<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F/A-1
[ X ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File No. 001-14835
BID.COM INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
ONTARIO, CANADA
(Jurisdiction of incorporation or organization)
6725 Airport Road, Suite 201
Mississauga, Ontario L4V 1V2
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered
by the annual report.
48,125,396 Common Shares as of March 23, 1999
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes_____ No X
------
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 X Item 18 ______
-----
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
EXCHANGE RATES..................................................................................1
FORWARD LOOKING STATEMENTS......................................................................1
PART I..........................................................................................2
<S> <C> <C> <C>
ITEM 1 - DESCRIPTION OF BUSINESS.............................................................2
RISK FACTORS..................................................................17
ITEM 2 - DESCRIPTION OF PROPERTY............................................................28
ITEM 3 - LEGAL PROCEEDINGS..................................................................29
ITEM 4 - CONTROL OF REGISTRANT..............................................................29
ITEM 5 - NATURE OF TRADING MARKET...........................................................30
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.................31
ITEM 7 - TAXATION...........................................................................32
ITEM 8 - SELECTED FINANCIAL DATA............................................................36
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................40
ITEM 9A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...........................
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT..............................................48
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS............................................50
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES....................52
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS....................................54
PART II........................................................................................56
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED........................................56
PART III.......................................................................................57
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES...................................................57
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS.............................................57
PART IV........................................................................................57
ITEM 17 - FINANCIAL STATEMENTS..............................................................57
ITEM 18 - FINANCIAL STATEMENTS..............................................................57
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS.................................................57
AUDITORS' REPORT..............................................................................F-1
</TABLE>
i
<PAGE>
EXCHANGE RATES
The following table sets forth, for the period indicated, certain exchange
rates based on the noon buying rate in New York City for cable transfers in
Canadian dollars, as certified for customs purposes by the Federal Reserve Bank
of New York. Such rates are the number of U.S. dollars per one Canadian dollar
and are the inverse of the rates quoted by the Federal Reserve Board of New York
for Canadian Dollars per U.S. $1.00. On March 26, 1999, the exchange rate was
$1.00 (Canadian)= US $1.5138. Certain financial information presented in this
Registration Statement has been translated from Canadian dollars to U.S. dollars
at an exchange rate of Cdn$1.5302 to US$1.00, the noon buying rate in New York
City on December 31, 1998 for cable transfers in Canadian dollars as certified
for customs purposes by the Federal Reserve Bank of New York.
Year Ended December 31,
------------------------------------------------
Rate 1994 1995 1996 1997 1998
- ---- ---- ---- ---- ---- ----
Last Day of year $.7128 $.7323 $.7301 $.6999 $.6535
Average(1) during year .7319 .7286 .7332 .7221 .6740
High during year .7632 .7527 .7513 .7487 .7105
Low during year .7103 .7023 .7235 .6945 .6341
(1) The average rate is the average of the exchange rates on the last day
of each month during the year.
FORWARD LOOKING STATEMENTS
This Registration Statement includes forward-looking statements, regarding among
other items:
. acceptance of BID.COM auction services in the marketplace
. the Company's marketing and sales plans
. the Company's expectations about the markets for its online auction
services
. the Company's future capital needs
. the acceptance of the Internet and/or online auctions as a viable
commercial medium
. the success of the Company's patent application and protection of its
proprietary technology
. Year 2000 compliance efforts and anticipated Year 2000 problems relating to
suppliers and service providers
. geographic expansion of the Company's business
The Company has based these forward-looking statements largely on its
expectations. Forward-looking statements are subject to risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from those anticipated as a result of the factors described in the
"Risks Factors" section beginning on page [17], including, among others:
. uncertainty about the acceptance of the Internet and/or online auctions as
a viable commercial medium
. uncertainty of market acceptance of the Company's auction services
. the timing of future capital needs and inability to raise additional
capital when needed
. the Company's ability to compete with other online retailing and auction
businesses
. failure to timely develop or license new technologies
. delays in the issuance of, or the failure to obtain, patents for certain
proprietary technologies problems with important vendors and business
partners on whom the Company relies
. inability of the Company, directly and/or through its marketing and
advertising alliances, to attract a sufficient number of customers to the
Company's Web site
. risk of system failure or interruption
. implementation and enforcement of government regulations the failure of the
Company's suppliers and strategic partners to resolve any Year 2000 issues
. problems which may arise in connection with the acquisition or integration
of new businesses, products, services, technologies or other strategic
relationships
1
<PAGE>
The Company does not undertake any obligation to publicly update or revise
any forward-looking statements contained in this Registration Statement, whether
as a result of new information, future events or otherwise. Because of these
risks and uncertainties, the forward-looking events and circumstances discussed
in this Registration Statement might not transpire.
2
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Unless otherwise indicated, all references in this Registration Statement
to "dollars" or "$" are references to U.S. dollars. The Company's financial
statements are expressed in Canadian dollars. Certain financial information
presented in this Registration Statement has been translated from Canadian
dollars to U.S. dollars at an exchange rate of Cdn$1.5302 to US$1.00, the noon
buying rate in New York City on December 31, 1998 for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York. Such translations should not be construed as representations that
the Canadian dollars represent, or have been or could be converted into, U.S.
dollars at that or any other rate. Unless otherwise indicated, all references to
the "Company" or "BID.COM" in this Registration Statement are deemed references
to the Company and its subsidiaries and predecessor.
Overview
BID.COM International Inc. ("BID.COM" or the "Company") is a sales and
marketing company striving to become the pre-eminent online auction house and a
leading electronic retailer ("E-tailer"). The Company conducts
business-to-consumer auctions at its Web site, www.BID.COM, and at other uniform
resource locators ("URLs"). The Company's Web site has been operating online
since April 1996, and has progressed from the developmental stage to revenue
generation. The Company launched its BID.COM brand name auctions in March, 1998
and as of March 14, 1999, the Company had approximately 103,000 registered
bidders. In December 1998, the Company completed the development of a
business-to-business auction service. The Company plans to operate
business-to-business auctions in selected vertical industry sectors and to
conduct liquidation auctions for bankruptcy trustees and other liquidators. The
Company also seeks to license its proprietary online auction technology to
support private brand online auctions and interactive auctions in a variety of
other electronic media.
The Company's business is an entertaining and cost-effective method of
selling a wide array of goods and services to retail shoppers and businesses via
the Internet. BID.COM offers traditional rising price auctions and declining
price, or "Dutch," auctions. The Company's auctions combine the brand name
selection of a department store and the value of a discount superstore with the
excitement of an auction environment and the convenience and security of in-home
online shopping. The Company's auctions run on a proprietary state-of-the-art
E-commerce platform with an engaging format, scaleable transactional backbone
and efficient delivery system.
The Company has received a notice of allowance from the U.S. Patent and
Trademark Office ("PTO") for a patent application it filed seeking protection
for the process whereby the Company conducts Dutch auctions over electronic
distribution channels. Management believes that its capability within the
Dutch auction sector is a key point of differentiation in the online marketplace
that will grow in significance as more online shoppers and businesses become
familiar with this E-tailing platform.
The BID.COM business-to-consumer auctions sell a broad range of products at
prices that usually are lower than those charged by traditional retailers for
the same or similar items. The Company sells primarily brand name, front-line
products under manufacturers warranty, including computer hardware and software,
consumer electronics, toys, games, sporting goods, jewelry, memorabilia,
collectible sports and entertainment cards and travel and entertainment products
and services. The Company believes that manufacturers view the online auction as
a new distribution channel that complements existing retail, catalog,
telemarketing and other distribution channels. The Company offers products from
many brand name manufacturers, including: AST, Canon, Compaq, Creative Labs,
Dell, Epson, General Electric, Hewlett Packard, IBM, JVC, Koss, Magnavox,
Motorola, Nikon, Nintendo, Panasonic, Pentax, Samsung, Seagate, Sega, Seiko,
Sharp, Sony, Toshiba, U.S. Robotics, Western Digital and Zenith.
The Company is able to offer a broad range of products at low prices
because electronic retailing, or "E-tailing," significantly reduces or
eliminates many of the costs typically associated with retail store sales,
including costs of sales staff and store management, store rent and maintenance,
fixtures and merchandising. Similarly, manufacturers are able to eliminate many
of the distribution costs typically incurred in selling through retail stores
and, therefore, are able to sell goods to Etailers at lower prices. In addition,
retailing online enables the Company to purchase goods from suppliers only after
customers have ordered and paid for them, thereby allowing the Company to
eliminate significant inventory cost and risk. These cost savings help ensure
that the Company's overhead costs of operation remain relatively fixed and allow
the Company to pass on savings directly to customers.
3
<PAGE>
Industry Background
The Internet. The Internet is an increasingly significant global medium for
communications, information and commerce. In May 1998, International Data
Corporation ("IDC") estimated that the number of Web users worldwide will grow
from approximately 69.0 million in 1997 to approximately 320.0 million by the
end of 2002. The Company believes that Internet growth will result from a number
of factors, including the large and growing use of personal computers ("PCs") in
the workplace and home, increasing reliance on the Internet by the
business-to-business sector, advances in the performance and speed of PCs and
modems, improvements in network infrastructure, easier and cheaper access to the
Internet and increased awareness of the Internet among businesses and consumers.
Jupiter Communications LLC ("Jupiter") estimates that the number of online
households (households using e-mail, the Internet or a consumer online service)
in the United States will grow from an estimated 15.2 million household in 1996
to 57.0 million households, representing over 50% of U.S. households, by the
year 2002.
It is anticipated that online users will continue to grow as
communications, cable and computer related companies begin to offer access to
the Internet through home television sets via Web TV or cable. Several large
communications companies have announced plans to acquire or invest in cable
television providers with the goal of selling high speed online access and
Internet phone service over existing broadband cable lines. Cable modems have
the advantage of delivering data faster than telephone modems. In addition, a
cable modem is always connected, thereby eliminating the need for a user to dial
up access to the Internet. Forrester Research Inc. ("Forrester") estimates that
the number of homes in North America accessing the Internet with cable modems
will grow from about 700,000 by the end of 1999 to approximately 13.6 million by
the end of 2002.
The Company believes that a significant opportunity exists for online
business-to-consumer and business-to-business trade. In May 1998, IDC estimated
that the total value of goods and services purchased worldwide on the Internet
grew from approximately $296.0 million in 1995 to approximately $32.0 billion in
1998 and that worldwide sales of goods and services on the Internet will grow to
approximately $426.0 billion by 2002. Industry analysts predict that the
business-to-business sector will account for much of the growth of E-commerce
over the Internet. Forester projects that in the United States, intercompany
trade of hard goods over the Internet will hit $31.3 billion in 1998 and will
reach $983.0 billion by 2003 (in each case excluding trade in utilities and
petrochemicals).
The Internet has evolved into a unique marketing channel. By directly
operating their own Web sites, Internet retailers can interact with customers in
real-time by frequently adjusting their product mix, pricing and visual
presentation. In addition, the global reach of the Internet allows E-tailers to
build large, geographically-dispersed customer bases more quickly than
traditional retailers and catalog marketers. Unlike traditional marketing
channels, Internet retailers do not have the burdensome costs of a significant
retail store infrastructure, the continuous printing and mailing costs of a
catalog marketer or the store personnel or call center costs incurred by
traditional retailers and catalog marketers.
The Internet offers many data management and multimedia features which
enable consumers to search for products by category or brand. In addition, the
Internet allows consumers to access a wealth of information, including reviews
and competitive pricing and audio and video presentations which enhance static
catalog formats. Internet retailers can more easily obtain demographic and
behavioral data about their customers, providing them with greater direct
marketing opportunities and the ability to offer a more personalized shopping
experience. Internet retailers also offer consumers the convenience of home
shopping and 24-hour-a-day, seven-days-a-week operations, available to any
location, foreign or domestic, that has access to the Internet.
Many traditional retailers are compelled, because of store size and other
factors, to limit the amount of inventory they carry at each store and focus on
a smaller selection of faster-selling products. Online retailers are able to
offer consumers a broader range of products because they have fewer space
constraints and because they are often able to purchase products from suppliers
only after products have been sold to the consumer. Online retailers can also
both test market new products and re merchandise existing products for sale,
with greater speed and for relatively nominal cost.
Internet Auctions. The Company believes that a number of characteristics of
online auctions make the sale of consumer goods via the Internet particularly
attractive relative to traditional retail stores or to static priced online
stores
4
<PAGE>
and catalogs. The primary advantage is that customers are empowered to set their
own price for a purchase. Online auctions represent a dynamically changing sales
format that leverages the unique characteristics of the Internet, such as
interactivity and the sense of community built by customers competitively
bidding in an exciting auction environment. Online auctions also provide
immediate feedback to E-tailers regarding price-points that are attractive to
consumers. This constitutes an efficient market model that enables supply and
demand functions to move to equilibrium in real-time, and provides online
auctioneers the opportunity to respond to market conditions quickly. Jupiter
predicts that online business-to-consumer auctions will result in sales of $3.2
billion worth of merchandise each year by 2002 and that online auction
purchasers in the United States will grow from 1.2 million in 1998 to 6.5
million in 2002. Due to the rapidly growing business-to-business sector, the
Company believes that online auctions servicing the business-to-business sector
will grow contemporaneously.
Business Strategy
The Company's business strategy is comprised of the following key components:
Diversifying Revenue Sources. The Company seeks to leverage its proprietary
auction technology to generate revenue opportunities in several distinct online
auction categories and selected other interactive auction media. While the
Company currently derives most of its revenues from business-to-consumer
auctions, the Company believes that by diversifying its revenue sources, it will
be able to expand its customer base and reduce reliance on any one source of
customer or auction category.
o Online Business-to-Consumer Auctions. The Company conducts
business-to-consumer auctions at its www.BID.COM Web site and at other URLs.
BID.COM offers rising price and declining price "Dutch" auctions. The Company's
Web site has been online since April 1996 and the Company has offered a wide
variety of business-to-consumer online auctions since May, 1997. The Company
launched its BID.COM brand name auctions in March 1998. As of March 14, 1999,
the Company had approximately 103,000 registered bidders. The Company currently
derives most of its revenues from business-to-consumer auctions.
o Online Business-to-Business Auctions. In December 1998, the Company
completed the development of a business-to-business auction service. The Company
plans to operate business-to-business auctions in selected vertical industry
sectors and plans to conduct liquidation auctions for bankruptcy trustees, banks
and other liquidators. The Company has been designated a preferred vendor by The
ASCII Group (Canada), a 340-member network of independent computer value-added
resellers ("VAR") and plans t conduct online auctions of products directed to
members of the VAR market. The Company also plans to seek licensing or
co-branding opportunities with distribution partners within a number of
additional business-to-business vertical markets. Management believes that its
Dutch auction proprietary technology will have wide application in the
business-to-business sector because it enables organizations to efficiently
conduct high volume transactions.
o Licensing Online Platform for Private Brand Auctions. The Company seeks
to license its online proprietary auction platform for private brand auctions in
local and regional markets that will not compete directly with the national
focus of the BID.COM auction site. The Company has licensed its auction platform
to, and contracted its operational services to support, a private brand online
auction for, Toronto Star Newspapers Limited ("Toronto Star") in Ontario.
Toronto Star has not yet launched its online auction. The Toronto Star is the
largest circulation newspaper in Canada. The Company plans to enter into similar
private brand auction arrangements with other local and regional newspapers,
retailers, charities, community based organizations and national affinity
groups. The Company believes that this licensing model will have particular
appeal in European and Pacific Rim countries. In April 1999, the Company plans
to open its first European office in Dublin, Ireland, to license the Company's
auction technologies and provide related support services to European-based
companies. See "--Licensing Proprietary Online Platform For Private Brand
Auctions."
o Licensing Technology and Co-branding BID.COM to Achieve Multi-Media
Distribution. The Company also seeks to license its technology and co-venture
with strategic partners to conduct interactive auctions in other electronic
communications media. In December 1998, the Company and American Interactive
Media, Inc. ("AIM") entered into a joint venture to develop auction
opportunities for broadband, set-top box/Web TV and network television, and to
develop technological improvements to enhance the consumer auction experience
offered through the narrowband Internet medium. The Company has licensed its
auction technology to AIM and will provide operational services for auctions to
be conducted on AIM's online and cable networks. See "--Licensing Technology and
Co-branding BID.COM to Achieve Multi-Media Distribution."
o Sales of Advertising on BID.COM Web Site. The Company seeks to promote
its Web site as an advertising medium for the products and services of other
companies and organizations. In December 1998, the Company entered
5
<PAGE>
into an agreement with 24/7 Media Inc. ("24/7"), a global online advertising and
direct marketing company, under which 24/7 sells advertising space on BID.COM's
Web site. Initially, the Company plans to offer banner advertisement placement
on various sections of its Web sites. The Company believes that the shopping
demographics of its registered bidder base creates a desirable target audience
for companies and advertising agencies.
Expanding the Company's Customer Base through Diverse Marketing Strategy.
The Company believes that the use of multiple marketing channels will increase
the number of people visiting the Company's Web sites and auction sites,
maximize brand awareness and reduce its reliance on any one source of customers.
The Company implements its marketing strategy by:
o Forming Strategic and Marketing Alliances with Internet Service and
Content Providers. The Company has initiated strategic and marketing alliances
with large Internet service and content providers that it believes will maximize
traffic to the Company's Web sites and enhance the awareness and credibility of
the Company's BID.COM brand. The Company believes that these relationships will
allow BID.COM to broadly expand its customer base as well as capitalize on new
advertising opportunities by leveraging the strong brand names and subscriber
bases of its alliance partners. These alliances also help attract a broad supply
of products and services from high quality vendors for sale in the Company's
auctions.
In July 1998, the Company entered into a strategic alliance with Rogers Media
Inc. ("Rogers Media"), a leading Canadian media company. Under this arrangement,
BID.COM granted Rogers Media the exclusive right to co-brand the Canadian
BID.COM auction and Rogers Media has agreed that the Canadian BID.COM auction
will be the only online auction displayed on the home page of Rogers Media's new
E-commerce portal. Rogers Media has also agreed to generate specified levels of
site traffic an advertising revenues for the Canadian BID.COM Web site, and has
committed to minimum levels of annual advertising. Rogers Media national media
properties include some of Canada's most widely read publications, Canada's only
television shopping network, a number of Canadian radio stations and several
leading Internet properties in Canada. Rogers Media's parent company owns the
largest cable network in Canada. In addition, Rogers Media publishes a number of
trade magazines which the Company may use to support the development of its
business-to-business online auctions. See "Marketing--Strategic and Marketing
Alliances with Major Content and Service Providers."
