the obligations, conditions or
restrictions herein contained, provided that such modification or
relief shall be or become operative or effective only if, in the
opinion of the Trustee, based on the advice of Counsel, such
modification or relief in no way prejudices any of the rights of the
Warrant Holders or of the Trustee, and provided further that the
Trustee may in its sole discretion decline to enter into any such
supplemental indenture which in its opinion, based on the advice of
Counsel, may not afford adequate protection to the Trustee when the
same shall become operative; and
(g) for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective or inconsistent provisions, errors, mistakes or
omissions herein, provided that in the opinion of the Trustee, based
on the advice of Counsel, the rights of the Trustee and of the Warrant
Holders are in no way prejudiced thereby.
9.2 Successor Corporations
In the case of the consolidation, amalgamation, merger or transfer of
the undertaking or assets of the Corporation as an entirety or substantially as
an entirety to another Corporation ("successor Corporation"), the successor
Corporation resulting from such consolidation, amalgamation, merger or transfer
(if not the Corporation) shall expressly assume, by supplemental indenture
satisfactory in form to the Trustee and executed and delivered to the Trustee,
the due and punctual performance and observance of each and every covenant and
condition of this Indenture to be performed and observed by the Corporation.
ARTICLE X
CONCERNING THE TRUSTEE
10.1 Trust Indenture Legislation
(a) If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with a mandatory requirement of the Applicable
Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Trustee agree that each will, at all times in
relation to this Indenture and any action to be taken hereunder,
observe and comply with and be entitled to the benefits of the
Applicable Legislation.
10.2 Rights and Duties of Trustee
(a) In the exercise of the rights and duties prescribed or conferred by
the terms of this Indenture, the Trustee shall exercise that degree of
care, diligence and skill that a reasonably prudent trustee would
exercise in comparable circumstances. In the absence of negligence or
fraud, the Corporation shall indemnify and save harmless the Trustee
from all loss, costs or damages it may suffer in administering the
trusts of this Indenture. No provision of this Indenture shall be
construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act, or its own negligence or
fraud.
(b) The obligation of the Trustee to commence or continue any act, action
or proceeding for the purpose of enforcing any rights of the Trustee
or the Warrant Holders hereunder shall
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be conditional upon the Warrant Holders furnishing, when required by
notice by the Trustee, sufficient funds to commence or to continue
such act, action or proceeding and an indemnity reasonably
satisfactory to the Trustee to protect and to hold harmless the
Trustee against the costs, charges and expenses and liabilities to be
incurred thereby and any loss and damage it may suffer by reason
thereof. None of the provisions contained in this Indenture shall
require the Trustee to expend or to risk its own funds or otherwise to
incur financial liability in the performance of any of its duties or
in the exercise of any of its rights or powers unless indemnified and
funded as aforesaid.
(c) The Trustee may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the Warrant
Holders at whose instance it is acting to deposit with the trustee the
Special Warrants held by them, for which Special Warrants the Trustee
shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the
Trustee of liability or entitles it to rely upon any evidence
submitted to it is subject to the provisions of the Applicable
Legislation, of this Section 10.2, 10.3 and of Section 10.4.
10.3 Indemnification
Without limiting any protection or indemnity of the Trustee under any
other provisions hereof, or otherwise at law, the Corporation hereby agrees to
indemnify and hold harmless the Trustee from and against any and all
liabilities, losses, damages, penalties, claims, actions, suits, costs, expenses
and disbursements, including reasonable legal or advisor fees and disbursements,
of whatever kind and nature which may at any time be imposed on, incurred by or
asserted against the Trustee in connection with the performance of its duties
and obligations hereunder, other than such liabilities, losses, damages,
penalties, claims, actions, suits, costs, expenses and disbursements arising by
reason of the negligence or fraud of the Trustee. This provision shall survive
the resignation or removal of the Trustee, or the termination of the Indenture.
The Trustee shall not be under any obligation to prosecute or to defend any
action or suit in respect of the relationship which, in the opinion of its
counsel, may involve it in expense or liability, unless the Corporation shall,
so often as required, furnish the Trustee with satisfactory indemnity and
funding against such expense or liability.
10.4 Evidence, Experts and Advisers
(a) In addition to the reports, certificates, opinions and other evidence
required by this Indenture, the Corporation shall furnish to the
Trustee such additional evidence of compliance with any provision
hereof, and in such form, as may be prescribed by the Applicable
Legislation or as the Trustee may reasonably require by written notice
to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Trustee may,
if it is acting in good faith, rely as to the truth of the statements
and the accuracy of the opinions expressed in statutory declarations,
opinions, reports, written requests, consents, or orders of the
Corporation, certificates of the Corporation or other evidence
furnished to the Trustee pursuant to a request of the Trustee,
provided that such evidence complies with the Applicable Legislation
and that the Trustee complies with the Applicable Legislation and that
the Trustee examines the same and determines that such evidence
complies with the applicable requirements of this Indenture.
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(c) Whenever it is provided in this Indenture or under the Applicable
Legislation that the Corporation shall deposit with the Trustee
resolutions, certificates, reports, opinions, requests, orders or
other documents, it is intended that the trust, accuracy and good
faith on the effective date thereof and the facts and opinions stated
in all such documents so deposited shall, in each and every such case,
be conditions precedent to the right of the Corporation to have the
Trustee take the action to be based thereon.
(d) The Trustee may employ or retain such Counsel, accountants, appraisers
or other experts or advisers as it may reasonably require for the
purpose of discharging its duties hereunder and may pay reasonable
remuneration for all services so performed by any of them, without
taxation of costs of any Counsel, and shall not be responsible for any
misconduct or negligence on the part of any such experts or advisers
who have been appointed with due care by the Trustee.
10.5 Actions by Trustee to Protect Interest
The Trustee shall have power to institute and to maintain such actions
and proceedings as it may consider necessary or expedient to preserve, protect
or enforce its interests and the interests of the Warrant Holders.
10.6 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in
respect of the execution of the trusts and powers of this Indenture or otherwise
in respect of the premises.
10.7 Protection of Trustee
By way of supplement to the provisions of any law for the time being
relating to trustees it is expressly declared and agreed as follows:
(a) the Trustee shall not be liable for or by reason of any statements of
fact or recitals in this Indenture or in the Warrant Certificates
(except the representation contained in Section 10.9 or in the
certificate of the Trustee on the Warrant Certificates) or be required
to verify the same, but all such statements or recitals are and shall
be deemed to be made by the Corporation;
(b) nothing herein contained shall impose any obligation on the Trustee to
see to or to require evidence of the registration or filing (or
renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto; and
(c) the Trustee shall not be bound to give notice to any person or persons
of the execution hereof.
(d) the Trustee shall be protected in acting upon any written notice,
request, waiver, consent, certificate, receipt, statutory declaration
or other paper or document furnished to it hereunder, not only as to
its due execution and the validity and the effectiveness of its
provisions but also as to the truth and acceptability of any
information therein contained which it in good faith believes to be
genuine and what it purports to be.