In November, 1997, the Company entered into a non-exclusive marketing
alliance with America Online, Inc. ("AOL" or "America Online") pursuant to which
the Company operates BID.COM, The Online Auction(R), for AOL subscribers and has
purchased or been granted advertising space on a number of AOL's current high
traffic pages and a variety of AOL's new Web pages. The terms of the alliance
were amended in March 1999. AOL is the world's largest online service provider,
with a subscriber base of more than 15.0 million people. See "--Marketing -
Strategic and Marketing Alliances With Major Content and Service Providers" and
"Risk Factors - Continuance of Existing Strategic and Marketing Alliances."
o Referral and Database Marketing; Key Word Advertising. The Company has
also adopted several cost effective marketing approaches to attract targeted
traffic to its Web sites. The Company pursues referral-based marketing
arrangements under which the Company pays referral sources in cash or kind for
the generation of registered bidders at BID.COM. In addition, the Company has
recently begun to access its own database of registered bidders to directly
market both auction and non-auction products to purchasers with demonstrated
purchasing histories. To reach audiences that have a propensity to buy goods and
services online, the Company has entered into, and continues to seek, key word
agreements with Internet service providers that promote BID.COM when a user
searches key words, such as "auction." The Company has an arrangement with
go2net, Inc. ("go2net") pursuant to which a banner advertisement and hyperlink
for clicking through to the BID.COM auction site is prominently positioned on
the pag when a user of the MetaCrawler search engine searches certain key words,
such as "auction" or "auctions." MetaCrawler is go2net's specialized search
engine that aggregates the results of other systems such as Yahoo!, Inc.
("Yahoo!") and Excite, Inc. ("Excite"). See "--Marketing--Referral and Database
Marketing and Key Word Advertising."
o Cause Marketing. The Company attempts to stimulate additional E-commerce
activity by operating online auctions for, and/or licensing its auction platform
to, charities and special causes. BID.COM has hosted the Digital City All
Charities Online Auction and Hootie and the Blowfish Monday After the Masters
Charity Auction. The Company has also built the international Web site for RADD
(Recording Artists Against Drunk Driving) and hosts the Canadian BACCHUS Web
site.
6
<PAGE>
Offering a Broad Range of Front Line Brand Name Products at Low Prices and Under
Manufacturers Warranty. The Company believes that Internet consumers are price
sensitive and seek to purchase brand name goods at discounts from prices charged
by retail stores and catalog companies. The Company offers a broad range of
brand name consumer goods from nationally recognized manufacturers at low prices
and under manufacturers warranty. Product offerings within categories are
rotated daily to enhance consumer interest. By operating online and purchasing
products from suppliers only after they have been ordered and paid for by the
customer, the Company is able to substantially reduce overhead costs typically
associated with retail stores and catalogs and is able to pass on the savings
directly to its customers. Historically, the Company has offered lower margin
categories of products, such as computers, computer accessories and computer
upgrades. While the Company plans to continue offering these product categories,
it has begun to shift its product mix and increase the number and variety of
goods in higher margin product categories, such as consumer electronics, toys,
games, sporting goods, memorabilia, jewelry, collectible sports and
entertainment cards and travel and entertainment products and services.
Seeking Exclusive Distribution of Unique Products. The Company seeks to obtain
electronic media distribution rights for select groups of unique products that
it can offer in its auctions as well as through database marketing and fixed
price merchandising. In December 1998, the Company entered into an exclusive,
worldwide Internet distribution agreement with Micra SoundCards Inc. ("Micra
SoundCards"), the inventor and producer of a patented collectible "talking"
trading card. The Company markets the cards, which play the actual sound of the
sports or entertainment event that is featured on the card, along with a card
player. The debut series of the talking cards distributed by the Company in
Canada include Paul Henderson's "Goal of the Century" commemorating the winning
goal in the 1972 Russia-Canada hockey series, and, in the United States, Michael
Jordan's winning basket in the 1998 NBA championship. See "--Products."
Providing a Proprietary State-of-the-Art Auction Platform that Is Entertaining,
Secure and Easy to Operate. The Company believes that to sustain consumer
interest in online auctions, it must provide an entertaining, secure and
easy-to-use E-commerce environment. The Company's proprietary auction platform
incorporates state-of-the-art interactive technology, including enhanced,
customized user interfaces designed to bring participants into the online
equivalent of a live auction room. The Company's technology provides product
descriptions with catalog quality pictures and graphical representations. The
design allows the Company to change and upgrade the auction site with ease, and
quickly respond to requests by marketing partners and advertising sponsors to
change the look of products offered. On-screen real-time data provides customer
information about the current bid status of all bidders in order to facilitate
an interactive auction process. The Company has received a notice of allowance
from the PTO for a patent application it filed in the United States seeking
patent protection for the process of conducting its Dutch auctions over
electronic distribution channels. The Company has a patent application pending
in Canada covering the same technology. BID.COM uses leading security and
encryption systems to maintain the security of online purchases and customer
data. See "--Auction Operations" and "-Technology Platform."
Acquisitions and Strategic Investments. The Company plans to continue to expand
by seeking technologies, products, services and transaction formats that
compliment its existing business. If appropriate opportunities are available,
BID.COM may acquire businesses, technologies or products or enter into strategic
relationships that may further diversify revenue sources and product offerings,
expand the Company's customer base or enhance the Company's auction platform.
Auction Operations
The Company currently operates two national business-to consumer auction
sites, one in the United States and one in Canada, and operates other private
brand local or regional stand-alone auctions. Customers who access the online
auction through the Company's Web site or the Web sites or search engines of the
Company's strategic or advertising partners, are all channeled to one of the two
national auction sites, depending on the geographic location of the customer. In
this manner the Company is able to maximize the number of participants in each
auction and minimize the number of auctions which are operated concurrently. The
United States auction is conducted in U.S. dollars and the Canadian auction is
conducted in Canadian dollars. Customers participating in private brand auctions
operated by the Company access only the stand-alone auction site of the
Company's private brand customer.
7
<PAGE>
The Company's proprietary auction platform can support a large number of
concurrent and sequential participants, capturing the excitement of a live event
in an online environment. Customers can interact at their convenience and have
access to a variety of merchandise at constantly changing prices.
The Company generates transactional revenues using the conventional rising
price auction format and the declining bid, or "Dutch," auction format.
Management believes that its capability within the Dutch auction sector is a key
point of differentiation in the online marketplace that will grow in
significance as more online shoppers and businesses become familiar with this
E-tailing platform.
Rising Price Auctions. In the conventional rising price auction format, the
highest bids win the items auctioned. The rising price auction allows
participants to competitively bid on available merchandise by incrementally
adjusting their bid positions. The BID.COM user interface allows users to easily
identify current leading bidders, minimum new bids and initial bid pricing.
Participants are informed of their bid status, stating whether they have won,
been outbid, approved or declined via electronic mail. Participants can also use
the Company's Bid Buddy(TM) tool, launched in October 1998, to place absentee
bids up to a pre-determined limit. This "intelligent" bidding agent will check
bid activity at regular intervals and increase a customer's bid by the minimum
required increment to ensure that products are purchased at the best possible
price. If outbid, the customer receives an e-mail alert and is permitted to
increase his bid via the Company's Web site.
The interactive nature of the bid update system encourages continued
customer participation throughout the auction lifecycle. Customers can also use
the Company's Search Buddy(TM), a search tool introduced in October 1998, which
may be pre-programmed, up to a maximum seven days in duration, to find product
offerings customized to a customer's specific areas of interest. If Search Buddy
finds a match for a customer's search, the customer receives immediate
notification by e-mail, with a direct link to the desired product. Customers may
also use "BID.COM Recommends," an affinity engine introduced in November 1998,
which recommends items targeted to a customer's product preferences, based on a
customer's viewing and bidding history. The recommendations are provided in real
time.
The rising price auction initially was conducted over a seven day period,
but, with the growth of the Company's customer base, auction cycles have been
shortened to one day. The Company normally re-merchandises its United States and
Canadian Web sites daily and stages 24 hour auctions every day of the week.
Dutch Auctions. The Company also offers declining price, or "Dutch,"
auctions, an effective method of high volume merchandising. A starting price is
set and a limited time period is allocated for a fixed quantity of the product
to be auctioned (three to five minutes for most BID.COM items). As time
advances, the price drops in small increments. The longer one waits, the lower
the price. However, if a shopper waits too long the limited quantity of the
product being auctioned may be sold out. The declining bid auction allows
participants to bid in a real-time format utilizing on-screen data which
provides the time and quantity remaining as well as the falling price of the
items for sale. The bidders remain online and actively participate throughout
the auction process. The BID.COM declining price auction was initially
introduced in April 1996 and was re-introduced over BID.COM's updated platform
in July 1998. The Company has received a notice of allowance from the PTO for a
patent application it filed in the United States seeking patent protection for
the process of conducting its Dutch auctions over electronic distribution
channels. The Company has a patent application pending in Canada covering the
same technology. This unique format lends itself to a multitude of consumer
products and services and special event auctions, particularly in the emerging
vertical markets of travel, entertainment and memorabilia. The Company believes
that the Dutch Auction format also will have wide application in the business-
to-business sector because it facilitates the efficient conduct of high volume
transactions. BID.COM has secured the URL www.dutchauction.com. which the
Company plans to use in the future in connection with certain online declining
auction offerings.
Introduction of Business-to-Business Platform. BID.COM completed the
development of a business-to-business auction service in December 1998. The
Company plans to introduce a series of online business-to-business auctions
tailored to selected vertical business markets that may benefit from expanding
the traditional physical auction audience to online participants. The Company
believes its proprietary Dutch auction technology will be particularly well
suited to this sector. In December 1998, th Company was designated a preferred
vendor by The ASCII Group (Canada), a network of 340 independent computer VARs,
and plans to conduct online auctions of products suited to the VAR market for
members of the ASCII Group. In addition, the Company plans to license or co-
brand business auctions with distribution partners within a number of additional
business-to-business vertical markets. This business niche creates potential for
new revenue streams without the costs associated with business-to-consumer
auctions, such as advertising, customer service, logistics and credit card
processing. The Company will also seek to
8
<PAGE>
introduce pure liquidation auctions on behalf of banks, bankruptcy trustees and
other liquidators. The Company believes that over time, the business-to-business
marketplace for online auctions (and consequently this segment of BID.COM's
transactional volume) will become larger than business-to-consumer auction
activity.
User-Friendly Design. The Company's Web site has been designed with the
goal of bringing participants into the online equivalent of a live auction.
Customers view detailed product descriptions with catalog quality pictures and
graphical representations. Winning bidders can complete the purchase transaction
quickly, usually within minutes for repeat customers. In addition, the system
design allows the Company to change and upgrade the auction site with ease and
quickly respond to requests by marketing partners and advertising sponsors to
change the look of the products offered. The front-end user interfaces can
undergo continual enhancements without requiring changes to the transactional
back-end of the system. The system provides full delivered cost disclosure prior
to the consumer completing the purchase by adjusting the cost charged to
purchasers for all added taxes and delivery charges to the customers' door,
anywhere in North America.
Bidder Registration. Customers may view BID.COM without cost or
registration. However, they must provide certain registration information before
participating in the online auction, including verifiable location and billing
information and a commercial credit card. The Company uses the registration
information for processing successful bids into customer orders. Using this
information, the Company's data systems determine shipping and handling charges
and applicable taxes, charge customer credit cards, print order information,
transmit order information to the Company's contract warehouses and vendors and
provide transaction information for the Company's accounting system. Customers
are generally required to pay for purchased goods by commercial credit card,
thereby significantly reducing the Company's credit risk. See "Risk
Factors--Internet Commerce Security."
Limited Inventory. The Company normally obtains products for sale in its
auctions from suppliers under arrangements that allow the Company to purchase
merchandise only after the Company's customer has purchased and paid for the
product. These arrangements typically provide that the supplier will reserve for
sale by the Company specified quantities of products for a fixed period of time
without obligating the Company to purchase those products until sales are made
to the Company's customers. As a result, the Company does not usually stock
inventory and consequently has no liability for unsold merchandise. In certain
circumstances, the Company may place purchase orders in advance for unique
products. As part of its customer satisfaction policy, the Company may allow its
customers to return merchandise upon payment of a re-stocking fee, in which
case, the merchandise is returned to the supplier for credit or resold by the
Company. Transactional revenues from the sale of products create gross margin
for BID.COM either in the form of a negotiated commission based on the final
selling price of goods, or the difference between the actual selling price and
the reserve price negotiated by the Company with its suppliers. Sold products
are usually shipped directly from the supplier to the customer. Shipping,
handling and applicable taxes are added to the auction price and are paid by the
customer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Licensing Proprietary Online Platform for Private Branded Auctions.
The Company seeks to license its online auction platform in local and
regional markets that will not compete directly with the national focus of the
BID.COM auction. The Company has licensed its auction platform and contracted
its operational services to support a private brand online auction for Toronto
Star Newspapers Limited and plans to enter into similar private brand auction
arrangements with other local and regional newspapers, retailers, charities and
community-based organizations. The Company believes that community-based content
is a fundamental trend in Internet programming and views local and regional
newspapers such as Toronto Star as ideal candidates for private brand auctions.
Newspapers in many major urban centers face potential loss of conventional paper
advertising revenue as advertisers allocate larger portions of their advertising
budgets to electronic advertising. By creating a credible Internet presence,
newspapers may be able to recapture advertising revenue that is being shifted
from paper to electronic advertising. In addition, by offering online auction
and cybermall services, newspapers may provide their advertising clients with an
opportunity to establish a Web presence without the need to develop their own
Web sites. Newspapers may also be able to generate commissions or other revenues
from sales and other transactions conducted through their private Web sites. The
Company believes there will be opportunities to license platforms to local
partners in many major urban centers and national affinity groups in the United
States as well as through local partners in the European and Pacific Rim
markets. In April 1999, the Company plans to open its first European office in
Dublin, Ireland, to license the Company's auction technologies and provide
related support services to European-based companies. The Company's technology
allows it to offer licensees a turnkey custom branded auction platform, as well
as a wide range of E-commerce support services.
9
<PAGE>
In February 1997, the Company entered into an E-Commerce Services Agreement
(the "Torstar Agreement") with Toronto Star Newspapers Limited, Canada's largest
circulation newspaper, to provide local auctions and cybermall services in the
Province of Ontario. These services provide the capability to extend Toronto
Star's City Search initiative to market online content in the Province of
Ontario by adding a Toronto Star online auction branded site. Toronto Star has
not yet launched its online auction. In addition, pursuant to the Torstar
Agreement, the Company granted to Toronto Star a non-exclusive license to use
the Company's technology for non-auction related uses, such as games and
contests. In return for such services, Toronto Star will share with the Company
all net revenues received in connection with the sale of products and services
using the Company's platform. The percentage of revenue payable to the Company
is a function of a number of factors, including the location of the purchaser
and whether the Company or Toronto Star has sourced the products and services
sold. In addition, Toronto Star is entitled to receive a percentage of certain
other sales made through the Company's platform in the Province of Ontario. The
Torstar Agreement expires on January 31, 2000, but will continue, unless earlier
terminated by the Company or Toronto Star, for consecutive one year periods,
upon terms to be mutually agreed upon by the Company and Toronto Star.
In connection with the Torstar Agreement, Toronto Star purchased an
aggregate of 1.5 million common shares of the Company ("Common Shares") for an
aggregate purchase price of Cdn$1.425 million. The Toronto Star is the largest
circulation newspaper in Canada with a daily circulation of approximately one
million readers.
Licensing Technology and Co-branding BID.COM to Achieve Multi-Media
Distribution.
The Company seeks to use its auction technology to support interactive
auctions in other electronic communications media. In December 1998, the Company
and AIM entered into a joint venture to develop auction opportunities outside
the Internet in broadband, set-top box/Web TV and network television, and to
develop technological improvements to enhance the consumer experience offered
through the narrowband Internet medium. The Company has licensed its technology
to AIM, which AIM intends to use in creating celebrity-hosted live television
auctions using the two-way interactive capabilities of set-top boxes. Initially,
AIM intends to introduce live auctions on ComedyNet, its 24 hour Internet comedy
network. Thereafter, AIM plans to launch a customized branded version of
BID.COM's dutch auction on a shopping network available through set-top boxes,
or Web TV. In addition, AIM plans to use the Company's technology to support
various E-commerce initiatives on AIM's other in-house internet and cable
networks and on AIM's customized affinity group internet portals. The license
agreement expires June 30, 2001.
AIM is the creator of a wide range of programming and services
incorporating video and audio information through an interactive environment
designed specifically for the Internet, digital cable and other electronic media
distribution platforms. AIM's first network, ComedyNet, has won various
independent awards.
The Company believes that a joint venture with AIM will broaden the
exposure of the Dutch auction as a means to provide consumers with an
entertaining shopping experience in a variety of electronic media platforms.
Additional goals of the joint venture include increasing the appeal to others to
license BID.COM technology and creating the potential for increased revenue.
BID.COM and AIM will share in the gross margin created through their joint
venture pursuant to a formula set forth in the license agreement.
Sales of Advertising on BID.COM Web Site
The Company seeks to promote its Web site as an advertising medium for the
products and services of other companies and organizations. In December 1998,
the Company entered into an agreement with 24/7 under which 24/7 sells
advertising space on BID. COM's Web site. Initially, the Company plans to offer
banner advertisement placement on various sections of the U.S. and Canadian
BID.COM Web sites. The Company believes that the shopping demographics of its
registered bidder base creates a desirable target audience for companies and
advertising agencies.
Marketing
BID.COM's marketing strategy is designed to increase traffic to the
Company's auction Web sites and promote awareness of its BID.COM brand. To
implement its strategy, the Company: (i) has developed strategic and marketing
relationships with Rogers Media and AOL and plans to enter into similar
arrangements with other major
10
<PAGE>
Internet service and content providers; (ii) is building its own BID.COM brand
and channeling potential bidders to its site through referral and database
marketing and key word advertising; and (iii) hosts co-branded and private
branded Cause Marketing events such as the 1998 Hootie & the Blowfish Monday
After the Masters Charity Auction at BID.COM.
Strategic and Marketing Alliances with Major Content and Service Providers
The Company has developed strategic and marketing alliances with Rogers
Media and AOL and is seeking similar relationships with other large Internet
service and content providers as well as other large, consumer-oriented
companies. The Company believes that these relationships will allow BID.COM to
broadly expand its customer base as well as capitalize on new advertising
opportunities by leveraging the strong brand names and subscriber bases of its
alliance partners. These alliances als increase traffic to the BID.COM sites due
to advertising carriage arrangements which usually include a combination of
hyperlink banner advertisements and the directing of key words such as "Auction"
and "Online Auction" to the BID.COM site. Since the launch of the BID.COM brand
name in March 1998, the Company's customer base has increased significantly. As
of March 14, 1999, the Company had approximately 103,000 registered bidders,
representing a 412.0% increase in registered bidders from January 1, 1998.
Steadily increasing distribution of the BID.COM E-commerce offering to a larger
audience of Internet users while establishing exclusivity in certain
distribution channels is an important component of the Company's marketing
strategy. The Company believes that the credibility of its current strategic and
marketing partners will strengthen its ability to enter into future business
alliances.
Rogers Media. In July 1998, the Company and Rogers Media, a subsidiary of
Rogers Media Communications Inc., entered into an E-Commerce and Promotion
Services Agreement (the "Rogers Media Agreement") pursuant to which BID.COM
granted Rogers Media the exclusive right within Canada to co-brand the Canadian
BID.COM auction, subject to the rights granted to the Toronto Star. See
"--Licensing Proprietary Online Platform for Private Branded Auctions." Rogers
Media has agreed that the Canadian BID.COM auction will be the only online
auction displayed on the home page of Rogers Media's new E-commerce portal. In
addition, Rogers Media has agreed to generate specified levels of site traffic
and advertising revenues, and has committed to in excess of Cdn$1.0 million in
minimum annual advertising for the Canadian BID.COM auction on the media
properties of Rogers Media, its affiliates and certain non-affiliated media.
BID.COM and Rogers Media share equally in the revenue from all transaction and
advertisin sales generated through the co-branded site in Canada, net of all
taxes, costs, transaction fees, duties, and credits for returns or unpaid items.
11
<PAGE>
The Company believes that this exclusive national partnership with Rogers
Media will enable the Company to leverage Rogers Media numerous media properties
to establish the Canadian BID.COM auction as a leading online shopping
destination in Canada. In addition, the Company anticipates that trade magazines
published by Rogers Media may be used by the Company to support the development
of its business-to-business online auctions. Rogers Media's national media
properties include some of Canada's most widely read publications including
Macleans, Chatelaine, Flare, Canadian Business, Profit and Marketing Magazine;
numerous trade and professional magazines covering a broad range of industries;
"680 News" and other leading English language radio stations in Canada; CFMT - a
multi-lingual television station in Toronto; The Shopping Channel - Canada's
only television shopping network, and several Canadian radio stations and some
of the leading Canadian Internet properties such as Quicken.ca, Electric Library
Canada, Chatelaine Connects and Macleans Online. Rogers Media's parent company,
Rogers Media Communications Inc., owns Rogers Media Cablesystems, the largest
cable network in Canada, is in partnership with Shaw and Cogeco in @Home Canada,
a Canadian leader in offering broadband Internet service through cable networks,
and owns Cantel, Canada's largest national digital wireless company.
Rogers Media has purchased an aggregate of 1.5 million Common Shares of
BID.COM for an aggregate purchase price of Cdn$1.875 million. Rogers Media also
holds a warrant to purchase an additional 100,000 Common Shares at Cdn$1.40 per
share. A representative of Rogers Media currently serves as a member of the
Company's Board of Directors. See "Directors and Officers of Registrant,"
"Options to Purchase Securities From Registrant and Subsidiaries" and "Interest
of Management in Certain Transactions."
America Online. In February 1997, the Company entered into an agreement
with AOL to provide AOL subscribers with access to the Company's auction sites.
AOL is the world's largest online service provider with a subscriber base of
over 15.0 million people. BID.COM's Web site initially went live with an AOL
branded interface, the "AOL Online Auction." Satisfied with its initial
relationship with AOL, the Company entered into a non-exclusive Interactive
Marketing Agreement (the "AOL Marketing Agreement") with AOL in November 1997
under which the Company agreed to purchase $1.25 million (Cdn$1.75 million) of
advertising and promotion from AOL each quarter through October 1999. The AOL
Marketing Agreement provided BID.COM with anchor tenant positioning in a number
of AOL's E-commerce offerings, plus various keywords such as "Online Auction."
In March 1998, the brand the Company used within AOL was changed from Online
Auction to BID.COM The Online Auction, and was supported by substantial online
advertising. Pursuant to the AOL Marketing Agreement, the Company provided
product procurement, transactional processing and order fulfillment services to
AOL in connection with BID.COM The Online Auction. The agreement also provided
that after the Company reached certain revenue thresholds or received a
specified number of cumulative impressions on AOL Web sites, AOL would be
entitled to receive 50% of the Company's excess gross profit earned from such
revenues or impressions. The AOL Marketing Agreement was to expire on November
1, 1999.
In March 1999, the Company and AOL terminated the AOL Marketing
Agreement and entered into a new non-exclusive agreement. Under the new
agreement, AOL continues to provide BID.COM with anchor tenant positioning in a
number of AOL's E-Commerce offerings, plus various key words such as "Online
Auctions," and the Company will continue to provide product procurement,
transactional processing and order fulfillment services to AOL in connection
with BID.COM The Online Auction. Under the new agreement and related
arrangements, the Company's advertising payments to AOL are reduced to $3.0
million for the 13 month period of the agreement from $5.0 million annually
under the old agreement. In addition, the new agreement eliminates the revenue
sharing arrangement. Prior to the termination of the old agreement, the revenue
sharing thresholds had not been reached. The new agreement expires on March 31,
2000.
In February 1997 AOL purchased an aggregate of 1.0 million Common Shares
for an aggregate purchase price of Cdn$1.0 million, which was paid by AOL
extending to the Company advertising credits in the same amount. A
representative of AOL currently serves as a member of the Company's Board of
Directors. See "Directors and Officers of Registrant" and "Interest of
Management in Certain Transactions."
Referral and Database Marketing and Key Word Advertising
After launching its BID.COM brand in March 1998, the Company initially
relied, in part, on broad-based banner advertising arrangements with Internet
service providers such as Yahoo! and Excite to promote brand awareness of
BID.COM. The Company has recently implemented a more selective marketing
approach that blends brand promotion with lower cost customer acquisitions and
retention through referral marketing, database marketing and key word
advertising. The Company believes that this approach will more effectively and
efficiently target potential bidders who have a propensity to buy products
online.
Referral Marketing. The Company pursues referral based marketing
arrangements which reward individuals and companies for referring bidders to the
Company's Web site. By utilizing specialized referral software, the Company can
track the source of new registrations for its auction sites and reimburse these
sources based on the number of new registrations referred to BID.COM. Potential
referral services include hyperlinks from other Web sites and the Company's
existing registered bidders. Payments may be made in cash, return referral
registrations from BID.COM's site traffic, or a combination of cash and in-kind
arrangements.
Database Marketing. While the Company does not disclose registered bidder
data to third parties, the Company has recently begun to access its own database
of registered bidders to directly market both auction and non-auction products
to purchasers with demonstrated purchasing histories. The Company plans to offer
registered bidders by e-mail special promotions of auction and unique
non-auction products, such as the "talking" collectible sports and entertainment
cards.
Key Word Advertising. The Company's experience with AOL and other Internet
service providers has demonstrated that key word advertising is another
effective method of reaching an audience that has a propensity to buy goods and
services online. The Company has entered into, and continues to seek, key word
agreements with Internet service providers that promote BID.COM when a user
searches key words, such as "auction." The Company has an arrangement with
go2net pursuant to which a banner advertisement and hyperlink for clicking
through to the BID.COM auction site is prominently positioned on the page when a
user of the MetaCrawler search engine searches certain key words, such as
"auction" or "auctions." The go2net agreement expires in January 2000.
12
<PAGE>
Cause Marketing
The Company attempts to stimulate additional E-commerce activity by
operating online auctions for, and/or licensing its auction platform to,
charities and special causes. These special event auctions provide a positive
contribution to communities and offer cross-promotional opportunities with
celebrities and other popular figures, and often involve special products that
typically are attractive to emerging demographic segments of the Internet user
market. The Company believes many auction participants bookmark BID.COM once
they participate in an auction, and, therefore, have a high probability of
becoming repeat customers. The Company views these promotional events as
marketing opportunities especially in the 18 to 30 year old consumer sector
which is Internet user friendly and is likely to gain increasing purchasing
power in the near future.
In April 1998, BID.COM hosted the Hootie & the Blowfish Monday After The
Masters Charity Auction. In June 1997, BID.COM hosted the Digital City All
Charities Online Auction in partnership with Digital Cities Inc., a
community-based Internet content subsidiary of AOL, as well as over 50 community
groups and six media partners in the Dallas/Ft. Worth area. BID.COM also built
the international Web site for RADD, an organization chaired by David Niven Jr.,
with approximately 300 tier one recording artist members including Paul
McCartney, Elton John, Rod Stewart, KISS and Melissa Etheridge. BID.COM also
hosts the Canadian BACCHUS Web site, which is part of an international charity
promoting responsible use of alcoholic beverages, with over 100 Canadian and 750
U.S. affiliated organizations.
Fixed Price Sales
The Company's technology also allows for online fixed price retail shopping
and provides online customers static-priced storefront merchandising. The
Company offers Micra SoundCards collectible sports and entertainment cards and
other products through this platform. The Company believes that this diversified
technology platform provides it with a broader range of turnkey E-commerce
licensing opportunities, as well as database marketing opportunities.
Products
The Company's BID.COM auctions offer a broad range of nationally recognized
brand name goods at low prices and under manufacturers warranty. Historically, a
substantial amount of E-commerce activity has focused on competitive and low
gross margin categories of products such as refurbished computers. The Company
believes that with the growing use of the Internet by a larger segment of the
population, Internet consumers will seek higher quality and a broader mix of
products than in the past. The Company has offered and will continue to offer
lower margin computers, computer accessories and computer upgrades at its
auction sites. However, the Company has begun to shift its product mix and
increase the number and variety of goods in other product categories, many of
which generate higher margins, including consumer electronics, toys, games,
sporting goods, memorabilia, jewelry and travel and entertainment products and
services. From time to time, the Company intends to introduce other product
categories on a selected basis.
The Company will also seek to obtain electronic media distribution rights
to select groups of unique products. The Company believes that the successful
marketing of such products will accelerate the growth of its registered bidder
base as well as stimulate both its database marketing and auction activities. In
December 1998, the Company entered into an exclusive, worldwide Internet
distribution agreement with Micra SoundCards, the inventor and producer of a
patented collectible "talking" tradin cards which play the actual sound of the
sports or entertainment event featured on the card. The Company markets the
sound cards along with a card player. The debut series of the talking cards
distributed by the Company in Canada includes Paul Henderson's "Goal of the
Century," commemorating the winning goal in the 1972 Russia-Canada hockey
series, and in the United States, Michael Jordan's winning basket in the 1998
NBA championship. The agreement with Micra SoundCards expires December 31, 2001,
and i automatically renewable thereafter for consecutive two year terms, subject
to either party's notice not to renew.
13
<PAGE>
Approximately 70% of the Company's products are front-line goods and
typically 30% are clearance or other end-of-the-line items. The Company offers
products from many brand name manufacturers, including AST, Canon, Compaq,
Creative Labs, Dell, Epson, General Electric, Hewlett Packard, IBM, JVC, Koss,
Magnavox, Motorola, Nikon, Nintendo, Panasonic, Pentax, Samsung, Seagate, Sega,
Seiko, Sharp, Sony, Toshiba, U.S. Robotics, Western Digital and Zenith. The
Company also offers travel packages, gold and precious gem jewelry and authentic
sports collectibles, from multiples sources. Within its broad product
categories, the Company rotates the products it offers to consumers on a daily
basis.
The products supplied to the Company for sale through the Company's Web
sites are usually backed by a manufacturer's warranty. Front-line goods
typically carry a full manufacturer's warranty, while clearance and other end of
the line items are accompanied by limited warranties. The Company itself
provides no warranties on the products or services sold through its Web sites.
The Company believes that Internet consumers are price sensitive and seek
to purchase brand name goods at significant discounts from prices charged by
retail stores and catalog companies. The Company's products are generally priced
lower than the prices typically charged by retail stores or catalog companies
for the same or similar items. The Company is able to offer products at lower
prices because many of the costs typically associated with retail stores and
catalog companies, including the cost of sales staff and management, store rent
and maintenance, fixtures and merchandising, can be significantly reduced or
eliminated. Manufacturers are also able to offer more competitive prices to the
Company because many of their distribution costs, such as co-op advertising,
training and restocking of unsold merchandise, are substantially reduced or
eliminated. In addition, by operating online and purchasing products from
suppliers only after they have been ordered and paid for by the customer, the
Company is able to substantially reduce overhead costs typically associated with
retail stores and catalog companies.
In order to lower the costs of goods sold in its auctions, the Company
seeks to obtain volume discounts by purchasing large quantities of products from
selected suppliers. Accordingly, during 1998, DAAC Computers & Notebooks, Inc.
("DAAC"), a computer products supplier, provided over 30% of the Company's
products and four unrelated suppliers of computer and other products, including
DAAC, Bostek, Inc., Micro-Exchange Corporation and Advantage Company, accounted
for up to 90% of the Company's total supply base at various times. The Company
believes that, while it will likely continue to be reliant on one supplier, or a
small group of suppliers, for its computer products, the percentage of the
Company's supply base attributable to these suppliers will decrease as the
Company continues to change its product mix from computer related goods to
higher margin products. For 1999, the Company anticipates that, at any given
time, four unrelated suppliers may each be supplying up to 20-30% of the
Company's product offerings. The Company typically enters into non-exclusive
agreements with its primary suppliers, which are terminable at the Company's
option. The products purchased from the Company's primary suppliers generally
are readily available from other sources. See "Risk Factors--Reliance on
Merchandise Vendors."
The products sold at BID.COM auctions are typically shipped directly by the
Company's suppliers to the winning bidders. >From time to time, the Company may
offer its own fulfillment capability to new suppliers that are not initially
equipped to ship directly to customers. The Company currently uses Purolator
Courier, Federal Express and United Parcel Service to distribute purchased goods
and is in the process of adding other courier services. The Company does not
maintain its own warehouse, bu relies on third party contract warehouses. See
"Risk Factors--Reliance on Merchandise Vendors."
Customer Support and Service
The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases is
dependent, in part, on the strength of its customer service support and staff.
The Company currently employs a staff of eight full-time customer support and
service personnel who are responsible for handling customer inquiries from 9:00
a.m. to 5:00 p.m. (Eastern Standard Time) seven days a week. The customer
service staff answer customer questions about the bidding process, track
shipments, investigate problems with merchandise and act as liaisons between
customers and the Company's vendors. The Company is actively working to enhance
its customer service support operations through a variety of measures, including
improved customer reporting systems and automation. The Company accepts returns
from its customers but charges customers a re-stocking fee.
14
<PAGE>
Technology Platform
The Company's proprietary, state-of-the-art interactive auction technology
enables the Company to offer its customers an entertaining, easy to use and
secure E-commerce environment. BID.COM's technology allows the Company to
operate a large number of simultaneous rising and falling price auctions and
fixed price merchandising, each with many customers, across multiple technical
platforms.
The Company has devoted significant resources to developing its proprietary
software technology. The Company believes that its success depends, in part, on
its internally developed proprietary E-commerce management software, which
implements a variety of customized auction and fixed price sales formats. The
technology platform is constructed using distributed software technologies which
allow rapid redevelopment and deployment of new software technology in order to
take advantage of emerging business opportunities.
The Company licenses commercially available technology whenever possible,
rather than seek a custom-made or internally-developed solution. The Company
believes that this strategy lowers its operating costs and increases its ability
to respond to changing demands resulting from growth and technological shifts.
This approach also allows the Company to focus its development efforts on
creating and enhancing the specialized proprietary software that is unique to
the Company's business. BID.COM works with its strategic partners, such as
Rogers Media, to develop applications and content. The technology platform is
based on Microsoft core applications, including the Windows NT operating system
and an SQL server relational database, all residing on scaleable hardware. The
Company uses Intel-based Hewlett Packard Netservers and DEC Alpha enterprise
servers, which employ symmetrical multiprocessing as the basis of the Company's
hardware systems.
BID.COM was the first company to process a secure Canadian online Visa
credit card transaction. BID.COM uses leading security and encryption systems to
maintain the security of online purchases and customer data. Each customer who
pre-registers or makes a purchase selects a unique user ID and a password.
Repeat purchases are transacted using only the user's unique ID and password.
Credit card transactions with the banking community are conducted over a
separate ISDN line, through a server which maintains customer information behind
a number of state-of-the-art firewalls "off line" from the Internet and which
employ encryption technology such as SSL (Secure Socket Layer). Consumers not
wishing to transmit registration information online may use one of the Company's
toll-free telephone lines to register with BID.COM. See "Risk Factors--Internet
Commerce Security."
The Company has embraced leading edge high performance switching
technologies, including Asynchronous Transfer Mode (ATM), to provide end users
with what BID.COM believes is the fastest access possible to its Web site.
BID.COM's access to telecommunications infrastructure is scaleable on demand and
has been proven to provide reliable transactional support.
In October 1998, the Company launched two technology tools, Bid Buddy and
Search Buddy. In November 1998, the Company also implemented an affinity engine
"BID.COM Recommends" using technology provided by Net Perceptions Inc. Based on
collaborative filtering technology, this affinity engine software allows BID.COM
to personalize its product offerings to customers' areas of interest. The first
feature was implemented as "BID.COM Recommends." See "--Auction Operations."