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10.8 Replacement of Trustee; Successor by Merger
(a) The Trustee may resign its trust and be discharged from all further
duties and liabilities hereunder, subject to this Section 10.8, by
giving to the Corporation not less than 90 days' prior notice in
writing or such shorter prior notice as the Corporation may accept as
sufficient. The Warrant Holders by extraordinary resolution shall have
power at any time to remove the existing Trustee and to appoint a new
Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into
liquidation or otherwise becoming incapable of acting hereunder, the
Corporation shall forthwith appoint a new trustee unless a new trustee
has already been appointed by the Warrant Holders; failing such
appointment by the Corporation, the retiring Trustee or any Warrant
Holder may apply to a justice of the Supreme Court of British Columbia
on such notice as such justice may direct, for the appointment of a
new trustee; but any new trustee so appointed by the Corporation or by
the Court shall be subject to removal as aforesaid by the Warrant
Holders. Any new trustee appointed under any provision of this Section
10.8 shall be a corporation authorized to carry on the business of a
trust company in the Designated Provinces and, if required by the
Applicable Legislation for any other provinces, in such other
provinces. On any such appointment the new trustee shall be vested
with the same powers, rights, duties and responsibilities as if it had
been originally named herein as Trustee hereunder.
(b) Upon the appointment of a successor trustee, the Corporation shall
promptly notify the Warrant Holders thereof in the manner provided for
in Section 11.2 hereof.
(c) Any corporation into or with which the Trustee may be merged or
consolidated or amalgamated, or any corporation resulting therefrom to
which the Trustee shall be a party, or any corporation succeeding to
the trust business of the Trustee shall be the successor to the
Trustee hereunder without any further act on its part or any of the
parties hereto, provided that such corporation would be eligible for
appointment as a successor trustee under subsection 10.8(a).
(d) Any Warrant Certificates certified but not delivered by a predecessor
trustee may be certified by the successor trustee in the name of the
predecessor or successor trustee.
10.9 Conflict of Interest
(a) The Trustee represents to the Corporation that at the time of
execution and delivery hereof no material conflict of interest exists
between its role as a trustee hereunder and its role in any other
capacity and agrees that in the event of a material conflict of
interest arising hereafter it will, within 90 days after ascertaining
that it has such material conflict of interest, either eliminate the
same or assign its trust hereunder to a successor trustee approved by
the Corporation and meeting the requirements set forth in subsection
10.8(a). Notwithstanding the foregoing provisions of this subsection
10.9(a), if any such material conflict of interest exists or hereafter
shall exist, the validity and enforceability of this Indenture and the
Warrant Certificate shall not be affected in any manner whatsoever by
reason thereof.
(b) Subject to subsection 10.9(a), the Trustee, in its personal or any
other capacity, may buy, lend upon and deal in securities of the
Corporation and generally may contract and enter
<PAGE>
31
into financial transactions with the Corporation or any subsidiary of
the Corporation without being liable to account for any profit made
thereby.
10.10 Acceptance of Trust
The Trustee hereby accepts the trusts in this Indenture declared and
provided for and agrees to perform the same upon the terms and conditions herein
set forth.
10.11 Trustee Not to be Appointed Receiver
The Trustee and any person related to the Trustee shall not be
appointed a receiver, a receiver and manager or liquidator of all or any part of
the assets or undertaking of the Corporation.
ARTICLE XI
GENERAL
11.1 Notice to the Corporation and the Trustee
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Trustee shall be deemed to be
validly given if delivered, sent by registered letter, postage prepaid
or telecopied:
If to the Corporation: INFOWAVE SOFTWARE, INC.
#188 - 4664 Lougheed Highway
Burnaby, British Columbia
V5C 6B7
Attention: Jim McIntosh
Telecopy: (604) 473-3645
If to the Trustee: MONTREAL TRUST COMPANY OF CANADA
3rd Floor, 510 Burrard Street
Vancouver, British Columbia
V6C 3B9
Telecopy: (604) 685-4079
Attention: Manager, Corporate Trust
Department
and any such notice delivered in accordance with the foregoing shall
be deemed to have been received on the date of delivery or, if mailed,
on the fifth Business Day following the date of the postmark on such
notice or, if telecopied, on the next Business Day following the date
of transmission provided that its contents are transmitted and
received completely and accurately.
(b) The Corporation or the Trustee, as the case may be, may from time to
time notify the other in the manner provided in subsection 11.1(a) of
a change of address which, from
<PAGE>
32
the effective date of such notice and until changed by like notice,
shall be the address of the Corporation or the Trustee, as the case
may be, for all purposes of this Indenture.
(c) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Trustee or to the Corporation hereunder could reasonably be considered
unlikely to reach its destination, such notice shall be valid and
effective only if it is delivered to the named officer of the party to
which it is addressed or, if it is delivered to such party at the
appropriate address provided in subsection 11.1(a), by telecopy or
other means of prepaid, transmitted and recorded communication.
11.2 Notice to Warrant Holders
(a) Any notice to the Warrant Holders under the provisions of this
Indenture shall be valid and effective if delivered or sent by
telecopy or by ordinary post addressed to such holders at their post
office addresses appearing on the register hereinbefore mentioned and
shall be deemed to have been effectively given on the date of delivery
or, if mailed, on the fifth Business Day following the date of the
postmark on such notice or, if telecopied, on the next Business Day
following the date of transmission provided that its contents are
transmitted and received completely and accurately.
(b) If, by reason of a strike, lockout or other work stoppage, actual or
threatened, involving postal employees, any notice to be given to the
Warrant Holders hereunder could reasonably be considered unlikely to
reach its destination, such notice shall be valid and effective only
if it is delivered personally to such Warrant Holders or if delivered
to the address for such Warrant Holders contained in the register of
Special Warrants maintained by the Trustee, by cable, telegram, telex
or other means of prepaid transmitted and recorded communication.
11.3 Ownership of Special Warrants
The Corporation and the Trustee may deem and treat the registered
owner of any Special Warrants as the absolute owner thereof for all purposes,
and the Corporation and the Trustee shall not be affected by any notice or
knowledge to the contrary except where the Corporation or the Trustee is
required to take notice by statute or by order of a court of competent
jurisdiction. A Warrant Holder shall be entitled to the rights evidenced by its
Warrant Certificate free from all equities or rights of set off or counterclaim
between the Corporation and the original or any intermediate holder of the
Special Warrants and all persons may act accordingly. The receipt of any such
Warrant Holder for the Common Shares shall be a good discharge to the
Corporation and the Trustee for the same and neither the Corporation nor the
Trustee shall be bound to inquire into the title of any such holder except where
the Corporation or the Trustee is required to take notice by statute or by order
of a court of competent jurisdiction.
11.4 Counterparts
This Indenture may be executed in several counterparts, each of which
when so executed shall be deemed to be an original and such counterparts
together shall constitute one and the same instrument and notwithstanding their
date of execution they shall be deemed to be dated as of the date hereof.
<PAGE>
33
11.5 Satisfaction and Discharge of Indenture
Upon the earlier of:
(a) the date by which there shall have been delivered to the Trustee for
exercise or destruction all Warrant Certificates theretofore certified
hereunder; or
(b) the Time of Expiry;
and if all certificates representing Common Shares required to be issued in
compliance with the provisions hereof have been issued and delivered hereunder
or to the Trustee in accordance with such provisions, this Indenture shall cease
to be of any force and effect and the Trustee, on demand of and at the cost and
expense of the Corporation and upon delivery to the Trustee of a certificate of
the Corporation stating that all conditions precedent to the satisfaction and
discharge of this Indenture have been complied with, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.
Notwithstanding the foregoing, the indemnities provided to the Trustee by the
Corporation hereunder shall remain in full force and effect and survive the
termination of this Indenture.
11.6 Provisions of Indenture and Special Warrants for the Sole Benefit
of Parties and Warrant Holders
Nothing in this Indenture or in the Warrant Certificates, expressed or
implied, shall give or be construed to give to any person other than the parties
hereto and the Warrant Holders, as the case may be, any legal or equitable
right, remedy or claim under this Indenture, or under any covenant or provision
herein or therein contained, all such covenants and provisions being for the
sole benefit of the parties hereto and the Warrant Holders.
11.7 Common Shares or Special Warrants Owned by the Corporation or its
Subsidiaries - Certificate to be Provided
For the purpose of disregarding any Special Warrants owned legally or
beneficially by the Corporation or any Subsidiary of the Corporation in Section
8.16, the Corporation shall provide to the Trustee, from time to time, a
certificate of the Corporation setting forth as at the date of such certificate:
(a) the names (other than the name of the Corporation) of the registered
holders of Special Warrants which, to the knowledge of the
Corporation, are owned by or held for the account of the Corporation
or any Subsidiary of the Corporation; and
(b) the number of Special Warrants owned legally or beneficially by the
Corporation or any Subsidiary of the Corporation:
and the Trustee, in making the computations in Section 8.16, shall be entitled
to rely on such certificate without any additional evidence.
<PAGE>
34
11.8 Events of Default
If the Corporation defaults in observing or performing any
representation, warranty, covenant, term or condition herein contained and on
its part to be observed or performed, and if such default continues for a period
of 10 days after notice in writing has been given by the Trustee to the Company,
provided that failure to provide such notice shall not constitute a waiver of
such default, specifying such default and requiring the Corporation to remedy
the same, then, in each and every such event, the Trustee may require that, in
addition to any remedy recoverable by the Trustee for the benefit of the Warrant
Holders at law, the Corporation pay the aggregate sum of $100 to the Trustee for
the benefit of the Warrant Holders.
IN WITNESS WHEREOF the parties hereto have executed this Indenture under
their respective corporate seals and the hands of their proper officers in that
behalf
INFOWAVE SOFTWARE, INC.
By: /s/ Todd Carter
---------------------------------------
Authorized Signatory
MONTREAL TRUST COMPANY OF CANADA
By: /s/ Katherine Camp
---------------------------------------
Authorized Signatory
By: /s/ Georgia Stavridis
---------------------------------------
Authorized Signatory
<PAGE>
THIS IS SCHEDULE "A" to the Special Warrant Indenture made as of April 13, 2000
between INFOWAVE SOFTWARE, INC. and MONTREAL TRUST COMPANY OF CANADA as Trustee.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A HOLD PERIOD
AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL APRIL 13, 2001 EXCEPT AS
PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND THE RULES MADE
THEREUNDER
[For Special Warrants issued in the United States or to U.S. Persons only,
include the following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR
UNDER ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH SECURITIES
MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE CORPORATION,
(B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION S
UNDER THE U.S. SECURITIES ACT, IF AVAILABLE, (C) PURSUANT TO THE EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER, IF AVAILABLE, OR (D) IN COMPLIANCE WITH CERTAIN OTHER
PROCEDURES SATISFACTORY TO THE CORPORATION. DELIVERY OF THIS CERTIFICATE
MAY NOT CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON STOCK
EXCHANGES IN CANADA. A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF
WHICH WILL CONSTITUTE "GOOD DELIVERY", MAY BE OBTAINED FROM MONTREAL TRUST
COMPANY OF CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST COMPANY OF CANADA AND
THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE SECURITIES REPRESENTED
HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
U.S. SECURITIES ACT
SPECIAL WARRANT CERTIFICATE
INFOWAVE SOFTWARE, INC.
(Incorporated under the laws of British Columbia)
SPECIAL WARRANT
CERTIFICATE NO. ______ ________ SPECIAL WARRANTS entitling the
holder to acquire, subject to adjustment,
one Common Share for each Special Warrant
represented hereby.
<PAGE>
-2-
THIS IS TO CERTIFY THAT:
--------------------------
--------------------------
--------------------------
--------------------------
--------------------------
(the "Holder") is entitled to acquire, upon exercise or deemed exercise of each
Special Warrant represented hereby and without payment of any additional
consideration, one fully paid and non-assessable common share (the "Common
Share") of Infowave Software, Inc. (the "Corporation") until 4:30 p.m.
(Vancouver time) (the "Time of Expiry") on the date (the "Expiry Date") which is
the earliest of:
a. five business days after the last Receipt (as defined below) is
issued;
b. one year from the date the Special Warrants are issued; and
c. the date on which all of the Special Warrants have been exercised;
In the event that the Special Warrants are not exercised by the Time of Expiry,
all Special Warrants represented hereby will be deemed to be exercised
immediately prior to such time with no further action on the part of the Holder
and the Corporation.
The Corporation has covenanted to use its commercially reasonable efforts
to obtain receipts (the "Receipts") from each of the securities regulatory
authorities in British Columbia, New Brunswick and Ontario (the "Designated
Provinces"), for a (final) prospectus qualifying for issuance in the Designated
Provinces the Common Shares to be acquired upon exercise of these Special
Warrants.
The right to acquire Common Shares may only be exercised, unless deemed to
be exercised, by the Holder within the time set forth above by:
(a) duly completing and executing the Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to Montreal Trust
Company of Canada (the "Trustee") at its principal office in
Vancouver, British Columbia.
If the Warrants represented by this Special Warrant Certificate are
exercised by the Holder prior to the last Receipt being issued, the Common
Shares shall be subject to hold periods under applicable securities legislation
and may be endorsed with legends to that effect.
These Special Warrants shall be effectively surrendered, unless deemed to
be surrendered, only upon personal delivery hereof or, if sent by mail or other
means of transmission, upon actual receipt thereof by the Trustee at the office
referred to above.
Upon surrender of these Special Warrants, the person or persons in whose
name or names the Common Shares are to be issued and shall be deemed for all
purposes, except as provided in the Indenture (as defined below) to be the
holder or holders of record of such Common Shares and the Trustee has covenanted
that it will, subject to the provisions of the Indenture (as defined below),
cause
<PAGE>
-3-
certificates representing such Common Shares to be delivered or mailed to the
person or persons at the address or addresses specified in the Exercise Form
within five Business Days.
The registered Holder of these Special Warrants may acquire any lesser
number of Common Shares than the number of Common Shares which may be acquired
for the Special Warrants represented by this Special Warrant Certificate. In
such event, the Holder shall be entitled to receive a new Special Warrant
Certificate for the balance of the Common Shares which may be acquired. No
fractional Common Shares will be issued.
In the event of the deemed exercise of the Special Warrants represented by
this Special Warrant Certificate, as described above and as detailed in the
Indenture (as defined below), the Special Warrant Certificate will be deemed to
have been delivered and surrendered and the right of a Holder to acquire Common
Shares represented hereby will be deemed to have been exercised and all such
Common Shares will be issued.