In November 1998, BID.COM won three Canadian Information Productivity
Awards ("CIPA"), for its online auction technology, including an Award of
Excellence, Best of Category Award for Small Business, and top honors with the
Best of Show Award. BID.COM's development work received distinction within a
group of award-winning IT solutions which included such organizations as GE
Capital, IBM Canada, Scotiabank, Air Canada, Revenue Canada, ING Canada,
Canadian Pacific Railways, National Bank of Canada, Rogers Media Cantel and
Royal Bank of Canada.
The Company's engineering, production and research and development staff
currently consists of 10 software development engineers and three system
consultants.
15
<PAGE>
Research and Development
The Company believes that its proprietary auction management software
provides a competitive advantage over other online auction companies and that
its future success depends, in part, on its ability to continue developing and
enhancing that software. Therefore, the Company has focused its research and
development efforts on the continued development of its proprietary auction
management software. The Company's ongoing research and development efforts are
aimed at enhancing the features and functionality of its existing software
components, the development of new software components, and the integration of
superior third party technology into its environment.
The Company's research and development expenditures were Cdn$889,000 for
the year ended December 31, 1998 and Cdn$661,000 for the year ended December 31,
1997, including salaries and related expenses of Company personnel engaged in
research and development. Research and development activity during 1998 included
the redevelopment and release of the BID.COM technology platform, with Year 2000
compliant architecture and an award winning solution design, the purchase of a
new accounting software package and the purchase and implementation of the
personalization software engine "BID.COM Recommends." See "--Auction
Operations."
Competition
The online commerce market is new, rapidly evolving and intensely
competitive, and the Company expects that online commerce competition in
general, and online auction competition in particular, will further intensify in
the future. Barriers to entry are minimal, and current and new competitors can
launch new sites at a relatively low cost. In addition, the broader retail
consumer product industry is intensely competitive. The Company's competitors,
determined on the basis of type of merchandis and sales format offered by such
entities to customers, include: (i) companies providing business-to-consumer
online auctions services such as Onsale, Inc. ("Onsale"), First Auction by
Internet Shopping Network Inc. ("First Auction"), uBid, Inc. ("uBid") and
Egghead.com Inc. ("Egghead"); (ii) consumer-to-consumer online auction services
such as eBay Inc. ("eBay"), Yahoo!, Auctions Powered by Onsale, Auction
Universe, a Times-Mirror Company ("Auction Universe"), Excite Inc. ("Excite")
and a number of small services, including those that serve specialty markets;
(iii) companies providing online communities and services that specialize in or
otherwise have expertise in developing online commerce and some of whom
currently offer a variety of business-to-consumer trading services, including
Amazon.com, AOL and Microsoft Corporation; (iv) companies that offer merchandise
similar to that of the Company but through physical auctions and with which the
Company competes for sources of supply; (v) catalog companies with substantial
customer data bases, which may devote greater resources to Internet commerce in
the future; and (vi) large retailers and other companies with strong brand
recognition and experience in online commerce that are increasingly directing
greater resources to Internet commerce and who seek to compete in the online
auction market, including Cendant Corporation and QVC, Inc. ("QVC"). In
addition, because the barriers to the E-commerce industry are minimal, the
Company may i the future face additional competitors who the Company cannot
currently identify. The Company also anticipates that one or more of these
companies and other companies engaged in the business-to-business sector will
offer business-to-business online auctions as this sector continues to grow.
The Company believes that the principal competitive factors in its online
auction market are brand recognition, product selection, variety of value-added
services, ease of use, site content, quality of service, reliability of delivery
of products, quality of search tools, system reliability, technical expertise
and price. The Company believes that it is competitive in each of these areas.
Many of the Company's competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than the Company. Certain of the Company's
competitors may also offer auction services in Canada and/or Europe. In
addition, other online trading services may be acquired by, receive investments
from or enter into other commercial relationships with, larger, well-established
and well-financed companies as use of the Internet and other online services
increases. Therefore, certain of the Company's competitors with other revenue
sources may be able to devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing policies and devote substantially more
resources to Web site and systems development than the Company or may try to
attract traffic by offering services for free. See "Risk Factors -
Competition."
16
<PAGE>
Intellectual Property
The Company's performance and ability to compete are dependent to a
significant degree on its proprietary technology. The Company relies on a
combination of patent, copyright, trademark and trade secret laws, as well as
confidentiality agreements and technical measures, to establish and protect its
proprietary rights. The Company has received a notice of allowance from the PTO
for a patent application it filed in the United States seeking patent protection
for the process whereby the Company conducts declining price, or Dutch, auctions
over electronic distribution channels. The PTO grants a notice of allowance if,
after examination, it finds a patent application allowable and then it issues
the patent soon after the applicant pays an issuance fee. The Company has a
patent application pending in Canada covering the same technology.
The Company's proprietary software is subject to common law copyright
protection, but the Company does not have, and does not intend to pursue, any
registered copyrights. Common law protection may be narrower than that which the
Company could obtain under registered copyrights. As a result, the Company may
experience difficulty in enforcing its copyrights against certain third party
infringements. The source code for the Company's proprietary software is
protected as a trade secret. See "Risk Factors--Protection of Intellectual
Property."
BID.COM, BID.COM THE ONLINE AUCTION, INTERNET LIQUIDATORS, ILUSA, $BUCK A
MONTH CLUB, CLUB.R.A.D.D., ONLINE OUTLET MALL, ONLINE AUCTION, BID BUDDY, SEARCH
BUDDY and EXPERIENCE ENGINE are trademarks or tradenames of the Company, all of
which are the subject of pending applications for registration in either or both
of the United States and Canada, except for INTERNET LIQUIDATORS, which is
registered in Canada.
The Company's competitive position is also dependent upon its unpatented
trade secrets. In an effort to protect its trade secrets, and as part of its
confidentiality procedures, the Company generally enters into confidentiality
and non-disclosure agreements with its employees and consultants and generally
limits access to and distribution of its software, documentation and other
proprietary information.
Employees
As of the date hereof, the Company employs 33 full-time employees,
including three in engineering support, four in operations, seven in merchandise
acquisition and marketing, five in customer support and service, and 14 in
finance, administrative and senior management functions. The Company also
employs three part-time employees, all of whom are in customer support and
service. The Company also hires independent contractors for software
development, technical documentation, artistic design merchandising and
administration, as needed. None of the Company's employees are represented by a
labor union, and the Company considers its employee relations to be good.
The Company's success is substantially dependent on the ability and
experience of its senior management and other key personnel. Moreover, to
accommodate its current size and manage its anticipated growth, the Company must
maintain and expand its employee base. Competition for personnel, particularly
persons having software development and other technical expertise, is intense,
and there can be no assurance that the Company will be able to retain existing
personnel or hire additional, qualified personnel. The inability of the Company
to retain and attract the necessary personnel or the loss of services of any of
its key personnel could have a material and adverse effect on the Company. All
key employees have been granted stock options. See "Risk Factors--Dependence on
Key Personnel; Need for Additional Personnel" and "Management."
History
The business of the Company was commenced by Internet Liquidators Inc., an
Ontario corporation, in September 1995. In May 1996, Internet Liquidators
International Inc., an Ontario corporation, acquired all of the shares of
Internet Liquidators Inc. In January 1997, the Company was formed, as an Ontario
corporation, by amalgamation of Internet Liquidators Inc. and Internet
Liquidators International Inc. In June 1998, the Company changed its name from
Internet Liquidators International Inc. to BID.COM International Inc. The
Company converted its consumer brand URL from www.Internetliquidators.com to
www.BID.COM in March 1998.
The Company's offices are located at 6725 Airport Road, Suite 201,
Mississauga, Ontario L4V 1V2, Canada . The Company's subsidiary, Internet
Liquidators USA Inc., provides sales and marketing services and maintains an
office at 2701 North Rocky Point Drive, Suite 510, Tampa, Florida 33607-1013.
The Company's Web site is www.BID.COM. Information contained on the Company's
Web site shall not constitute a part of this Registration Statement.
17
<PAGE>
RISK FACTORS
An investment in the securities of BID.COM is speculative, involves
significant risk and is suitable for investment only by purchasers who can bear
the economic risk of a complete loss of their investment. Prior to making an
investment decision, prospective purchasers should consider carefully the
following risk factors, together with the information and financial statements
set forth elsewhere in this Registration Statement.
Limited Operating History
The Company was founded in September 1995 and began conducting auctions
on the Internet in April 1996. Accordingly, there is only a limited operating
history upon which to base an evaluation of the Company and its business and
prospects. The Company's business and prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as E-commerce. Such risks include the evolving and
unpredictable nature of the Company's business, the Company's ability to
anticipate and adapt to a developing market and technological changes,
acceptance by consumers of the Company's Internet auctions and the merchandise
sold at such auctions, the ability to identify, attract and retain qualified
personnel and the other risks described in this Registration Statement. There
can be no assurance that the Company will successfully overcome these risks. See
"Management' Discussion and Analysis of Financial Condition and Results of
Operations."
History Of Operating Losses; Accumulated Deficit and Negative Cash Flow
The Company has not earned profits to date and had accumulated losses of
[Cdn $27.7] million as at December 31, 1998. For the year ended December 31,
1998 and the year ended December 31, 1997, the Company's net loss was Cdn
$18.7 million and Cdn $6.7 million, respectively. The Company intends to
continue to invest heavily in marketing and promotion, development of its
technology, business-to-business auctions and other areas of its business. As a
result, the Company believes that it will incur substantial operating losses for
the foreseeable future. The Company's operating losses in 1997 and 1998 were
attributable, in part, to the Company's promotional pricing strategy under which
products were sold below cost or at significantly reduced profit margins. While
the Company began to limit this policy during the fourth quarter of 1998, the
Company continues to sell a limited number of products at significantly reduced
margins and, in the future, may from time to time continue to use promotional
pricing programs in connection with the introduction of new products and
services, in response to competitive pressures or for other business reasons.
The use of such promotional pricing strategies may have a material adverse
effect on the Company's profitability. There can be no assurance that the
Company will earn profits or generate positive cash flows from operations in the
future, or that profitability, if achieved, will be sustained. The success of
the Company will ultimately depend on its ability to generate revenues from its
auction activities in amounts sufficient to permit the Company's operations and
development activities to be financed by revenues instead of external financing.
There can be no assurance that future revenues will be sufficient to generate
the required funds to operate the business profitably. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Additional Financing Requirements
The Company has been funded to date primarily through a series of private
placements of equity, sales of equity to and investments from strategic
partners, and cash flow from operations. The Company expects its capital
requirements to increase significantly due to the proposed expansion of its
marketing and business development activity, the introduction of
business-to-business auctions, and continued development of its technology. The
Company believes that its present capital, anticipated proceeds from the
expected exercise of outstanding in-the-money options and warrants expiring at
various times during 1999 and revenue from operations will be sufficient to
finance its cash requirements for the next 12 months. Thereafter, the Company
may need to raise additional funds. The exact amount of the Company's future
capital requirements will depend on numerous factors, including, but not limited
to, slower growth and adverse changes in the E-commerce environment, delays in
the growth of the Company's customer base, government regulations, failure or
delays in executing marketing programs, failure or delays in connection with
expansion to Europe, growth that is more rapid than anticipated or competitive
pressures. The Company may also need to raise additional funds sooner than
anticipated in order to acquire businesses, technologies or products or fund
investments and other relationships the Company believes are strategic. In
addition, while the exercise prices of the outstanding options and warrants may
currently be below the trading prices of th Company's Common Shares on the
Toronto Stock Exchange, there can be no assurance that the Common Shares will
continue to trade at prices that justify the exercise of the warrants, or that
the holders will, in fact, exercise them. Accordingly, the Company's actual
capital requirements may vary from currently anticipated needs and such
variations could be material.
18
<PAGE>
There can be no assurance that additional financing will be available on
commercially reasonable terms or at all. If adequate funds are not available or
are not available on acceptable terms, the Company may not be able to funds its
expansion, take advantage of strategic acquisitions, investment or licensing
opportunities or respond to competitive pressures. Such inability to obtain
additional financing when needed would have a material adverse effect on the
Company's business, results of operations, cash flow, financial condition and
prospects. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the shareholders of the
Company will be reduced, shareholders may experience additional dilution and
such securities may have rights, preferences and privileges senior to those of
the Company's Common Shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Description of Securities."
Potential Fluctuations In Results Of Operations
The Company's operating results have varied on a quarterly basis in the
past and may fluctuate significantly as a result of a variety of factors, many
of which are outside the Company's control. Factors that may affect the
Company's quarterly operating results include: (i) the Company's ability to
increase its customer base; (ii) the availability and pricing of merchandise
from vendors; (iii) the announcement or introduction of new sites, services and
products by the Company or its competitors; (iv) the success of the Company's
brand building and marketing campaigns; (v) introduction and success of the
Company's business-to-business auction; (vi) the success of any future
acquisition by the Company of businesses, technologies or products or any
strategic investments or relationships into which the Company may enter; (vii)
price competition; (viii) the level of use of the Internet and online services;
(ix) increasing consumer confidence in and acceptance of the Internet and other
online services for commerce and, in particular, products such as those offered
by the Company; (x) consumer confidence in the security of transactions over the
Internet and other online services; (xi) the Company's ability to upgrade and
develop its systems and infrastructure to accommodate growth; (xii) the
Company's ability to attract new personnel in a timely and effective manner;
(xiii) the timing, cost and availability of advertising in traditional media and
on other Web sites and online services; (xiv) technical difficulties or service
interruptions; (xv) the amount and timing of operating costs and capital
expenditures relating to expansion of the Company's business, operations and
infrastructure; (xvi) consumer trends and popularity of certain categories of
collectible items; (xvii) governmental regulation by Federal or local
governments; and (xviii) general economic conditions as well as economic
conditions specific to the Internet and online commerce industries.
As a result of the Company's limited operating history, the emerging nature
of the markets in which it competes and the inherent degree of variability in
auctions, it is difficult for the Company to accurately forecast its revenues or
earnings from auction activities. In addition, the Company has no backlog and a
significant portion of the Company's net revenues for a particular quarter are
derived from auctions that are conducted during that quarter. The Company's
current and future expense levels are based largely on its investment plans and
estimates of future revenues and are, to a large extent, fixed. The Company may
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues relative
to the Company's planned expenditures would have an immediate adverse effect on
the Company's business, results of operations, cash flow and financial
condition. Further, as a strategic response to changes in the competitive
environment, the Company may from time to time make certain pricing, service or
marketing decisions that could have a material adverse effect on its business,
results of operations, financial condition and prospects.
Due to the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast. The Company believes that
period-to-period comparisons of its operating results may not be meaningful and
should not be relied upon as an indication of future performance. In addition,
it is likely that in one or more future quarters the Company's operating results
will fall below the expectations of securities analysts and investors. In such
event, the trading price of the Common Share would almost certainly be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Developing Online Commerce Markets
The Company's long-term viability is substantially dependent upon the
widespread acceptance and use by consumers and businesses of the Internet as a
medium of commerce. Use of the Internet as a means of effecting
19
<PAGE>
retail and wholesale transactions is at an early stage of development, and
demand and market acceptance for recently introduced products and services over
the Internet is uncertain. The Company cannot predict the extent to which
consumers and businesses will be willing to shift their purchasing habits from
traditional retailers and distributors to online retailers and distributors. See
"--Uncertain Acceptance of the BID.COM Brand; Evolving and Unpredictable
Business Model."
The Internet may not be commercially viable for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure, delayed development of enabling technologies and inadequate
performance improvements. In addition, the Internet's viability as a commercial
marketplace could be adversely affected by delays in the development of services
or due to increased government regulation. Changes in or insufficient
availability of telecommunications services to suppor the Internet also could
result in slower response times and adversely affect usage of the Internet
generally and the Company in particular. Moreover, adverse publicity and
consumer concern about the security of transactions conducted on the Internet
and the privacy of users may also inhibit the growth of commerce on the
Internet. If the use of the Internet does not continue to grow or grows more
slowly than expected, or if the infrastructure for the Internet does not
effectively support growth that may occur, the Company would be materially and
adversely affected. See "--Dependence on the Web Infrastructure," "--Reliance on
Other Third Parties," "--Rapid Technological Change," "--Internet Commerce
Security," "--Risk of System Failure; Single Site," and "--Government Regulation
and Legal Uncertainties."
In addition, even if consumers and businesses accept the use of the
Internet as a viable medium of commerce, there can be no assurance that Internet
auctions generally, or the Company's online auctions in particular, will develop
successfully or achieve widespread acceptance. If the market for Internet-based
online auctions fails to develop, or develops more slowly than expected or
becomes saturated with competitors, or if the Company's Internet auctions do not
achieve market acceptance, the Company's business, financial condition, results
of operations, cash flow and prospects would be materially adversely affected.
See "Business--Industry Background" and "Business--Competition."
Reliance on Merchandise Vendors
The Company is dependent upon third party vendors to supply it with
merchandise for sale through the Company's Internet auctions and the
availability of merchandise from such suppliers is unpredictable. The Company
does not have long-term contracts or arrangements with most of its vendors
guaranteeing the availability of merchandise for its auctions. There can be no
assurance that the Company's current vendors will continue to sell merchandise
to the Company or otherwise provide merchandise for sale in the Company's
auctions or that the Company will be able to establish new vendor relationships
that ensure merchandise will be available for auction on the Company's Web site.
The Company also relies on many of its vendors to process and ship merchandise
to customers. The Company has limited control over the shipping procedures of
its vendors, and shipments by these vendors may be subject to delays. There can
be no assurance that the Company will be able to continue to develop and
maintain satisfactory relationships with vendors on acceptable commercial terms
and obtain sufficient quantities of merchandise and quality of service on a
consistent basis. During 1998,one computer products supplier provided over 30%
of the merchandise offered in the Company's auctions, and four unrelated
suppliers of computers and other products accounted for up to 90% of the
Company's supply base at various times. For 1999, the Company anticipates that,
at any given time, four unrelated suppliers may each be supplying up to 20-30%
of the Company's product offerings. See "Business--Products."