The Special Warrants represented by this Special Warrant Certificate are
issued under and pursuant to a special warrant indenture made as of April 13,
2000 (the "Indenture") between the Corporation and the Trustee. Reference is
made to the Indenture and any instruments supplemental thereto for a full
description of the rights of the Holders of the Special Warrants and the terms
and conditions upon which the Special Warrants are, or are to be, issued and
held, with the same effect as if the provisions of the Indenture and all
instruments supplemental thereto were herein set forth. By acceptance hereof,
the Holder assents to all provisions of the Indenture. In the event of any
conflict between the provisions of this Special Warrant Certificate and the
provisions of the Indenture, the provisions of the Indenture will govern.
Capitalized terms used in the Indenture have the same meaning herein as therein,
unless otherwise defined.
In the event of any alteration of the Common Shares, including any
subdivision, consolidation or reclassification, and in the event of any form of
reorganization of the Corporation, including any amalgamation, merger or
arrangement, the Holders of Special Warrants shall, upon exercise of the Special
Warrants following the occurrence of any of those events, be entitled to receive
the same number and kind of securities that they would have been entitled to
receive had they exercised their Special Warrants immediately prior to the
occurrence of those events.
The Holder of this Special Warrant Certificate may, at any time prior to
the Expiry Time, upon surrender hereof to the Trustee at its principal office in
Vancouver, British Columbia, exchange this Special Warrant Certificate for other
Special Warrant Certificates entitling the Holder to acquire, in the aggregate,
the same number of Common Shares as may be acquired under this Special Warrant
Certificate.
The holding of the Special Warrants evidenced by this Special Warrant
Certificate shall not constitute the Holder hereof a shareholder of the
Corporation or entitle the Holder to any right or interest in respect thereof
except as expressly provided in the Indenture.
The Indenture provides that all Holders of Special Warrants shall be bound
by any resolution passed at a meeting of the Holders held in accordance with the
provisions of the Indenture and resolutions signed by the Holders of Special
Warrants entitled to acquire a specified majority of the Common Shares which may
be acquired pursuant to the exercise of all then outstanding Special Warrants.
The Special Warrants represented hereby and securities which may be
acquired hereunder have not been registered under the United States Securities
Act of 1933, as amended (the "U.S.
<PAGE>
-4-
Securities Act") and may not be exercised by or on behalf of any U.S. person
unless registered under the U.S. Securities Act or pursuant to an applicable
exemption from registration under the U.S. Securities Act.
This Special Warrant Certificate shall not be valid for any purpose
whatever unless and until it has been certified by or on behalf of the Trustee.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Corporation has caused this Special Warrant
Certificate to be signed by its duly authorized officer as of April 13, 2000.
INFOWAVE SOFTWARE, INC.
By: ------------------------------------------
Authorized Signatory
Certified by:
MONTREAL TRUST COMPANY OF CANADA
Trustee
By: ---------------------------------
Authorized Signatory
<PAGE>
TRANSFER OF SPECIAL WARRANTS
Any transfer of Special Warrants will require compliance with applicable
securities legislation. Transferors and transferees are urged to contact legal
counsel before effecting any such transfer.
FOR VALUE RECEIVED, the undersigned: (i) hereby sells, assigns and
transfers to _________________________, _______________ Special Warrants of
Infowave Software, Inc. registered in the name of the undersigned on the records
of Infowave Software, Inc. maintained by Montreal Trust Company of Canada
represented by the Special Warrant Certificate attached and irrevocably appoints
______________________ the attorney of the undersigned to transfer the said
securities on the books or register with full power of substitution; and (ii)
confirms that the transfer is made in compliance with all applicable securities
legislation and requirements of regulatory authorities including without
limitation any undertaking given to The Toronto Stock Exchange.
DATED the ______ day of __________________, ________
- ---------------------------- --------------------------------------
Signature Guaranteed (Signature of Special Warrant Holder)
Instructions:
1. Signature of the Special Warrant Holder must be the signature of the person
appearing on the face of this Special Warrant Certificate.
2. If the Transfer Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person acting
in a fiduciary or representative capacity, the certificate must be
accompanied by evidence of authority to sign satisfactory to the Trustee
and the Corporation.
3. The signature on the Transfer Form must be guaranteed by an authorized
officer of a chartered bank, trust company or medallion guaranteed by a
member of a recognized medallion guarantee program.
4. Special Warrants shall only be transferable in accordance with applicable
laws and the rules and policies of any applicable stock exchange. The
transfer of Special Warrants to a purchaser not resident in British
Columbia, New Brunswick or Ontario may result in the Common Shares obtained
upon the exercise of the Special Warrants (whether after or before
obtaining receipts for a final prospectus relating to the distribution of
Common Shares upon exercise of Special Warrants) not being freely tradeable
in the jurisdiction of the purchaser.
<PAGE>
-2-
The undersigned transferee of _____________ Special Warrants of Infowave
Software, Inc. hereby (i) acknowledges that such Special Warrants are subject to
the terms, conditions and provisions of an Indenture dated as of April 13, 2000;
and (ii) confirms that the transfer is made in compliance with all applicable
securities legislation and requirements of regulatory authorities including,
without limitation, any undertaking given to The Toronto Stock Exchange.
-------------------------------------
Name of Transferee
By: --------------------------------
-------------------------------------
Office or Title
-------------------------------------
Address of Transferee
-------------------------------------
<PAGE>
EXERCISE FORM
TO: Infowave Software, Inc.
Montreal Trust Company of Canada
The undersigned hereby exercises the right to acquire Common Shares of
Infowave Software, Inc. (or, in certain circumstances, such number of other
securities or property to which such Special Warrants entitle the undersigned in
lieu thereof or in addition thereto under the provisions of the Indenture
referred to in the accompanying Special Warrant Certificate) in accordance with
and subject to the provisions of such Indenture.
The Common Shares (or other securities or property) are to be registered as
follows:
Name: ---------------------------------------------------------------------
Address in full: ----------------------------------------------------------
Number of Common Shares: --------------------------------------------------
Note: If further nominees intended, please attach (and initial) schedule
giving the above for each further nominee.
DATED this _____ day of ___________.
- ---------------------------- --------------------------------------
Signature Guaranteed (Signature of Special Warrant Holder)
--------------------------------------
Print full name
--------------------------------------
--------------------------------------
Print full address
Instructions.
- ------------
1. The registered holder may exercise its right to receive Common Shares by
completing this form and surrendering this form and the Special Warrant
Certificate representing the Special Warrants being exercised to Montreal
Trust Company of Canada at its principal office in Vancouver, British
Columbia. Certificates for Common Shares will be delivered or mailed within
five business days after the exercise of the Special Warrants.
2. If the Exercise Form indicates that Common Shares are to be issued to a
person or persons other than the registered holder of the Certificate, the
signature of such holder of the Exercise Form must be guaranteed by an
authorized officer of a chartered bank, trust company or medallion
guaranteed by a member of a recognized medallion guarantee program.
<PAGE>
-2-
3. If the Exercise Form is signed by a trustee, executor, administrator,
curator, guardian, attorney, officer of a corporation or any person acting
in a judiciary or representative capacity, the certificate must be
accompanied by evidence of authority to sign satisfactory to the Trustee
and the Corporation.