Reliance on Other Third Parties
In addition to its merchandise vendors, the Company's operations depend on
a number of other third parties. The Company has limited control over these
third parties and no long-term relationships with any of them. The Company does
not own a gateway onto the Internet. Instead, the Company relies on Internet
service providers to connect the Company's Web site to the Internet. From time
to time, the Company has experienced temporary interruptions in its Web site
connection and in its telecommunications access. Continuous or prolonged
interruptions in the Company's Web site connection or in its telecommunications
access would have a material adverse effect on the Company. There can be no
assurance that the Company will be able to maintain satisfactory, or develop
new, relationships with such third parties on acceptable commercial terms, or at
all.
20
<PAGE>
Continuance of Existing Strategic and Marketing Alliances
The Company's business strategy is based, to a substantial degree, on
seeking out and forming strategic and marketing alliances with Internet service
and content providers, Internet aggregators and search engines and other
marketing partners which can drive traffic to the Company's online auction
sites. Many of the Company's strategic and marketing alliances with its
marketing and distribution partners are of limited duration or may be terminated
at any time. The Rogers Media Agreement may be terminated by Rogers Media at any
time upon 90 days' advance written notice, subject to certain conditions. The
Company's agreement with AOL expires on March 31, 2000. There can be no
assurance that these marketing and advertising arrangements will not be
terminated prior to their expiration, or that upon expiration will be renewed on
favorable terms or at all. The discontinuance of these arrangements could have a
material adverse effect on th Company. To date, most of the strategic and
marketing alliances entered into by the Company in the United States have not
been exclusive or restricted as to location or technological environment. The
Company has therefore retained the necessary flexibility to broaden its
distribution by increasing the number of its strategic and marketing alliances
and advertising relationships. There can be no assurance that future alliances
with such partners or alliances with any other partners will provide the Company
with the same flexibility. See "--Developing Online Commerce Markets,"
"--Reliance on Other Third Parties" and "Business--Business Strategy."
Competition
The online commerce market is new, rapidly evolving and intensely
competitive, and the Company expects that online commerce competition in
general, and online auction competition in particular, will further intensify in
the future. Barriers to entry are minimal, and current and new competitors can
launch new sites at a relatively low cost. In addition, the broader retail
consumer product industry is intensely competitive. The Company's competitors,
determined on the basis of type of merchandis and sales format offered by such
entities to customers, include: (i) companies providing business-to-consumer
online auctions services such as Onsale, First Auction, uBid, and Egghead; (ii)
consumer-to-consumer online auction services such as eBay, Yahoo!, Auctions
Powered by Onsale, Auction Universe, Excite and a number of small services,
including those that serve specialty markets; (iii) companies providing online
communities and services that specialize in or otherwise have expertise in
developing online commerce and some of whom currently offer a variety of
business-to-consumer trading services, including Amazon.com, AOL and Microsoft
Corporation; (iv) companies that offer merchandise similar to that of the
Company but through physical auctions and with which the Company competes for
sources of supply; (v) catalog companies with substantial customer data bases,
which may devote greater resources to Internet commerce in the future; and (vi)
large retailers and other companie with strong brand recognition and experience
in online commerce that are increasingly directing greater resources to Internet
commerce and who seek to compete in the online auction market, including Cendant
Corporation and QVC. In addition, because the barriers to the E-commerce
industry are minimal, the Company may in the future face additional competitors
who the Company cannot currently identify. The Company also anticipates that one
or more of these companies and other companies engaged in the
business-to-business sector will offer business-to-business online auctions as
this sector continues to grow. Competitive pressures created by any one or more
of these competitors could have a material adverse effect on the Company's
business, results of operations, cash flow, financial condition and prospects.
See "Business--Competition."
The Company believes that the principal competitive factors in its online
auction market are brand recognition, product selection, variety of value-added
services, ease of use, site content, quality of service, reliability of delivery
of products, quality of search tools, system reliability, technical expertise
and price. Many of the Company's competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company. Certain of the
Company's competitors may also offer auction services in Canada and/or Europe.
In addition, other online trading services may be acquired by, receive
investments from or enter into other commercial relationships with larger, well-
established and well-financed companies as use of the Internet and other online
services increases. Therefore, certain of the Company's competitors with other
revenue sources may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies and devote
substantially more resources to Web site and systems development than the
Company or may try to attract traffic by offering services for free.
Further, as a strategic response to changes in the competitive environment,
the Company may, from time to time, make certain pricing, service or marketing
decisions or acquisitions that could have a material adverse effect
21
<PAGE>
on its business, results of operations and financial condition. New technologies
and the expansion of existing technologies may increase the competitive
pressures on the Company by enabling the Company's competitors to offer a lower-
cost service. Certain Web-based application that direct Internet traffic to
certain Web sites may channel users to trading services that compete with the
Company. The Company is aware that certain of its competitors have and may
continue to adopt aggressive pricing or inventory availability policies,
establish cooperative relationships among themselves or directly with vendors to
obtain exclusive or semi-exclusive sources of merchandise, secure merchandise
from vendors on more favorable terms than the Company, and respond more quickly
to changes i customer preferences or devote greater resources to the
development, promotion and sale of their merchandise than can the Company.
Accordingly, the Company believes that new competitors or alliances among
competitors and vendors may emerge and rapidly acquire market share. Increased
competition may result in reduced operating margins, loss of market share and
diminished brand recognition, any one of which would have a material adverse
effect on the Company. See " Business--Competition."
Uncertain Acceptance of the BID.COM Brand
The Company believes that strong brand recognition is critical to achieving
widespread acceptance of BID.COM, especially in light of the intensely
competitive nature of the online business-to-consumer auction market. The
Company's ability to promote and position its brand will depend largely on the
success of the Company's marketing efforts and the Company's ability to offer a
broad range of products and provide high quality, easy-to-use, secure auction
service. If vendors do not perceive BID.COM as an effective marketing and sales
channel for their merchandise, or if customers do not perceive BID.COM as
offering an entertaining, secure and user-friendly platform to purchase
merchandise, the Company will be unsuccessful in promoting and maintaining its
brand. Furthermore, to attract and retain customers and to promote and maintain
the BID.COM brand in response to competitive pressures, the Company must
increase its marketing and advertising budgets and otherwise increase
substantially its financial commitment to creating and maintaining brand loyalty
among vendors and consumers. There can be no assurance that the Company's brand
promotion efforts will result in increased revenues, or that resulting increased
revenues would offset the expenses incurred by the Company in promoting its
brand. If the Company is unable to promote or maintain its brand, the Company's
business, financial condition, results of operations, cash flow and prospects
would be materially and adversely affected. See "Business--Business
Strategy--Expanding the Company's Customer Base Through Diverse Marketing
Strategy" and "Business--Marketing."
Risks Associated With Evolving Business Model
The Company's business model continues to evolve. The Company seeks to
develop and promote new or complimentary opportunities, services, products or
transaction formats and expand the breadth and depth of services. These include
the use of the Company's Web site as an advertising medium for the products and
services of other companies, licensing its technology, initiating under a
different brand name its business-to-business auctions, entering into strategic
relationships' to co-brand auctions in the business-to-business category and to
develop and operate interactive auctions in other electronic media, expanding
operations to Europe and elsewhere, and acquiring businesses, technologies,
services or products, or funding investments or other relationships that the
Company believes are strategic. There can be no assurance that the Company will
be able to expand its operations in a cost-effective or timely manner or that
any such efforts will maintain or increase overall market acceptance.
Furthermore, any new business or service launched b the Company that is not
favorably received by customers could damage the Company's reputation and
diminish the value of its brand name. Expansion of the Company's operations in
this manner would also require significant additional expenses and development,
operations and other resources and would strain the Company's management,
financial and operational resources. The lack of market acceptance of such
services or the Company's inability to generate satisfactory revenues from such
expanded services to offset their cost could have a material adverse effect on
the Company's business, results of operations, cash flow, financial condition
and prospects.
Risks Associated With Acquisitions
If appropriate opportunities present themselves, the Company intends to
acquire businesses, technologies, services or products that the Company believes
are strategic or enter into other strategic relationships. The Company currently
has no understandings, commitments or agreements with respect to any material
acquisition or strategic relationship and no material acquisition or strategic
relationship is currently being pursued. There can be
22
<PAGE>
no assurance that the Company will be able to identify negotiate or finance
future acquisitions or strategic relationships successfully, or to integrate
such acquisitions or strategic relationship with its current business. The
process of integrating an acquired business, technology, service or product into
the Company may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of the Company's business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition or strategic
relationship will be realized. Acquisitions or strategic relationships could
result in potentially dilutive issuances of equity securities, the incurrence of
debt, contingent liabilities and/or amortization expenses related to goodwill
and other intangible assets, which could materially adversely affect the
Company's business, results of operations, cash flow, financial condition and
prospects. Any such future acquisitions of other businesses, technologies,
services or products or strategic relationship might require the Company to
obtain additional equity or debt financing, which might not be available on
terms favorable to the Company, or at all, and such financing, if available,
might be dilutive. See "--Need For Additional Financing."
Dependence On The Web Infrastructure
The success of the BID.COM branded auction service and the private brand
auction service operated by the Company for certain of its customers will depend
to a significant degree upon the development and maintenance of the Web
infrastructure and reliable Web access and services. The Web has experienced,
and is expected to continue to experience, significant growth in the numbers of
users and amount of traffic. There can be no assurance that the Web
infrastructure will continue to be able to support the demands placed on it by
this continued growth or that such growth will not adversely affect the
performance or reliability of the Web. Furthermore, from time to time, the Web
has experienced a variety of outages and other delays as a result of damage to
portions of its infrastructure, and could face such outages and delays in the
future, including outages and delays resulting from the inability of certain
computers or software to distinguish dates in the 21st century from dates in the
20th century. See "--Risks Associated with the Year 2000." These outages and
delays could adversely affect the level of Web usage and the level of traffic
and the processing of on-line auctions. In addition, the Web could lose its
viability due to delays in the development or adoption of new standards and
protocols to handle increased levels of activity. If the necessary
infrastructure, standards, protocols or complementary products, services or
facilities are not developed, or if the Web does not become a viable commercial
marketplace, the Company's business, results of operations, cash flow and
financial condition will be materially and adversely affected. Even if the
infrastructure, standards, protocols and complementary products, services or
facilities are developed and the Web becomes a viable commercial marketplace in
the long term, the Company might be required to incur substantial expenditures
in order to adapt its service to changing Web technologies, which could have a
material adverse effect on the Company's business, financial condition, results
of operations, cash flow and prospects.
Internet Commerce Security
A significant barrier to E-commerce and Internet communications is the
secure transmission of confidential information over public networks. Currently,
all bidders are required to authorize the Company to bill their credit card
accounts directly for the purchase price and shipping costs of goods purchased
at the Company's online auction. The Company relies on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect the secure transmission of confidential
information, including customer credit card numbers. There can be no assurance
that the advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments will not result in a compromise or
breach of the technology used by the Company to protect customer transaction
data. Furthermore, a party who is able to circumvent the Company's security
measures could misappropriate proprietary information or cause interruptions in
the Company's operations. The Company may be required to expend significant
capital and other resources to protect against such security breaches or to
alleviate problems caused by such breaches. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet generally, and the World Wide Web in particular, as a means of
conducting commercial transactions. To the extent that activities of the Company
involve the storage and transmission of proprietar information, such as credit
card numbers, security breaches could damage the Company's reputation and expose
the Company to a risk of loss or litigation and possible liability. The
Company's insurance policies do not reimburse the Company for losses caused by
security breaches. There can be no assurance that the Company's security
measures will prevent security breaches and protect the Company from any
resulting risk of loss. See " Business--Technology Platform."
23
<PAGE>
Risk of System Failure; Single Site
The Company's operations are largely dependent upon its communications
hardware and computer hardware, substantially all of which are located at a
leased facility in Mississauga, Ontario in Canada. The Company's systems are
vulnerable to damage from earthquake, fire, floods, power loss,
telecommunications failure, break-ins and similar events. While the Company has
developed preliminary plans for redundant systems and a formal disaster recovery
plan, no such system or plans are currently in effect. A substantial
interruption in these systems would have a material adverse effect on the
Company. The Company's coverage limits on its property and business interruption
insurance may not be adequate to compensate the Company for all losses that may
be incurred. Despite the implementation of network security measures by the
Company, its servers are also vulnerable to computer viruses, physical or
electronic break-ins, attempts by third parties to deliberately exceed the
capacity of the Company's systems and similar disruptive problems. The Company's
insurance policies carry low coverage limits which may not be adequate to
reimburse the Company for losses caused by erroneous transmission of computer
viruses or other defects. Computer viruses, break-ins or other problems caused
by third parties could lead to interruptions, delays, loss of data or cessation
in service to users of the Company's services. The occurrence of any of these
events could materially and adversely affect the Company's business, financial
condition, results of operations, cash flow and prospects.
Risk of Capacity Constraints
The Company seeks to generate a high volume of traffic and transactions on
the BID.COM auction. Accordingly, the satisfactory performance, reliability and
availability of the Company's Web site, processing systems and network
infrastructure are critical to the Company's reputation and its ability to
attract and retain large numbers of users who bid for items on its service while
maintaining adequate customer service levels. Any system interruptions that
result in the unavailability of the Company's service or reduced customer
activity would reduce the volume of transactions completed. Interruptions of
service may also diminish the attractiveness of the Company and its services.
Any substantial increase in the volume of traffic on the Company's Web site will
require the Company to expand its technology, transaction processing systems and
network infrastructure. There can be no assurance that the Company will be able
to accurately project the rate or timing of increases, if any, in the us of its
services or timely expand its systems and infrastructure in a timely manner to
accommodate such increases. Any failure to expand its systems could have a
material adverse effect on the Company's business, results of operations, cash
flow, financial condition and prospects.
Rapid Technological Change
The Internet and E-commerce industries are characterized by rapid
technological change, changes in user and customer requirements, frequent new
service or product introductions embodying new technologies and the emergence of
new industry standards and practices, any or all of which could render the
Company's existing Web site and proprietary technology obsolete. The Company's
performance will depend, in part, on its ability to license leading
technologies, develop new proprietary technology that address the increasingly
sophisticated and varied needs of its existing and prospective customers,
respond to technological advances and emerging industry standards and practices
on a timely and cost-effective basis and continually improve the performance,
features and reliability of its services in response to evolving market demands.
In addition, the widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require
substantial expenditures b the Company to modify or adapt its services or
infrastructure. There can be no assurance that the Company will be successful in
using new technologies effectively or adapting its Web site and proprietary
technology and services to customer requirements or emerging industry standards.
See "Business--Technology Platform" and "Business--Research and Development."
Risks Associated With the Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. As a result,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the Year 2000. This could result in system failures or financial
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
24
<PAGE>
The Company does not believe that it has material exposure to Year 2000
complications with respect to its own information systems since its existing
systems correctly define the Year 2000. The Company is conducting an analysis to
determine the extent to which its major suppliers', service providers' and
marketing and advertising partners' systems (insofar as they relate to the
Company's business) are subject to the Year 2000 issue. However, the Company is
currently unable to predict the extent to which the Year 2000 issue will affect
its suppliers, service providers and marketing or advertising partners, or the
extent to which it would be vulnerable to such parties' failure to remedy any
Year 2000 issues on a timely basis. The failure of a major supplier, service
provider or marketing or advertising partner subject to the Year 2000 issue to
convert its systems on a timely basis, or the conversion of these systems that
is incompatible with the Company's systems, could have a material adverse effect
on the Company's business, results of operations, cash flow, financial condition
and prospects. The Company has not yet devised a contingency plan covering the
possible failure of any of its primary suppliers, service providers or marketing
or advertising partners to resolve its Year 2000 problems in a timely manner. If
necessary, such contingency plans could require the Company to incur significant
expenses. In addition, most of the purchases fro the Company's auctions are paid
for using credit cards. If the bank systems used to process credit card
transactions for a significant portion of transactions on BID.COM's auction site
are not Year 2000 compliant, the Company's operations may be materially and
adversely affected to the extent customers are unable to use their credit cards
to make purchases. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence on Key Personnel; Need for Additional Personnel
The Company's success is substantially dependent on the ability and
experience of its senior management and other key personnel. The Company does
not have long term employment agreements with any of its key personnel and
maintains no "key person" life insurance policies. Moreover, to accommodate its
current size and manage its anticipated growth, the Company must maintain and
expand its employee base. Competition for personnel, particularly persons having
software development and other technica expertise, is intense, and there can be
no assurance that the Company will retain existing personnel or hire additional,
qualified personnel. The inability of the Company to retain and attract the
necessary personnel or the loss of services of any of its key personnel could
have a material adverse effect on the Company. See "Business--Employees" and
"Management."
Management of Growth
The Company has recently experienced, and may continue to experience,
growth in its operations, financial systems and the number of its employees.
Such growth has and will continue to place significant demands on the Company's
management, administrative, operating and financial resources. In order to
manage its current operations and any future growth effectively, the Company
will need to continue to implement and improve its operational, financial and
management information systems and to hire train, motivate, manage and retain
its employees. There can be no assurance that the Company will be able to manage
such growth effectively, that its management, personnel or systems will be
adequate to support the Company's operations, or that the Company will be able
to achieve levels of revenue commensurate with the increased levels of operating
expenses associated with such growth.
Protection of Intellectual Property
The Company's performance and ability to compete are dependent to a
significant degree on its proprietary technology. The Company relies on a
combination of patent, copyright, trademark and trade secret laws as well as
confidentiality agreements and technical measures, to establish and protect its
proprietary rights. The Company has received a notice of allowance from the PTO
for a patent application it filed in the United States seeking patent protection
for the process whereby the Company conducts declining price, or Dutch, auctions
over electronic distribution channels. The PTO grants a notice of allowance if,
after examination, it finds a patent application allowable and then it issues
the patent soon after the applicant pays an issuance fee. The Company has a
patent application pending in Canada covering the same technology. There can be
no assurance that the patent under application in Canada will be allowed or
issued in whole or in part. In addition, the Company cannot guarantee that any
patents issued to it will afford meaningful protection for its technology.