4. If the registered holder exercises its right to receive Common Shares prior
to a prospectus receipt being issued by the securities regulatory
authorities in British Columbia, New Brunswick and Ontario, the Common
Shares will be subject to a hold period and will be issued with a legend,
when applicable, reflecting such hold period.
EXHIBIT 10.1
May 8, 2000
Infowave Software, Inc.
4664 Lougheed Highway, Suite 188
Burnaby, B.C.
V5C 5T5
Attention: Mr. Jim McIntosh
Dear Sirs:
Re: Infowave Software, Inc.
On behalf of a management group consisting of the undersigned Robert Heath and
Kevin Jampole (the "Acquisition Group" or "Purchaser") we are pleased to submit
this proposal (the "Transaction Proposal") for the acquisition of the assets and
intellectual property of the Imaging Division (the "Imaging Division") of
Infowave Software, Inc. ("Infowave" or the "Vendor") which acquisition will be
made by an entity to be incorporated by the Acquisition Group ("Holdco"). The
assets of the Division include 100% of all accounts receivables, inventories,
prepaids, capital assets, trade payables, all leases of real and personal
property, all outstanding licenses and agreements with third parties pertaining
to the intellectual property, and all other accrued obligations or liabilities
under any of the forgoing (collectively the " Assets"). Intellectual Property
includes know-how, trademarks, patents, software and goodwill used in
association with the Imaging Division (the "Intellectual Property").
The agreement of all parties to the business terms set out in this Transaction
Proposal will form the basis of our progression to the negotiation and execution
of a binding agreement ("Definitive Agreement"). All the parties named herein
will exert good faith efforts to enter into a mutually agreed upon Definitive
Agreement within a reasonable time frame, however the parties hereto expressly
waive any obligations, express or implied by applicable law relative to the
bargaining process.
The Acquisition Group is keenly interested in consummating the Proposed
Transaction subject to the following terms and conditions:
1. Purchase Price.
The Acquisition Group will pay a total purchase amount (the "Purchase
Price") equal to the following for 100% of the Assets and the Intellectual
Property:
(a) the net book value of the Assets and Intellectual Property based on
the net book value of the Assets and Intellectual Property at the time
of closing, as determined in accordance with Canadian generally
accepted accounting principles ("GAAP") INCLUDING ANY WRITEDOWN OF THE
VALUE OF ASSETS AS MUTUALLY AGREED BY THE PARTIES; [ADDED TEXT IN
CAPS] and
(b) [(b) DELETED FROM ORIGINAL]
In addition, the Acquisition Group will assume all liabilities of the
Division arising, whether under assigned contracts or otherwise, after the
time of closing.
2. Payment of Purchase Price.
(a) The Purchase Price will be paid by the Purchaser to Infowave as
follows:
(i) Cash of $0.5 Million payable on closing from the Acquisition
Group.
(ii) The balance of the Purchase Price (the "Balance") as
calculated on the Closing Date will be paid in quarterly
installments equaling 5% of total net revenues
<PAGE>
accruing from the Intellectual Property in each calendar
quarter beginning in the fourth calendar quarter of the year
2000. The payments will be due and payable from Holdco to
Infowave on the last day of the month following each
calendar quarter. The first payment will be due on January
31, 2001. The Balance plus accrued interest is due and
payable in full by September 30, 2003. The Balance will be
evidenced by a promissory note issued by Holdco.
(iii) The promissory note for the Balance shall be secured against
the Intellectual Property and the Assets provided the
security granted to Infowave over the Assets will be a
floating second charge subordinate to any credit facility
that may be put in place by Holdco to secure an operating
line of credit with a financial institution.
(iv) IF Holdco OBTAINS FINANCING FROM A JCP [will endeavor to go
public (whether by public offering, reverse takeover or
otherwise) as soon as possible after closing and] HOLDCO
will pre-pay 80% OF FUNDS OBTAINED FROM THE JCP [the
proceeds of the going public transaction, including funds
available from the treasury of the public entity,] against
the Balance on closing of the going public transaction to a
minimum of $400,000. [ADDED TEXT IN CAPS; TEXT IN BRACKETS
DELETED FROM ORIGINAL]
(V) HOLDCO WILL USE 50% OF ANY OTHER EQUITY PLACEMENTS (PRIVATE
OR PUBLIC) TOWARDS FURTHER PRE-PAYMENT OF THE BALANCE.
[ADDED TEXT IN CAPS]
(vi) The Balance will accrue interest at the annual rate of seven
(7%) percent per annum commencing January 1, 2001 and
compound annually thereafter.
(vii) Each member of the Acquisition Group agrees to pre-pay the
Balance using any proceeds of sale of shares of Infowave
acquired as contemplated in Section 2(b)(ii) below. The
Acquisition Group and Infowave will agree on a mutually
acceptable structure to ensure compliance with such
agreement.
(b) To assist the Acquisition Group in funding the Purchase Price, the
Acquisition Group requires the following:
(i) The Acquisition Group must have the ability to pay the $0.5
million cash payment due on Closing [immediately following
the Definitive Agreement]. It is understood that each member
of the Acquisition Group is permitted to fund the cash
payment by THE FORWARD VESTING OF A PRESCRIBED NUMBER OF
SHARE OPTIONS AND THEN exercising SUCH OPTIONS and selling
[unvested] THE SUBJECT Infowave SHARES PROVIDED THAT ALL
PROCEEDS OF THE SALE OF SUCH SHARES SHALL BE IMMEDIATELY
PAID TO INFOWAVE AS THE INITIAL CASH PAYMENT [stock
options]. It is further understood that the Acquisition
Group may choose to initially use alternate funding sources.
SHOULD THE ACQUISITION GROUP OBTAIN AN ALTERNATE SOURCE TO
FUND THE INITIAL CASH PAYMENT AND, [Therefore] at any time
during the period that the Balance is outstanding, SHOULD A
[each] member of the Acquisition Group ELECT TO EXERCIZE HIS
RIGHT TO APPLY THE PROCEEDS OF THE SALE OF INFOWAVE SHARES
TO PAY AN $250,000.00 INSTALLMENT ON ACCOUNT OF THE BALANCE,
SUCH MEMBER will be allowed to vest forward and exercise
sufficient options and sell enough shares acquired thereby
to cover THAT [an] individual contribution of $250,000 (net
of applicable personal tax). [ADDED TEXT IN CAPS; TEXT IN
BRACKETS DELETED FROM ORIGINAL]
[(ii) Infowave stock options that have been granted to each member
of the Acquisition Group that remain unvested after the
promissory note has been paid will immediately vest and must
be exercised within 30 days or they will expire.] [TEXT IN
BRACKET DELETED FROM ORIGINAL]
(ii) Each member of the Acquisition Group will enter into a
Consulting Agreement with Infowave to provide consulting
services on an as needed basis which Consulting Agreement
will be subject to automatic termination in the event of the
bankruptcy or other insolvency of Holdco or the individual
entering into such Consulting Agreement. In consideration of
the individual entering into a Consulting Agreement, and for
as long as the Consulting Agreement remains in effect, such
individual will retain entitlement to any options presently
held by him in accordance with the Infowave Share Option
Plan (as summarized in Schedule A attached hereto). Those
options shall be subject to the interest of Infowave (as
contemplated in Section 2(a)(vi) above) and should the
individual of the Acquisition Group elect to exercise such
options when vested and sell the optioned shares, the
proceeds of the disposition of the shares (net of applicable
personal tax) shall be payable to Infowave as a pre-payment
against the Balance then outstanding.