Competitors may develop similar technologies which do not conflict with the
Company's patents, or they could challenge the Company's patents. The Company is
not aware of any challenges to its patent rights or any infringement by its
technology on the proprietary rights of third parties, but there can be no
assurance that current or future technologies developed by the Company do not
or, in the future, will not, infringe on the rights of others or that the
Company's patents will not be challenged. The cost of any litigation against the
Company regarding its patent rights could be significant and any successful
litigation could materially and adversely affect the Company's business.
The Company's proprietary software is protected by common law copyright
laws, as opposed to registration under copyright statutes. Common law protection
may be narrower than that which the Company could obtain under registered
copyrights. As a result, the Company may experience difficulty in enforcing its
copyrights against certain third party infringements. The source code for the
Company's proprietary software is protected as a trade secret. As part of its
confidentiality-protection procedures, the Company generally enters into
agreements with its employees and consultants and limits access to, and
distribution of, its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology or that agreements entered into for that
purpose will be
25
<PAGE>
enforceable. The laws of other countries may afford the Company little or no
protection of its intellectual property. The Company also relies on a variety of
technology that it licenses from third parties, including its database and
Internet server software, which is used in the Company's Web site to perform key
functions. There can be no assurance that these third party technology licenses
will continue to be available to the Company on commercially reasonable terms,
if at all. The loss of or inability of the Company to maintain or obtain
upgrades to any of these technology licenses could result in delays in
completing its proprietary software enhancements and new development until
equivalent technology could be identified, licensed or developed and integrated.
Any such delays would materially and adversely affect the Company's business,
financial condition, results of operations, cash flow and prospects. See
"Business--Intellectual Property."
Government Regulation and Legal Uncertainties
The Company is subject, both directly and indirectly, to various laws and
regulations relating to its business, although there are presently few laws or
regulations directly applicable to Internet access. However, due to the
increasing popularity and use of the Internet, it is possible that laws and
regulations will be adopted in the near future. Such laws and regulations may
cover issues such as user privacy, pricing, content, copyrights, distribution
and characteristics and quality of product and services. Furthermore, the growth
and development of the market for online commerce may prompt calls for more
stringent consumer protection laws that may impose additional burdens on those
companies conducting business online. The enactment of any additional laws or
regulations may impede the growth of commerce on the Internet which could, in
turn, decrease the demand for the Company's products and services and increase
the Company's cost of doing business or otherwise have a material adverse effect
on the Company.
The applicability of existing laws to the Internet in various jurisdictions
governing issues such as property ownership, sales and other taxes, contests and
sweepstakes, libel, personal privacy, rights of publicity, language requirements
and content restrictions is uncertain and could expose the Company to
substantial liability. The application of existing and new laws and regulations
to the Internet could have a material adverse effect on the Company. An
allegation that the Company was violating U.S, Canadian, or international civil
or criminal law could have a material adverse effect on the Company even if the
Company successfully defended such claims.
In addition, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
Also, because the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure and many areas with high Internet use
have begun to experience interruptions in telephone service, certain local
telephone carriers have petitioned the FCC to regulate Internet service
providers and online service providers in a manner similar to long distance
telephone carriers and to impose access fees on such providers. If any of these
petitions are granted, or the relief sought therein is otherwise granted, the
costs of communicating on the Internet could increase substantially, potentially
slowing the growth in use of the Internet. Any such new legislation or
regulation or application or interpretation of existing laws could have a
material adverse effect on the Company's business, financial condition and
results of operations.
U.S. and foreign laws regulate certain uses of customer information and
development and sale of mailing lists. The Company believes that it is in
material compliance with such laws, but new restrictions may arise in this area
that could materially adversely affect the Company.
Potential Liability for Sales and Other Taxes.
With the exception of sales to bidders in Florida, California and Georgia,
the states in which the Company has, or in the past had, a physical presence,
the Company does not collect sales or other similar taxes in respect of goods
sold through BID.COM hosted auctions. However, one or more states may seek to
impose sales tax collection obligations on out-of-state companies such as the
Company which engage in or facilitate online commerce, and a number of proposals
have been made at the state and local level that would impose additional taxes
on the sale of goods and services through the Internet. Such proposals, if
adopted, could substantially impair the growth of electronic commerce, and could
adversely affect the Company's opportunity to derive financial benefit from such
activities. Moreover, a successful assertion by one or more states, Canada or
any other foreign country that the Company
26
<PAGE>
should collect sales or other taxes on the exchange of merchandise on its system
could have a material adverse effect on the Company's business, results of
operations, cash flow and financial condition.
In the United States, the Internet Tax Freedom Act, limiting the ability of
the states to impose certain taxes on Internet-based transactions, was enacted
in October, 1998. Pursuant to such legislation, a general three-year moratorium
expiring in October 2001 was implemented banning the imposition of state and
local taxes on Internet access (unless such taxes were generally imposed and
actually enforced prior to October 1, 1998) and discriminatory or multiple taxes
on E-commerce. Additionally, the legislation provides for the establishment of
an Advisory Committee on Electronic Commerce whose responsibility is to conduct
a thorough study of federal, state and local, and international taxation and
tariff treatment of transactions using the Internet and Internet access and
other comparable intrastate, interstate or international sales activities and
present legislative recommendations to the U.S. Congress. It is possible that
the moratorium could not be renewed when it terminates in October 2001 Failure
to renew the moratorium could allow state and local government to impose taxes
on Internet based sales, and such taxes could have a material adverse effect on
the Company's business, financial condition, results of operation, cash flow and
prospects.
Risks Associated with Global Expansion
The Company currently operates in the United States and Canada. However, it
intends to open an office in Ireland in June 1999, and may expand to other
countries thereafter. Expansion will require management attention and resources.
The Company has limited experience in localizing its service, and the Company
believes that many of its competitors are also undertaking expansion into
foreign markets. There can be no assurance that the Company will be successful
in expanding into global markets. In addition to the uncertainty regarding the
Company's ability to generate revenues from foreign operations and establish a
global presence, there are certain risks inherent in doing business on a global
level, including, among others, regulatory requirements, legal uncertainty
regarding liability, tariffs, and other trade barriers, difficulties in staffing
and managing foreign operations, difficulties in protecting intellectual
property rights, longer payment cycles, different accounting practices,
political instability, the impact of recession and other economic conditions in
local markets, seasonal reductions in business activity during the summer months
in Europe and elsewhere, inability to predict foreign consumer demand and
potentially adverse tax consequences, any of which could adversely affect the
success of the Company's global operations. If the Company expands its foreign
operations and has additional portions of its revenues denominated in foreign
currencies, the Company could become subject to increased risks relating to
foreign currency exchange rate fluctuations. In addition, the export of certain
software from the United States and Canada is subject to export restrictions as
a result of the encryption technology in such software and may give rise to
liability to the extent the Company violates such restrictions. There can be no
assurance that one for more of the factors discussed above will not have a
material adverse effect on the Company's future global operations and,
consequently, on the Company's business, results of operations, cash flow,
financial condition and prospects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Exchange Rate Fluctuations
The Company transacts substantially all of its purchases and sales in U.S.
dollars while the majority of the Company's operating expenses are in Canadian
dollars. The Company does not have any hedging programs in place to manage the
potential exposure to fluctuations in the U.S./Canadian dollar exchange rate.
Fluctuations in the U.S./Canadian dollar exchange rate could have a material
adverse effect on the Company's earnings and cash flows. See "Exchange Rates"
at the forepart of this Registration Statement and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Foreign Currency
Fluctuations."
Forward-Looking Statements
In addition to historic information, this Registration Statement includes
forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Such statements are indicated by words or phrases such as "anticipate,"
"estimate," "project," "plans," "intends," "management believes," "the Company
believes" and similar words or phrases. Such statements are based on current
expectations and are subject to risks, uncertainties and assumptions. Certain of
these risks are described in the section of this Registration Statement entitled
"Risk Factors." Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected. Although the Company
believes that its expectations are based on reasonable assumptions within the
bounds of its business and operations, actual results may differ materially from
expectations that may be expressed or implied from any forward-looking
statements contained in this Registration Statement. Factors that could cause
actual results to differ from expectations include, and are not limited to, the
failure of the Internet and/or online auctions to become widely accepted as a
viable medium of commerce, inability of the Company directly and/or through its
marketing and advertising alliances to attract a sufficient number of customers
to the Company's site, the failure or delay of market acceptance of the
Company's auction services, the Company's future need for additional capital and
the uncertainty of the availability of funding, the ability of the Company to
compete with other E-tailing and online auction businesses, failure to timely
license or develop new technologies, delays in the issuance of, or the failure
to obtain, patents for certain proprietary technologies, problems with important
vendors and business partners on whom the Company relies, risk of system failure
or interruption, implementation and enforcement of government regulations, the
failure of the Company's suppliers and strategic partners to resolve any Year
2000 issues and other risks or uncertainties described in this Registration
Statement.
Possible Issuance of Preference Shares
The Company's Preference Shares may be issued by the Board of Directors
without shareholder approval on such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine. The
rights of the holders of Common Shares will be subject to, and may be adversely
affected by, the rights of the holders of any series of Preference Shares that
may be issued in the future. The issuance of a series of Preference Shares could
have the effect of delaying, deterring or preventing a change in control of the
Company. See "Description of Securities To Be Registered."
27
<PAGE>
Possible Volatility of Stock Price
The Company has applied for its Common Shares to be quoted for trading on
The Nasdaq SmallCap Market under the symbol BIDS. The trading price of the
Common Shares on The Nasdaq SmallCap Market is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as actual or
anticipated variations in the Company's quarterly operating results,
announcements of technological innovations or new services by the Company or its
competitors, changes in financial estimates by securities analysts, conditions
or trends in the Internet and online commerce industries, changes in the market
valuations of other Internet or online service companies, announcements by the
Company or its competitors of significant acquisitions, strategic partnerships,
joint ventures or capital commitments, additions or departures of key personnel,
sales of Common Shares or othe securities of the Company in the open market and
other events or factors, many of which are beyond the Company's control.
Further, the stock markets in general, and The Nasdaq Markets and the market for
Internet-related and technology companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect valuations substantially above historical levels. There can be no
assurance that these trading prices and valuations will be sustained. These
broad market and industry factors may materially and adversely affect the market
price of the Common Shares, regardless of the Company's operating performance.
Market fluctuations, as well as general political and economic conditions such
as recession or interest rate or currency rate fluctuations or economic turmoil
in Southeast Asia, South America or elsewhere in the world, may have a negative
effect on market prices of stocks generally, which could adversely affect the
market price of the Common Shares even though the Company may have no customers
or operations in those regions. In the past, following periods of volatility in
the market price of a company's securities, securities class-action litigation
has often been instituted against the subject company. Such litigation, if
instituted against the Company, could result in substantial costs and a
diversion of management's attention and resources, which would have a material
adverse effect on the Company's business, results of operations, cash flow,
financial condition and prospects.
No Prior Market for Common Shares in United States; Risk of Low Priced
Stock
Prior to the effective date of this Registration Statement, there has been
no public market for the Company's Common Shares in the United States, and there
can be no assurance that an active public market will develop in the United
States or be sustained after the effective date of this Registration Statement
or that investors will be able to sell the Common Shares should they desire to
do so. In addition, historically the Company's Common Shares have frequently
traded on the TSE at prices below $5.00. Should a similar trading range continue
on Nasdaq after the effective date of this Registration Statement, the Common
Shares could become characterized as "penny stocks" which could severely affect
market liquidity. The Securities Enforcement and Penny Stock Reform Act of 1990
requires additional disclosure relating to the market for penny stocks in
connection with trades in any stock defined as a penny stock. Securities and
Exchange Commission regulations generally define a penny stock to be an equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions. Such exceptions include any equity security listed on Nasdaq
or a national securities exchange and any equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000, if such issuer
has been in continuous operation for less than three years. Unless an exception
is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith. The penny stock regulations would
adversely affect the market liquidity of the Common Shares by limiting the
ability of broker/dealers to trade the stock and the ability of purchasers of
the Common Stock to sell in the secondary market.
Shares Eligible For Future Sale
This Registration Statement registers the Company's class of Common Shares
pursuant to the Exchange Act. It does not register the sale of any Common Shares
by the Company or any shareholder pursuant to the Securities Act of 1933, as
amended (the "Securities Act"). The Common Shares may be sold in the United
States as set forth below. As of the effective date of this Registration
Statement, there are ______________ Common Shares outstanding. Of these shares,
______________ Common shares will be freely tradable immediately upon the
effective date of this Registration Statement, except for those shares held by
"affiliates," as defined in rule 144 ("Rule 144") under the Securities Act. The
remaining outstanding Common Shares may be sold from time to time in accordance
with Rule 144 (such shares being referred to herein as "Restricted Shares") or,
if applicable, may be sold in accordance with Rule 701 (as defined below). In
addition, as of March 19, 1999, there were outstanding options and warrants to
purchase an aggregate of 3,795,659 Common Shares. Sales of substantial amounts
of the Company's Common Shares (including shares issued upon the exercise of
outstanding options and warrants) in the public market could have a materially
dilutive effect on the prevailing market price of the Common Shares and the
ability of the Company to raise equity capital in the future.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Registration Statement, a person (or persons whose shares are
required to be aggregated) who has beneficially owned Restricted Shares for at
least one year (including the holding period of any prior owner except an
affiliate) would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the number of Common Shares
then outstanding (which will equal approximately 481,250 shares immediately upon
the effective date) or (ii) the average weekly trading volume of the Common
Shares during the four calendar weeks preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about the Company. Under Rule 144(k), a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701 under the Securities Act ("Rule 701") permits resales of shares in
reliance upon Rule 144 but without compliance with certain restrictions of Rule
144, including the holding period requirement. Any employee, officer or director
of or consultant to the Company who, prior to the effective date of this
Registration Statement, purchased his or her shares or received options to
purchase Common Shares, pursuant to a written compensatory plan or contract may
be entitled to rely on the resale provisions of Rule 701 with respect to options
or shares issued in reliance on Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
such shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this Registration Statement before selling such shares.
In addition, Rule 701 shares and shares issued upon exercise of options
granted after the effective date of this Registration Statement pursuant to
written compensatory plans or contracts may be sold pursuant to a short form
registration statement on Form S-8 filed by the Company. This type of
registration statement is automatically effective upon filing with the
Securities and Exchange Commission. Certain restrictions under Rule 144 may
apply to sales of shares registered on an S-8 registration statement. The
Company has not entered into any commitments to file any registration statements
on Form S-8, but may from time to time register shares under such registration
statements as long as it is eligible to use this form under applicable
rules.
Enforceability of Civil Liabilities
The Company is incorporated under the laws of the Province of Ontario,
Canada, certain of the Company's directors and officers are residents of Canada
and a substantial part of the assets of the Company and all or a substantial
portion of the assets of such persons are located outside the United States.
28
<PAGE>
As a result, it may be difficult for holders of Common Shares to effect service
of legal process within the United States upon those directors and officers who
are not residents of the United States or to realize in the United States upon
judgments of courts of the United States predicated upon civil liability under
the Securities Act of 1933, as amended, or the Exchange Act or the rules and
regulations promulgated under such statutes. The Company believes, based on
advice of its Canadian counsel, that a judgment of a United States court
predicated solely upon civil liability under such U.S. federal securities laws
would probably be enforceable in Canada if the United States court in which the
judgment was obtained had a basis for jurisdiction in the matter that was
recognized by a Canadian court for such purposes. However, the Company believes,
based on such counsel's advice, that there is substantial doubt whether an
action could be brought successfully in Canada in the first instance on the
basis of liability predicated solely upon such U.S. federal securities laws.
No Dividends
The Company has paid no cash dividends on any of its shares of capital
stock and has no plans to pay dividends in the foreseeable future. The Company
currently intends to retain all other earnings, if any, for working capital and
general corporate purposes.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company's principal administrative, engineering, merchandising and
marketing facilities total approximately 10,165 square feet and are located on
one floor of an office building in Mississauga, Ontario, Canada, under a lease
that commenced on November 1, 1998 for a three year term. The Company also
leases premises in Tampa, Florida where four employees are located. The Company
believes that it has adequate space for its current needs. As the Company
expands, it expects that suitable additional space will be available on
commercially reasonable terms. The Company does not own any real estate nor does
it currently own or lease warehouse space. The Company relies, instead, on
direct shipments from vendors or contract warehouses for its fulfillment and
logistics requirements.
In June 1999, the Company plans to open an office in Dublin, Ireland. The
Company is in the process of locating suitable premises.
ITEM 3 - LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries, is a party to or the
subject of any material legal proceedings nor are any such proceedings known by
the Company to be contemplated against the Company or any of its subsidiaries.
ITEM 4 - CONTROL OF REGISTRANT
To the knowledge of the Company, no person beneficially owns, directly or
indirectly, or exercises control or direction over more than 10% of the issued
and outstanding Common Shares of the Company.
The following table shows certain information as of March 9, 1999 with
respect to the beneficial ownership of Common Shares by the Company's executive
officers and directors as a group (12 persons).
Amount of Shares
Beneficially Owned Percent of Class
------------------------------------------------
All Directors and Executive
Officers as a Group (12 persons) 3,781,400 (1)(2) 8%
- -----------------
(1) Includes an aggregate of 1,045,000 Common Shares subject to options and
warrants exercisable within 60 days from the effective date of this Registration
Agreement held by certain directors and executive officers.
(2) Does not include: (i) any Common Shares held by HDL Capital Corporation
("HDL"); Mr. Bulger is an officer and principal of HDL; (ii) 1.0 million Common
Shares purchased by AOL; Mr. Singer is senior vice president of AOL Studios, a
division of AOL; (iii) 1.5 million Common Shares and a warrant to purchase
100,000 Common Shares purchased by Rogers Media; Mr. Abramsky is an officer of
Rogers Media; (iv) 25,000 Common Shares held by Terri Pamenter, David Pamenter's
wife; (v) options granted to Paul Hart to purchase 100,000 Common Shares which
options have not yet vested; and (vi) options granted to James I. Moskos to
purchase 25,000 Common Shares which options have not yet vested. See "Directors
and Officers of Registrant" and "Interest of Management in Certain
Transactions."
BID.COM knows of no arrangements, the operation of which may at a
subsequent date result in a change in control of the Company.
29
<PAGE>
ITEM 5 - NATURE OF TRADING MARKET
The Common Shares of the Company commenced trading on The Toronto Stock
Exchange (the "TSE") on February 9, 1998. The Common Shares have been traded
under the symbol "BII" since July 18, 1998, and prior to that traded on the TSE
under the symbol "ILI." From June 6, 1996 to February 9, 1998, the Common Shares
were quoted for trading on the Canadian Dealing Network ("CDN") under the symbol
"ILII." Prior to the effective date of this Registration Statement, the Common
Shares were not listed or quoted for trading on any securities markets within
the United States. The Company has applied for its Common Shares to be quoted
for trading on The Nasdaq SmallCap Market under the symbol BIDS. The following
table sets forth the range of high and low sales prices (rounded to the nearest
hundredth) as reported by CDN and the TSE during the calendar quarters set forth
therein:
1997 High Low
---- ---- ---
(Cdn $) (Cdn $)
1st Quarter 1.45 0.80
2nd Quarter 1.25 0.73
3rd Quarter 4.05 0.85
4th Quarter 5.00 2.25
1998 High Low
---- ---- ---
(Cdn $) (Cdn $)
1st Quarter 3.90 1.95
2nd Quarter 3.80 1.12
3rd Quarter 2.08 0.65
4th Quarter 6.00 0.56
1999 High Low
---- ---- ---
(Cdn$) (Cdn$)
1st Quarter (through 13.90 3.80
March 26, 1999)
As of March 23, 1999, the Company had 1,095 shareholders of record holding
48,125,396 Common Shares, of which 64 shareholders holding 4,946,002 Common
Shares had an address of record in the United States. Common Shares held by the
principal depositary in the United States amounted to 4,740,316 or 10.0% of the
issued Common Shares of BID.COM, which shares are held for participants'
accounts.
30
<PAGE>
After the effective date of this Registration Statement, BID.COM will be
subject to periodic reporting obligations under Sections 13 and 15(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Pursuant to
such statues and regulations, the Company intends to file with the Securities
and Exchange Commission annual reports on Form 20-F and periodic reports on Form
6-K. BID.COM is a foreign private issuer as defined under Rule 3b-4 of the
Exchange Act, and, as such, will not be subject to the proxy rules promulgated
under Section 14 of the Exchange Act or the insider short-swing profit reporting
rules promulgated under Section 16 of the Exchange Act for as long as it
maintains its foreign private issuer status.
ITEM 6 - EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There is no law, government decree or regulation in Canada restricting the
export or import of capital or affecting the remittance of dividends, interest
or other payments to a non-resident holder of Common Shares, other than
withholding tax requirements. See "Taxation-Canadian Federal Income Tax
Considerations."
There is no limitation imposed by Canadian law or by the articles or other
charter documents of the Company on the right of a non-resident to hold or vote
Common Shares or Preference Shares with voting rights (collectively, "Voting
Shares"), other than as provided in the Investment Canada Act (the "Investment
Act"), as amended by the World Trade Organization Agreement Implementation Act
(the "WTOA Act"). The Investment Act generally prohibits implementation of a
reviewable investment by an individual, government or agency thereof,
corporation, partnership, trust or joint venture that is not a "Canadian," as
defined in the Investment Act (a "non-Canadian"), unless, after review, the
minister responsible for the Investment Act is satisfied that the investment is
likely to be a net benefit to Canada. An investment in Voting Shares of the
Company by a non-Canadian (other than a "WTO Investor," as defined below) would
be reviewable under the Investment Act if it were an investment to acquire
direct control of the Company, and the value of the assets of the Company were
Cdn$5.0 million or more. An investment in Voting Shares of the Company by a WTO
Investor would be reviewable under the Investment Act if it were an investment
to acquire direct control of the Company, and the value of the assets of the
Company equaled or exceeded Cdn$184.0 million. A non-Canadian, whether a WTO
Investor or otherwise, would acquire control of the Company for purposes of the
Investment Act if he or she acquired a majority of the Voting Shares of the
Company. The acquisition of less than a majority, but at least one-third of the
Voting Shares of the Company, would be presumed to be an acquisition of control
of the Company, unless it could be established that the Company was not
controlled in fact by the acquirer through the ownership of Voting Shares. In
general, an individual is a WTO Investor if he or she is a "national" of a
country (other than Canada) thaT is a member of the World Trade Organization
("WTO Member") or has a right of permanent residence in a WTO Member. A
corporation or other entity will be a WTO investor if it is a "WTO
investor-controlled entity" pursuant to detailed rules set out in the Investment
Act. The United States is a WTO Member.
Certain transactions involving Voting Shares of the Company would be exempt
from the Investment Act, including: (a) an acquisition of Voting Shares of the
Company if the acquisition were made in connection with the person's business as
a trader or dealer in securities; (b) an acquisition of control of the Company
in connection with the realization of a security interest granted for a loan or
other financial assistance and not for any purpose related to the provisions of
the Investment Act; and (c) an acquisition of control of the Company by reason
of an amalgamation, merger, consolidation or corporate reorganization, following
which the ultimate direct or indirect control in fact of the Company, through
the ownership of voting interests, remains unchanged.
ITEM 7 - TAXATION
Canadian Federal Income Tax Considerations
The following summary describes material Canadian federal income tax
consequences generally applicable to a holder of Common Shares who is not a
resident of Canada, and who, for purposes of the Income Tax Act (Canada) (the
"ITA"), (i) holds such shares as capital property and (ii) deals at arm's length
with the Company. Generally, Common Shares will be considered capital property
to a holder provided that such holder does not hold such securities in the
course of carrying on a business anD has not acquired such securities in a
transaction or transactions considered to be an adventure or concern in the
nature of trade which includes a transaction or transactions of the same kind
and carried on in the same manner as a transaction or transactions of an
ordinary trade or dealer in property of the same kind.
This summary is based upon the current provisions of the ITA and the
regulations thereunder and on an understanding of the published administrative
practices of Revenue Canada. This summary does not take into account or
anticipate any possible changes in law, or the administration thereof, whether
by legislative, governmental or judicial action, except proposals for specific
amendment thereto which have been publicly announced by the Canadian Minister of
Finance prior to the date hereof.
This summary does not address all aspects of Canadian federal income tax
law that may be relevant to shareholders based upon their particular
circumstances, and does not deal with provincial, territorial or foreign income
tax consequences, which might differ significantly from the consequences under
Canadian federal income tax law.
Shareholders are advised to consult their tax advisors regarding the
application of the Canadian federal income tax law to their particular
circumstances, as well as any Canadian provincial, territorial or other tax
consequences or any U.S. federal, state or local tax consequences or other
foreign income tax consequences of the acquisition, ownership and disposition of
Common Shares of the Company.
Taxation of Dividends.
A holder of a Common Share who is not resident in Canada for purposes of
the ITA (a "Non-Resident") will be subject to Canadian withholding tax on
dividends paid or credited, or deemed under the ITA to be paid or credited, to
the holder of the Common Share. The rate of withholding tax under the ITA on
dividends is 25% of the amount of the dividend. Such rate may be reduced under
the provisions of an applicable international tax treaty to which Canada is a
party. Pursuant to the tax treaty that Canada has entered into with the United
States (the "Canada-U.S. Treaty"), the rate of Canadian withholding tax
applicable in respect of dividends paid or credited by a Canadian corporation to
a shareholder resident in the United States, is generally reduced to 15%, or 5%
in the case of a corporate holder which owns 10% or more of the voting stock. A
foreign tax credit for the tax withheld may be available to a holder resident in
the United States against U.S. federal income taxes. (See "U.S. Federal Income
Tax Considerations - Treatment of Dividend Distributions"). Moreover, pursuant
to Article XXI of the Canada-U.S. Treaty, an exemption from Canadian withholding
tax generally is available in respect of dividends received by certain trusts,
companies and other organisations whose income is exempt from tax under the laws
of the United States.
Disposition of Common Shares.
A Non-Resident holder of a Common Share will not be subject to tax under
the ITA in respect of a capital gain realized on the disposition of a Common
Share unless the Common Share constitutes or is deemed to constitute "taxable
Canadian property" (as defined in the ITA). Shares of a corporation
31
<PAGE>
that are listed on a prescribed stock exchange (which includes shares traded on
a U.S. stock exchange and the National Association of Securities Dealers
Automated Quotation System) are generally not considered to be taxable Canadian
property. However, shares that are traded on a prescribed Canadian or prescribed
foreign exchange (including those noted above in the United States) can be
taxable Canadian property since the definition of taxable Canadian property also
includes any Common Share held by a Non-Resident if, at any time during the
five-year period immediately preceding its disposition, not less than 25% of the
issued shares of any class or series of shares of the Company belong to the
NonResident, to persons with whom the Non-Resident did not deal at arm's length
or to any combination thereof.
For the purposes of determining whether a property is a taxable Canadian
property, a person holding an option to acquire Common Shares or other
securities convertible into or exchangeable for Common Shares, or otherwise
having an interest in Common Shares, will be considered to own the Common Shares
that could be acquired upon the exercise of the option, the conversion or
exchange rights or in which there is such interest. Taxable Canadian property
also includes any Common Share held by a NonResident if the Non-Resident used
the Common Share in carrying on a business (other than an insurance business) in
Canada, or, if the Non-Resident is a Non-Resident insurer, any Common Share that
is its "designated insurance property" for the year. A Common Share will also
constitute taxable Canadian property of a former Canadian resident who made an
election under section 128.1 of the ITA in respect of such shares on ceasing to
be resident in Canada. The aforementioned rules can apply to any class of
shares.
A Non-Resident whose Common Shares constitute or are deemed to constitute
taxable Canadian property will realize upon the disposition or deemed
disposition of a Common Share, a capital gain (or a capital loss) to the extent
that the proceeds of disposition are greater than (or less than) the aggregate
of the adjusted cost base to the holder of a Common Share and any reasonable
costs of disposition.
Three-quarters of any capital gain realized by a holder (a taxable capital
gain) will be included in computing the holder's income. Three-quarters of any
capital loss realized by a holder may, subject to certain restrictions
applicable to holders that are corporations, normally be deducted from the
holder's taxable capital gains realized in the year of disposition, the three
preceding taxation years or any subsequent taxation years, subject to detailed
rules contained in the ITA.
A purchase of Common Shares by the Company (other than a purchase of Common
Shares by the Company on the open market in a manner in which shares would
normally be purchased by any member of the public in the open market) will give
rise to a deemed dividend under the ITA equal to the difference between the
amount paid by the Company on the purchase and the paid-up capital of such
shares determined in accordance with the ITA. The paid-up capital of such shares
may be less than the cost of such shares to the holder. The amount of any such
deemed dividend will reduce the proceeds of disposition of the Common Shares to
the holders for the purpose of computing the amount of the capital gain or loss
under the ITA of the holder. Any such dividend deemed to have been received by a
Non-Resident holder will be subject to non-resident withholding tax as described
above. The amount of any such deemed dividend will reduce the proceeds of
disposition of the Common Share to the Non-Resident holder for the purpose of
computing the amount of the Non-Resident holder's capital gain or loss under the
ITA.
Even if the Common Shares constitute or are deemed to constitute taxable
Canadian property to a Non-Resident holder and their disposition would give rise
to a capital gain, an exemption from tax under the ITA may be available under
the terms of an applicable international tax treaty to which Canada is a party.
A holder resident in the United States for purposes of the Canada-U.S. Treaty
will generally be exempt from Canadian tax in respect of a gain on the
disposition of Common Shares provided that the value of the Common Shares is not
derived principally from real property situated in Canada. Article XIII
paragraph 5 of the Canada-U.S. Treaty provides that the treaty provision which
normally exempts U.S. residents from Canadian tax on the sale of property
(paragraph 4) such as shares does not apply where the U.S. resident was a
Canadian resident for 120 months during any period of 20 consecutive years
preceding the time of the sale and the individual was resident in Canada at any
time during the ten years immediately preceding the sale. If the exemption from
such Canadian tax in respect of such gain is not available under the Canada-U.S.
Treaty, a foreign tax credit may be available for U.S. federal income tax
purposes. Non-Residents are advised to consult their tax advisers with regard to
the availability of a treaty exemption.
32
<PAGE>
U.S. Federal Income Tax Considerations
The following summary describes material United States federal income tax
consequences arising from the purchase, ownership and sale of Common Shares.
This summary is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), final, temporary and proposed United States Treasury
Regulations promulgated thereunder, and the administrative and judicial
interpretations thereof, all as in effect as of the date of this Registration
Statement. The consequences to any particular investor may differ from those
described below by reason of that investor's particular circumstances. This
summary does not address the considerations that may be applicable to particular
classes of taxpayers, including financial institutions, broker-dealers,
tax-exempt organizations, investors who own (directly, indirectly or through
attribution) 10% or more of the Company's outstanding voting stock, persons who
are not citizens or residents of the United States, or persons which are foreign
corporations, foreign partnerships or foreign estates or trusts as to the United
States. This summary is addressed only to a holder of Common Shares who is (i) a
citizen or resident of the United States who owns less than 10% of the Company's
outstanding voting stock, (ii) a corporation organized in the United States or
under the laws of the United States or any state thereof, or (iii) an estate or
trust, the income of which is includable in gross income for United States
federal income tax purposes regardless of source (a "U.S. Holder").
Each shareholder should consult with his own tax advisor as to the
particular tax consequences to him of the purchase, ownership and sale of Common
Shares including the effects of applicable state, local, foreign or other tax
laws and possible changes in the tax laws.
Treatment of Dividend Distributions
Subject to the discussion below under "Tax Status of the Company -- Passive
Foreign Investment Company," a distribution by the Company to a U.S. Holder in
respect of the Common Shares (including the amount of any Canadian taxes
withheld thereon) will generally be treated for United States federal income tax
purposes as a dividend to the extent of the Company's current and accumulated
earnings and profits, as determined under United States federal income tax
principles. To the extent, if any, that the amount of any such distribution
exceeds the Company's current and accumulated earnings and profits, as so
computed, it will first reduce the U.S. Holder's tax basis in the Common Shares
owned by him, and to the extent it exceeds such tax basis, it will be treated as
capital gain from the sale of Common Shares.
While it is not anticipated that the Company will pay dividends in the
foreseeable future (see "Risk Factors -- No Dividends"), the gross amount of any
distribution from the Company received by a U.S. Holder which is treated as a
dividend for United States federal income tax purposes (before reduction for any
Canadian tax withheld at source) will be included in such U.S. Holder's gross
income, will be subject to tax at the rates applicable to ordinary income and
generally will not qualify for the dividends received deduction applicable in
certain cases to United States corporations. For United States federal income
tax purposes, the amount of any dividend paid in Canadian dollars by the Company
to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend
paid in Canadian dollars, at the exchange rate in effect on the date the
dividend is considered to be received by the U.S. Holder, regardless of whether
the Canadian dollars are actually converted into United States dollars at that
time. Canadian dollars received by a U.S. Holder will have a tax basis equal to
the U.S. dollar value thereof determined at the exchange rate on the date of
receipt. Currency exchange gain or loss, if any, recognized by a U.S. Holder on
the conversion of Canadian dollars into U.S. dollars will generally be treated
as U.S. source ordinary income or loss to such holder. U.S. Holders should
consult their own tax advisors concerning the treatment of foreign currency gain
or loss, if any, on any Canadian dollars received which are converted into
dollars subsequent to receipt.
A U.S. Holder generally will be entitled to deduct any Canadian taxes
withheld from dividends in computing United States taxable income, or to credit
such withheld taxes against the United States federal income tax imposed on such
U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed,
however, by a noncorporate U.S. Holder that does not itemize deductions. The
amount of foreign taxes for which a U.S. Holder may claim a credit in any year
is subject to complex limitations and restrictions, which must be determined on
an individual basis by each shareholder. Distributions with respect to Common
Shares that are taxable as dividends will generally constitute foreign source
income for purposes of the foreign tax credit limitation. The limitation on
foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, dividends distributed by the
Company with respect to the Common Shares will generally constitute "passive
income."
Sale or Exchange of a Common Share
Subject to the discussion below under "Tax Status of the Company -- Passive
Foreign Investment Company," the sale or exchange by a U.S. Holder of a Common
Share will result in the recognition of gain or loss by the U.S. Holder in an
amount equal to the difference between the amount realized and the U.S. Holder's
basis in the Common Share sold. Such gain or loss will be capital gain or loss
provided that the Common Share is a capital asset in the hands of the holder.
The gain or loss realized by noncorporate U.S. Holder on the sale or exchange of
a Common Share will be long-term capital gain or loss subject to tax at a
maximum tax rate of 20% if the Common Share had been held for more than one
year. If the Common Share had been held by such noncorporate U.S. Holder for not
more than one year, such gain will be short-term capital gain subject to tax at
a maximum rate of 39.6%. Finally, gain realized by a noncorporate U.S. Holder
with respect to Common Shares acquired after December 31, 2000 and held for more
than five years, shall be taxed at a maximum rate of 18%. Gain realized by a
corporate U.S. Holder will be subject to tax at a maximum rate of 35%. U.S.
Holders should consult their own tax advisors regarding treatment of any foreign
currency gain or loss on any Canadian dollars received in respect of the sale,
exchange or other disposition of Common Shares.
See discussion under "Taxation -- Canadian Federal Income Tax
Considerations -- Disposition of Common Shares" for a discussion of taxation by
Canada of capital gains realized on sales of capital assets.
Tax Status of the Company
Personal Holding Companies. A non-U.S. corporation may be classified as a
personal holding company (a "PHC") for United States federal income tax purposes
if both of the following two tests are satisfied: (i) if at any time during the
last half of the Company's taxable year, five or fewer individuals (without
regard to their citizenship or residency) own or are deemed to own (under
certain attribution rules) more than 50% of the stock of the corporation by
value (the "PHC Ownership Test") and (ii) such non-U.S. corporation receives 60%
or more of its U.S. related gross income, as specifically adjusted, from certain
passive sources such as dividends and royalty payments (the "PHC Income Test").