(iii) INFOWAVE STOCK OPTIONS THAT HAVE BEEN GRANTED TO EACH MEMBER
OF THE ACQUISITION GROUP THAT REMAIN UNVESTED AFTER THE
PROMISSORY NOTE HAS BEEN PAID WILL IMMEDIATELY VEST AND MUST
BE EXERCISED WITHIN 30 DAYS OR THEY WILL EXPIRE. [ADDED TEXT
IN CAPS]
<PAGE>
3. Conditions.
The proposed transaction is subject to:
(a) a mutually agreed upon downsizing and severance arrangement being put
in place, the cost of which shall be borne by the Vendor provided
Holdco covenants to offer employment to a designated number of the
present employees (to be agreed upon by the parties) of the Imaging
Division upon the individuals existing terms and conditions of
employment including recognition of the length of service of such
individuals;
(b) the Acquisition Group, Holdco and the Vendor entering into the
Definitive Agreement;
(c) receipt of any regulatory or governmental approvals that may be
required; and
(d) the approval of the shareholders and/or the board of directors of
Infowave as required.
4. Infowave Board Approval.
This Transaction Proposal is open to acceptance by Infowave's Board of
Directors, expected no later than Monday May 8, 2000.
5. Timing.
Both parties agree to devote the resources required to negotiate and enter
into the Definitive Agreement and complete the acquisition as soon as
practical after receiving approval by Infowave's Board of Directors and
completion of the downsizing program. The target closing date is June 30,
2000.
6. Expenses.
Whether the Proposed Transaction is consummated or not, Infowave and the
Acquisition Group agree that each will be responsible for its own expenses
incurred in connection with the Proposed Transaction, including without
limitation, legal and accounting expenses. Any expenses related to third
party auditors required in making the determinations required in Section 1
shall be paid equally by Infowave and the Acquisition Group.
7. Confidentiality.
Infowave and the Acquisition Group acknowledge and agree that the contents
of this letter are confidential and are intended for the exclusive use of
the parties hereto and their advisors. Except as required upon advice of
counsel, disclosure of this letter's existence or contents to any other
person may be made only upon the prior written consent of Infowave and the
Acquisition Group, except that the Acquisition Group may disclose the
existence and contents of this letter to their advisors and potential
sources of financing without the written consent of Infowave and Infowave
may disclose the existence and contents of this letter to its advisors, the
underwriters of its recent special warrant financing and as may be required
by applicable law, the rules and policies of applicable securities
regulatory authorities or The Toronto Stock Exchange.
8. General Matters.
Each of us understands and agrees that except for our respective
obligations set out under the headings, "Expenses", and "Confidentiality"
(which are intended to be legally binding), this letter is one of intent
only and does not and is not intended to constitute a binding agreement
with respect to the Proposed Acquisition. A legally enforceable agreement
will be entered into by us only following completion of the definitive
purchase agreement.
<PAGE>
Upon acceptance of the Transaction Proposal, the Acquisition Group will
incorporate a holding company ("Holdco") for the purpose of completing the
proposed acquisition. Under the Definitive Agreement, the Acquisition Group
will assign the rights under this Transaction Proposal, and will either
directly or indirectly be an investor in this holding company.
9. Exclusivity.
Infowave agrees not to solicit any offer from, or to negotiate with, any
party other than the Acquisition Group for the purchase and sale of the
Assets for a period of 30 days from the date hereof pending the execution
of the Definitive Agreement within such time period, unless the parties
agree in writing that negotiations hereunder are terminated.
10. Ordinary Course of Business.
It is our understanding that the Division will continue its operations in
the ordinary course and will not, except in the ordinary course or with the
consent of the Acquisition Group:
(a) enter into transactions other than on an arms' length basis;
(b) reduce pricing and/or inventories and/or accounts receivables;
(c) paydown, or amend material terms of, accounts payable; or
(d) make intercompany transfers of funds, current assets, or fixed assets
of the Company.
This proposal will remain open until May 8, 2000, at 5:00pm (PST) at which time,
if not accepted by Infowave, it shall terminate automatically without liability
on the part of any party and without further action by the parties, except with
respect to obligations set out under the heading "Confidentiality".
If you wish to proceed with us on the basis described in this letter, please
sign where indicated and return to us, one copy of this letter.
Yours truly,
By: /s/ Robert Heath
------------------------------------
Robert Heath
By: /s/ Kevin Jampole
------------------------------------
Kevin Jampole
Accepted this 10th day of May, 2000.
Infowave Software, Inc.
By: /s/ Jim McIntosh
------------------------------------
Jim McIntosh, President & CEO
<PAGE>
Schedule A
Robert Heath
Options Strike Extended
Price
4-Jan-01 39,000 16.15 $629,850
4-Apr-01 9,750 16.15 157,463
4-Jul-01 9,750 16.15 157,463
4-Oct-01 9,750 16.15 157,463
- ----------------------------------------------------
4-Jan-02 9,750 16.15 157,463
4-Apr-02 9,750 16.15 157,463
4-Jul-02 9,750 16.15 157,463
4-Oct-02 9,750 16.15 157,463
- ----------------------------------------------------
4-Jan-03 9,750 16.15 157,463
- ----------------------------------------------------
Total 117,000 $1,889,550
====================================================
Kevin Jampole
<TABLE>
Options Strike Extended Options Strike Extended
Price Price
<S> <C> <C> <C> <C> <C> <C>
26-Jul-00 8,313 1.21 $10,059
27-Sep-00 6,600 3.63 $23,958
26-Oct-00 8,313 1.21 10,059
27-Dec-00 1,925 3.63 6,988
- ---------------------------------------------------- --------------------------------------
26-Jan-01 8,313 1.21 10,059
27-Mar-01 1,925 3.63 6,988
26-Apr-01 8,313 1.21 10,059
27-Jun-01 1,925 3.63 6,988
26-Jul-01 8,313 1.21 10,059
27-Sep-01 1,925 3.63 6,988
26-Oct-01 8,309 1.21 10,054
27-Dec-01 1,925 3.63 6,988
- ---------------------------------------------------- --------------------------------------
27-Mar-02 1,925 3.63 6,988
27-Jun-02 1,925 3.63 6,988
27-Sep-02 1,925 3.63 6,988
- ---------------------------------------------------- --------------------------------------
Total 49,874 $60,348 22,000 $79,860
==================================================== ======================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,417,919
<SECURITIES> 0
<RECEIVABLES> 1,372,710
<ALLOWANCES> (30,050)
<INVENTORY> 628,530
<CURRENT-ASSETS> 5,534,041
<PP&E> 3,059,559
<DEPRECIATION> (1,482,299)
<TOTAL-ASSETS> 7,135,445
<CURRENT-LIABILITIES> 1,906,657
<BONDS> 0
0
0
<COMMON> 13,922,875
<OTHER-SE> (8,694,087)
<TOTAL-LIABILITY-AND-EQUITY> 7,135,445
<SALES> 102,434
<TOTAL-REVENUES> 102,434
<CGS> 369
<TOTAL-COSTS> 2,158,406
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,995,708)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,995,708)
<DISCONTINUED> (1,161,870)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,157,578)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - SAFE HARBOR FOR
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor
for forward-looking statements made by public companies. This safe harbor
protects a company from securities law liability in connection with
forward-looking statements if the company complies with the requirements of the
safe harbor. As a public company, Infowave has relied and will continue to rely
on the protection of the safe harbor in connection with its written and oral
forward-looking statements.
When evaluating Infowave's business, you should consider:
o all of the information in this quarterly report on Form 10-Q;
o the risk factors described in Infowave's Annual Report for the
year ended December 31, 1999 filed with the Securities and
Exchange Commission on March 30, 2000; and
o the risk factors described below.
RISK FACTORS
General
History of Losses
The Corporation is not currently profitable and incurred losses of $3,157,578
for the three months ended March 31, 2000 and $3,288,251 and $1,206,266 for the
years ended December 31, 1999 and 1998, respectively. In particular, the
Wireless Division is not profitable and incurred operating losses of $1,995,708
for the three months ended March 31, 2000 and $3,891,727 and $2,724,899 for the
years ended December 31, 1999 and 1998, respectively. The Corporation expects to
continue to incur losses in the near future and possibly longer. The Corporation
anticipates that its expenses will increase substantially in the foreseeable
future as it expands the Wireless Division and the Corporation continues to
increase its research and development, sales and marketing and general and
administrative expenses. The Corporation cannot predict if it will ever achieve
profitability and, if it does, it may not be able to sustain or increase
profitability.
Possible Divestiture of Imaging Division
On May 10, 2000 the Corporation signed a letter of intent to sell the assets and
business of the Imaging Division. The sale of the Imaging Division is subject
to, among other things, the negotiation of a definitive agreement and the
receipt of regulatory approvals and, if required, shareholder approvals. There
is no assurance that a definitive agreement will be successfully negotiated nor
that the necessary approvals will be obtained.
Substantially all of the historical revenue of the Corporation has been from the
Imaging Division. In the year ended December 31, 1999, the Imaging Division had
revenue of $7,175,330 and the Wireless Division had revenue of $355,001.
Accordingly, if the Corporation divests itself of the Imaging Division, it will
be entirely reliant upon possible increased revenues from the Wireless Division.
There is no assurance that increased revenues from the Wireless Division will
materialize.
<PAGE>
Reliance on New Technologies
The Corporation is focused upon growth from its Wireless Division. The wireless
data communications market is characterized by rapidly changing technology and
evolving industry standards. Therefore, it is difficult to predict the rate at
which the market for the Corporation's wireless software products will grow, if
at all. If the market fails to grow, or grows more slowly than anticipated, the
Corporation will be materially adversely affected. Even if the market does grow,
there can be no assurance that the Corporation's products will achieve
commercial success. The Corporation may find itself competing in the market for
wireless mobile computing software against other companies with significantly
greater financial, marketing and other resources. Such competitors may be able
to institute and sustain price wars, or imitate the features of the
Corporation's wireless mobile computing software, reducing prices and the
Corporation's revenues and share of the market.
In addition, the Corporation's competitors may develop alternative technologies
that gain broader market acceptance than the Corporation's software solutions.
As a result, the life cycle of the Corporation's software solutions is difficult
to estimate. The Corporation may need to develop and introduce new products and
enhancements to its existing solutions on a timely basis to keep pace with
technological developments, evolving industry standards, changing customer
requirements and competitive technologies that may render its solution obsolete.
These research and development efforts may require the Corporation to expend
significant capital and other resources. In addition, as a result of the
complexities inherent in the Corporation's solutions, major enhancements or
improvements will require long development and testing periods. If the
Corporation fails to develop products and services in a timely fashion, or if it
does not enhance its products to meet evolving customer needs and industry
standards, including security technology, it may not remain competitive or sell
its solutions.
Product Improvements
The Corporation will be at risk if it is unable to continually upgrade and
improve its software products, or to develop new software products. The software
industry is characterized by a constant flow of new or improved products, which
quickly render existing software products obsolete. The Corporation's
competitors may develop technically superior and comparably priced or lower
priced software that would have a material adverse effect on the Corporation.
Additional Financing
The Corporation may not have sufficient capital to fund its operations. In
particular, additional financing may be required in the near term to develop,
commercialize and market the Corporation's wireless mobile computing software
products and services. No assurance can be given that any additional financing
required will be available, or that additional financing will be available on
terms that may be advantageous to existing shareholders. Such financings, to the
extent they are available may result in substantial dilution to shareholders. To
the extent such financing is not available, the Corporation may not be able to
or may be delayed in being able to commercialize its software products and
services.
2
<PAGE>
Management of Growth
The Corporation has been expanding, and intends to continue to expand, its
Wireless Division. This growth has placed, and any further growth is likely to
continue to place, a significant strain on the Corporation's resources. The
Corporation's ability to achieve and maintain profitability will depend on its
ability to manage growth effectively, to implement and expand operational and
customer support systems, and to hire additional personnel. The Corporation may
not be able to augment or improve existing systems and controls or implement new
systems and controls to respond to any future growth. In addition, future growth
may result in increased responsibilities for management personnel, which may
limit their ability to effectively manage the Corporation's business.
Reliance on Key Personnel and Consultants
The Corporation is currently dependent upon its senior management, board of
directors, consultants, and strategic alliances, the loss of any of which may
significantly affect the performance of the Corporation and its ability to carry
out the successful development and commercialization of its software products
and services. Failure to retain management, directors and consultants or to
attract and retain additional key employees with necessary skills could have a
material adverse impact upon the Corporation's growth and profitability. The
Corporation is expecting significant growth in both revenue and employees as a
result of the commercialization of its wireless mobile computing software
products. This growth will place substantial demands on the Corporation. The
Corporation's ability to assimilate new personnel will be critical to its
performance. The Corporation will be required to recruit additional software
development personnel, expand its direct sales force, expand its customer
support functions and train, motivate and manage its employees. Competition for
qualified software development personnel is intense and expected to increase.
There can be no assurance that the Corporation will be able to recruit the
personnel required to execute its programs or to manage these changes
successfully.
Reliance on Key Third-Party Relationships
The Corporation relies on key third-party relationships, including its
relationships with VARs, resellers and OEMs, for marketing and sales of its
software products. These third parties are not within the control of the
Corporation, are not obligated to purchase software products from the
Corporation and may also represent and sell competing software products. The
loss of any of these third-party relationships, the failure of such parties to
perform under agreements with the Corporation or the inability of the
Corporation to attract and retain new VARs, resellers or OEMs with the
technical, industry and application experience required to market and sell the
Corporation's software products successfully could have a material adverse
effect on the Corporation.
Competition
The Corporation experiences competition in the markets for both its wireless
mobile computing software and printer driver software. As the market for the
Corporation's software products continues to develop, additional competitors
with substantially greater financial, technical and marketing resources than the
Corporation may enter the market and competition may intensify. Current or
future competitors may develop software products that are superior to the
Corporation's software products or achieve greater market acceptance.
3
<PAGE>
Product Defects
Software products as complex as those offered by the Corporation may contain
undetected errors or defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Corporation and
by current and potential customers, errors will not be found in new software
products after commencement of commercial shipments resulting in product recalls
and market rejection of the Corporation's software products and resulting in
damage to the Corporation's reputation, as well as lost revenue, diverted
development resources and increased support costs.
Intellectual Property Protection
The Corporation considers its software products and trademarks to be of value
and important to its business. The Corporation relies principally upon a
combination of copyright, trademark and trade secret laws, non-disclosure
agreements and other contractual provisions to establish and maintain its
rights. The Corporation does not have any patents or patent applications
pending. Despite the Corporation's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or obtain and use information that the
Corporation regards as proprietary. There can be no assurance that the steps
taken by the Corporation to protect its proprietary information will prevent
misappropriation of such information. The cost of litigation necessary to
enforce the Corporation's proprietary rights may be prohibitive. Such steps may
not preclude competitors from developing confusingly similar brand names or
promotional materials or developing software products and services similar to
those of the Corporation.
Although the Corporation believes that it has the right to use all of the
intellectual property incorporated in its software products, third parties may
claim that the Corporation's software products violate their proprietary rights,
including copyrights and patents. If any such claims are made and found to be
valid, the Corporation may have to reengineer its software products or obtain
licenses from third parties to continue offering its software products. Any
efforts to reengineer its software products or obtain licenses from third
parties may not be successful and could substantially increase the Corporation's
costs and have a material adverse effect on the business, financial condition
and results of operations of the Corporation.
Lack of Backlog
Because the Corporation generally ships software products within a short period
after receipt of an order, the Corporation typically does not have a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. The Corporation's expense levels are
based in part on its expectations as to future revenues. Therefore, the
Corporation may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant shortfall of
demand in relation to the Corporation's expectations or any material delay of
customer orders would have an almost immediate adverse impact on the
Corporation's results of operations.
4
<PAGE>
Reliance on Export Sales
The Corporation's export sales to the United States and Europe represented 97%
of its total sales in the year ended December 31, 1999. There can be no
assurance that the Corporation will be able to maintain or increase
international demand for the Corporation's software products or that the
Corporation's distributors will be able to effectively meet that demand.
Additional risks inherent in the Corporation's international business activities
generally include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing software products for
foreign countries, longer accounts receivable payment cycles, difficulties in
managing international distributors, potentially adverse tax consequences,
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and changes in demand resulting from fluctuations in exchange
rates. In addition, the laws of certain foreign countries do not provide
protection for the Corporation's intellectual property to the same extent as do
the laws of Canada and the United States.
Foreign Exchange Rate Exposure
The majority of the Corporation's revenue is denominated in U.S. dollars (the
currency in which the Corporation's financial statements are stated) or
currencies other than Canadian dollars and in the future may be denominated in
currencies other than Canadian or U.S. dollars. The Corporation does not engage
in currency hedging activities to limit the risks of exchange rate fluctuations.
As a result, changes in the relative value of the U.S. dollar to the Canadian
dollar and other foreign currencies will affect the Corporation's revenues and
operating margins. The impact of future exchange rate fluctuations between the
U.S. dollar and the Canadian dollar or other foreign currencies on revenues and
operating margins cannot be accurately predicted and could have a material
adverse effect on the Corporation.
Enforcement of Civil Liabilities
The Corporation is a corporation incorporated under the laws of British
Columbia, Canada. Certain of the directors and the Corporation's professional
advisors are residents of Canada or otherwise reside outside of the U.S. All or
a substantial portion of the assets of such persons are or may be located
outside of the U.S. It may be difficult to effect service of process within the
United States upon the Corporation or upon such directors or professional
advisors or to realize in the U.S. upon judgments of U.S. courts predicated upon
civil liability of the Corporation or such persons under U.S. federal securities
laws. The Corporation has been advised that there is doubt as to whether
Canadian courts would (i) enforce judgments of U.S. courts obtained against the
Corporation or such directors or professional advisors predicated solely upon
the civil liabilities provisions of U.S. federal securities laws, or (ii) impose
liabilities in original actions against the Corporation or such directors and
professional advisors predicated solely upon such U.S. laws. However, a judgment
against the Corporation predicated solely upon civil liabilities provisions of
such U.S. federal securities laws may be enforceable in Canada if the U.S. court
in which such judgment was obtained has a basis for jurisdiction in that matter
that would be recognized by a Canadian court.
5
<PAGE>
Wireless Division
Wireless Industry Growth
The overall market for wireless data communications devices has experienced
significant growth in recent years. There can be no assurance that the market
for the Corporation's existing or proposed wireless software products will
continue to grow, that firms within the industry will adopt the Corporation's
software products for integration with their wireless data communications
solutions, or that the Corporation will be successful in independently
establishing product markets for its wireless software products. If the various
markets in which the Corporation's software products compete fail to grow, or
grow more slowly than the Corporation currently anticipates, or if the
Corporation were unable to establish product markets for its new software
products, the Corporation's business, results of operation and financial
condition would be materially adversely affected.
Reliance on Microsoft
Some of the Corporation's wireless software products wirelessly enable the
functionality of Microsoft Exchange. The Corporation is aware that Microsoft has
developed its own wireless functionality for Microsoft Exchange that may compete
with software products of the Corporation. Also, United States federal and state
regulatory authorities have initiated broad antitrust actions against Microsoft.
The Corporation cannot predict to what extent these antitrust actions may affect
Microsoft or the Corporation's relationship with Microsoft.
Imaging Division
Reliance on Sales of Apple Macintosh Computers
The majority of the Corporation's revenues are currently derived from the sale
of the Corporation's printer driver products. The sale of these software
products currently relies on the sale of computers that use the Apple Macintosh
operating system. Any reduction in sales of computers using the Macintosh
operating system may have an immediate and material adverse effect on the
Corporation's revenues.
In addition, the Corporation's strategy of developing printer driver products
compatible with the Apple Macintosh operating system is substantially dependent
on the Corporation's ability to gain pre-release access to, and to develop
expertise in, current and future Macintosh product developments by Apple. There
can be no assurance that Apple will continue to cooperate with the Corporation,
and the inability of the Corporation to maintain and further develop its
relationship with Apple would have a material adverse affect on the
Corporation's results of operations from its Imaging Division.
6
<PAGE>
Reliance on Independent VARs, Resellers and OEMs ("Distributors")
A significant portion of the Corporation's revenue from its Imaging Division is
derived from sales of printer driver products to Distributors that are not under
the direct control of the Corporation. These Distributors carry multiple product
lines and could reduce their support of the Corporation's software products in
favor of a competitor's software products or for any other reason. The loss of
any of the Corporation's major Distributors for its Imaging Division would have
a material adverse affect on the Corporation's results of operations from its
Imaging Division. Under certain conditions, the Corporation offers stock
balancing and price protection programs to its Distributors. Therefore, the
Corporation is exposed to the risk of product returns from Distributors. There
can be no assurance that the Corporation's recorded allowances for returns from
its Imaging Division will be adequate and a material increase in returns over
historical rates would have a material adverse affect on the Corporation's
results of operations from its Imaging Division. In 1999, Ingram Micro Inc. and
Hewlett-Packard were the Corporation's only significant Distributors, accounting
for 33% and 17% of the Corporation's sales, respectively.
7