Such a corporation is taxed (currently at a rate of which are effectively
connected with the conduct of a U.S. trade or business) to the extent amounts at
least equal to such income are not distributed to shareholders. The Company
believes that it is not currently a PHC. However, no assurance can be given that
either test will not be satisfied in the future.
Foreign Personal Holding Companies. A non-U.S. corporation will be
classified as a foreign personal holding company (an "FPHC") for United States
federal income tax purposes if both of the two following tests are satisfied:
(i) five or fewer individuals who are United States citizens or residents own or
are deemed to own (under certain attribution rules) more than 50% of all classes
of the corporation's stock measured by voting power or value and (ii) the
corporation receives at least 60% (50% in later years) of its gross income
(regardless of source), as specifically adjusted, from certain passive sources.
If such a corporation is classified as a FPHC, a portion of its "undistributed
foreign personal holding company income" (as defined for United States federal
income tax purposes) would be imputed to all of its shareholders who are U.S.
Holders on the last taxable day of the corporation's taxable year, or, if
earlier, the last day on which it is classifiable as a FPHC. Such income would
be taxable as a dividend, even if no cash dividend is actually paid. U.S.
Holders who dispose of their shares prior to such date would not be subject to
tax under these rules. The Company believes that it is not currently a FPHC.
However, no assurance can be given that it will not qualify as a FPHC in the
future.
Passive Foreign Investment Company. The Company will be a passive foreign
investment company ("PFIC") if 75% or more of its gross income (including the
pro rata share of the gross income of any company (United States or foreign) in
which the Company is considered to own 25% or more of the shares (determined by
market value)) in a taxable year is passive income. Alternatively, the Company
will be considered to be a PFIC if at least 50% of the value of the Company's
assets (averaged over the year) (including the pro rata share of the value of
the assets of any company in which the Company is considered to own 25% or more
of the shares (determined by market value)) in a taxable year are held for the
production of, or produce, passive income. Passive income includes interest,
dividends, royalties, rents and annuities.
The Company does not believe it was a PFIC during 1998. However, there can
be no assurance that the Company will not be classified as a PFIC in 1999 or
thereafter.
If the Company is a PFIC for any taxable year, U.S. Holders would, upon
certain distributions by the Company and upon disposition of the Common Shares
at a gain, be liable to pay tax at the then prevailing income tax rates on
ordinary income plus interest on the tax, as if the distribution or gain had
been recognized ratably over the taxpayer's holding period for the Common
Shares. If the Company is treated as a PFIC for any taxable year, holders should
consider whether to elect to treat the Company as a "qualified electing fund"
("QEF Election") for United States federal income tax purposes. If a holder has
a QEF Election in effect for all taxable years that such holder has held the
Common Shares and the Company was a PFIC, distribution and gain will not be
recognized ratably over the holder's holding period or subject to an interest
charge, and gain on the sale of Common Shares will be characterized as capital
gain. Instead, each such holder is required for each taxable year that the
Company is a PFIC to include in income a pro rata share of the undistributed
ordinary earnings of the Company as ordinary income and a pro rata share of the
undistributed net capital gain of the Company as long-term capital gain. As an
alternative to making a QEF Election, a U.S. Holder may elect to make a mark-to-
market election (the "Mark-to-Market Election") with respect to the Common
Shares owned by him. Under such election, a U.S. Holder includes in income each
year an amount equal to fair market value of the Common Shares owned by him as
of the close of the taxable year over the shareholder's adjusted basis in such
shares. The U.S. Holder would be entitled to a deduction for the excess, if any,
of such holder's adjusted basis in his Common Shares over the fair market value
of such shares as of the close of the taxable year; provided however, that such
deduction would be limited to the extent of any net mark-to-market gains with
respect to the Common Shares included by the U.S. Holder for prior taxable
years. The U.S. Holder's basis in his Common Shares is adjusted to reflect the
amounts included or deducted pursuant to this election. Amounts included in
income pursuant to the Mark-to-Market Election, as well as gain on the sale or
exchange of the Common Shares, will be treated as ordinary income. Ordinary loss
treatment applies to the deductible portion of any mark-to-market loss, as well
as to any loss realized on the actual sale or exchange of the Common Shares to
the extent that the amount of such loss does not exceed the net mark-to-market
gains previously included with respect to such shares. The Mark-to-Market
election applies to the tax year for which the election is made and all later
tax years, unless the Common Shares cease to be marketable or the Internal
Revenue Service ("IRS") consents to the revocation of the election.
U.S. Holders are urged to consult with their own tax advisors about making
a QEF Election or Mark-to-Market Election and other aspects of the PFIC
rules.
Back-Up Withholding and Information Reporting
Under the Code, a U.S. Holder of Common Shares may be subject, under
certain circumstances, to "backup withholding" at a 31% rate on cash payments in
the United States of dividends on, and the proceeds of disposition of, a Common
Share. Backup withholding will apply if a U.S. Holder (i) fails to furnish its
social security or other taxpayer identification number ("TIN") within a
reasonable time after the request therefor, (ii) furnishes an incorrect TIN,
(iii) is notified by the IRS tha it has failed to properly report receipts of
interest and dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that it has furnished a correct TIN and has not been
notified by the IRS that it is subject to backup withholding for failure to
report interest and dividend payments. U.S. Holders should consult their tax
advisors regarding their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption, if applicable. The amount of any
backup withholding from a payment to a U.S. Holder will be allowed as a credit
against such holder's federal income tax liability and may entitle such holder
to a refund, provided that the required information is furnished to the
IRS.
ITEM 8 - SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with, and are qualified by reference to, the consolidated financial statements
of the Company, and notes thereto, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Registration Statement. The selected financial data as at, and for the years
ended, December 31, 1996, 1997 and 1998, and as at, and for the four months
ended, December 31, 1995 are derived from the consolidated audited financial
statements of the Company, including the notes thereto, included elsewhere in
this Registration Statement. The Company has prepared its audited financial
statements in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"), which differ in certain respects from generally accepted
accounting principles in the United States ("U.S. GAAP"). However, as applied to
the Company, for all fiscal periods for which financial data are presented in
this Registration Statement, Canadian GAAP and U.S. GAAP were substantially
identical in all material respects, except as disclosed in Note 12 to the
Company's consolidated financial statements and as described below.
The Company's financial statements and the selected financial data set
forth below are presented in Canadian dollars. Where applicable, financial data
presented in this table for the year ended December 31, 1998 has been translated
from Canadian dollars into U.S. dollars for convenience purposes at the
representative exchange rates of Cdn$1.5302 to US$1.00, the noon buying rate in
New York City on December 31, 1998 for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York. Such
translation should not be construed as a representation that the Canadian dollar
amount represents, or has been converted into, U.S. dollars at this or any other
rate.
33
<PAGE>
Selected Financial Data
Statement of Operations Data:
<TABLE>
<CAPTION>
Year Ended Four Months
December 31 Ended Dec 31
-------------------------------------------------------------------------
1998 1998 1997 1996 1995(1)
---- ---- ---- ---- ------
(Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$)
(in thousands except for per share data)
<S> <C> <C> <C> <C> <C>
Revenues.................. 20,089 13,128 2,671 51 -
Expenses
Direct expenses......... 19,361 12,653 2,916 12 -
Advertising
and promotion.......... 12,594 8,230 2,521 403 12
General & administrative 5,751 3,758 3,157 1,453 112
Software development
and technology......... 889 581 661 194 10
Depreciation and
amortization........... 201 131 122 100 1
Total expenses........ 38,796 25,353 9,396 2,162 135
Loss from operations...... (18,707) (12,225) (6,725) (2,111) (135)
Canadian GAAP
Net (loss)................ (18,707) (12,225) (6,725) (2,111) (135)
Loss per common share..... (0.79) (0.52) (0.55) (0.21) (0.01)
Weighted average number
of common shares....... 23,819 23,819 12,297 9,598 3,375
U.S. GAAP
Pro forma (loss).......... (19,941) (13,031) (8,134) (2,281) (135)
Pro forma loss per
common share............. (0.84) (0.55) (0.66) (0.23) (0.01)
Weighted average number
of common shares......... 23,819 23,819 12,297 9,598 3,375
</TABLE>
Balance Sheet Data:(2)
<TABLE>
<CAPTION>
As at December 31
-----------------------------------------------------------------------------------
1998 1998 1997 1996 1995
------- ------- ------ ------ ------
(Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$)
(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital....... 17,929 11,716 5,088 (559) 62
Total assets.......... 21,047 13,754 6,886 471 145
Total long-term debt.. - - - - -
Shareholders equity... 18,622 12,169 5,563 (209) 116
</TABLE>
- ------------------------
(1) The Company commenced its present business in September 1995.
(2) The Company has not paid dividends since its formation.
34
<PAGE>
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
BID.COM is a sales and marketing company striving to become the pre-eminent
online auction house and a leading E-tailer. The Company operates
business-to-consumer online auctions at its BID.COM Web site and at other URLs.
The Company recently completed the development of a business-to-business auction
service and intends to operate business-to-business auctions in selected
vertical industry sectors and to conduct liquidation auctions for bankruptcy
trustees and other liquidators. The Company also seeks to license its
proprietary online auction technology to support private brand online auctions
and interactive auctions in a variety of other communication media.
The business of the Company was commenced by Internet Liquidators Inc., an
Ontario corporation, in September 1995. In May 1996, Internet Liquidators USA
Inc., a wholly owned subsidiary of Internet Liquidator Inc. was incorporated
under the laws of Florida, and Internet Liquidators International Inc., an
Ontario corporation, acquired all of the shares of Internet Liquidators Inc. In
January 1997, the Company was formed, as an Ontario corporation, by amalgamation
of Internet Liquidators Inc. and Internet Liquidators International Inc. In June
1998, the Company changed its name from Internet Liquidators International Inc.
to BID.COM International Inc.
From incorporation through April 1996, the Company had no revenues. During
this period, the Company focused on development of its proprietary technology
and computer infrastructure and the initial planning and development of its Web
site and operations. The Company launched its auction Web site in April 1996
under the URL www.internetliquidators.com, but did not begin to actively promote
or advertise its Web site until May 1997. From April 1996 until May 1997, the
Company focused on securing its initial relationships with AOL and the Toronto
Star, which were concluded in February 1997, and developing an advertising and
promotion plan for its business, while continuing to develop its technology and
Web site and build its business infrastructure. The Company generated only
minimal revenues during this period.
In May 1997, the Company initiated its marketing and advertising campaign
and, as a result, began generating more significant commercial revenues for
auctions conducted at its Web site. In March 1998, the Company changed its Web
site address to www.BID.COM. Since launching its BID.COM brand name, the
Company's customer base has increased significantly. As of March 14, 1999, the
Company had approximately 103,000 registered bidders, representing a 412.0%
increase in registered bidders from January 1, 1998.
The Company has not earned profits to date and at December 31, 1998 had an
accumulated deficit of Cdn$27.7 million. The Company intends to continue to
invest heavily in marketing and promotion, development of its technology,
business-to-business auctions, multi-media auction platforms, the distribution
of specialty products and other areas of its business, including the acquisition
of, or strategic investments in, complimentary products, businesses or
technologies. As a result, the Company expects to continue to incur losses for
the foreseeable future and there can be no assurance that the Company will ever
achieve profitability. Operating results have varied on a quarterly basis in the
past and may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside of the Company's control.
The Company's policy is, generally, not to purchase inventory from
merchandise vendors for resale in BID.COM auctions. Rather, the Company usually
acquires the right to sell the merchandise under arrangements with its vendors.
These arrangements typically provide that the supplier will reserve for sale by
the Company specified quantities of products for a fixed period of time without
obligating the Company to purchase these products until sales are made to the
Company's customers. Prior to sale, the Company negotiates to receive either an
agreed upon commission based upon the final selling price of the goods, or the
difference between the actual selling price and a reserve price negotiated by
the Company with a particular vendor. When an auction is completed, the Company
charges the successful bidder's credit card. The Company typically purchases
merchandise from suppliers only after a customer has purchased and paid for the
product. The Company typically does not take actual possession of goods sold
because goods are shipped directly from the supplier to the customer. The
Company records the gross amount as revenue upon verification of the credit card
authorization and shipment of the merchandise to the customer. Inventory on the
Company's balance sheets reflects sales returns in transit which are valued at
the lower of cost and net realizable value and at the option of the Company are
held for resale or returned to suppliers for credit.
Historically, the Company has offered lower margin categories of products,
such as computers, computer accessories and computer upgrades. While the Company
plans to continue offering these product categories, it has begun to shift its
product mix and increase the number and variety of goods in higher margin
product categories,
35
<PAGE>
such as consumer electronics, toys, games, sporting goods, memorabilia, jewelry,
collectible sports and entertainment cards and travel and entertainment products
and services. In addition, as part of its strategy to diversify revenue sources,
the Company is seeking to increase revenue opportunities that yield higher gross
margins than sales of products in online auctions, such as licensing its auction
platform, marketing the Micra SoundCard collectible trading cards and other
unique products and selling advertising space on its Web site.
In connection with the introduction of the Company's marketing program in
the third and fourth quarters of 1997, the Company initiated a promotional
pricing strategy under which products were sold below cost or at significantly
reduced profit margins. The Company continued that approach through most of
1998. As a result, the Company's earnings were significantly impacted. The
Company recorded advertising and promotional expenses of Cdn$698,000 for the
year ended December 31, 1997 and Cdn$3.52 million for the year ended December
31, 1998 to reflect the cost to the Company of its promotional pricing program
during those periods. During the fourth quarter of 1998, the Company began to
limit its promotional pricing practices and has continued this trend during the
first quarter of 1999. However, the Company continues to sell a limited number
of products at significantly reduced margins and, in the future, may from time
to time use promotional pricing programs in connection with the introduction of
new products and services, in response to competitive pressures or for other
business reasons. In such cases, the Company anticipates that earnings will be
reduced and such reductions may be significant.
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the "Selected Financial Data"
and the Company's financial statements (including the notes thereto) appearing
elsewhere in this Registration Statement. The financial statements appearing in
the Registration Statement have been prepared in Canadian dollars and in
accordance with Canadian GAAP and the results of operations discussed below are
in Canadian dollars. At December 31, 1998 the exchange rate was US$1.00 to
Cdn$1.5302. See "Exchange Rates." For a discussion of the differences between
Canadian GAAP and U.S. GAAP as they apply to the financial statements of the
Company, see Note 12 to the financial statements of the Company included
elsewhere in this Registration Statement.
Results of Operations
Comparison of Year Ended December 31, 1998 and December 31, 1997
Revenues. Revenues are comprised of transactional revenues from the sale of
merchandise plus commissions, shipping and handling costs. Revenues increased to
Cdn$20.089 million for the year ended December 31, 1998 from Cdn$2.671 million
for the year ended December 31, 1997, an increase of 652.1%. The increase
reflects commercial sales for the full year ending December 31, 1998 as compared
to only eight months (May to December) during the period ended December 31,
1997. In addition, the increase is attributable to the introduction of the
BID.COM brand name in March 1998, and a significant increase in marketing and
advertising expenditures and marketing relationships during the year ending
December 31, 1998 as compared to the same period in 1997. From January 1, 1998
to December 31, 1998, the Company's customer base grew substantially as
reflected by a 335.0% increase in registered bidders from approximately 20,000
to over 87,000.
Direct Expenses. Direct expenses reflect negotiated reserve prices with
vendors for the supply of goods sold by the Company. Direct expenses were
Cdn$19.361 million (96.4% of revenues) for the year ended December 31, 1998
resulting in a gross margin of Cdn$728,000 or 3.6%, as compared to Cdn$2.916
million (109.2% of revenues) for the year ended December 31, 1997, resulting in
a negative gross margin of Cdn$(245,000) or (9.2)%. The increase in cost of
revenues reflects the significant growth of revenues during the year ended
December 31, 1998 as compared to the year ended December 31, 1997. Improvement
in the gross margin for the year ended December 31 1998 reflects the
commencement of the Company's efforts to change its product mix to include sales
of higher margin goods. During 1998, gross margins were 2.0% in the first
quarter, (0.9%) in the second quarter, 3.2% in the third quarter and 6.9% in the
fourth quarter. The Company anticipates that its direct expenses will vary, and
may increase, as a percentage of revenues in future quarters.
Advertising and Promotion Expenses. Advertising and promotion expenses
consist primarily of advertising and marketing fees, loss leader promotions and
expenses paid to strategic and marketing partners and other third parties from
which the Company purchases advertising space, but does not include salaries and
related expenses of the Company's sales and marketing personnel which are
included in general and administrative expenses. Advertising and promotion
36
<PAGE>
expenses were Cdn$12.594 million for the year ended December 31, 1998, as
compared to Cdn$2.521 million for the year ended December 31, 1997, an increase
of 399.6%. As a percentage of revenues, advertising and promotion expenses fell
to 62.7% of revenues for the year ended December 31, 1998 from 94.4% during the
year ended December 31, 1997. Advertising and promotion expenses for the year
ended December 31, 1998 include Cdn$3.52 million (18% of revenue) attributable
to loss leader promotions and Cdn$7.0 million (34.8% of revenue) paid to AOL
pursuant to the AOL Marketing Agreement. Advertising and promotion expenses for
the year ended December 31, 1997 included Cdn$698,000 (26.0% of revenue for the
year ended December 31, 1997) for loss leader promotions and Cdn$442,000 (17.0%
of revenue) for payments to AOL pursuant to the AOL Marketing Agreement. The
increase in advertising and promotion expenses reflects the substantial increase
in advertising and marketing which the Company undertook in order to promote the
BID.COM brand name, attract track traffic to its Web site and enlarge its
customer base. Reduction of advertising and promotion expenses as a percentage
of revenue reflects the significant growth in revenues from 1997 to 1998 and a
reduced amount of promotional pricing activity. Under the new agreement and
related arrangements with AOL, payments to AOL during the period March 1, 1999
to March 31, 2000 will decrease to $3.0 million from an anticipated $5.0 million
under the old agreement.
General and Administrative Expenses. General and administrative expenses
include, primarily: all salaries and related expenses (including benefits and
payroll taxes) of the Company other than fees to independent contractors on the
research and development and technology staff which are included in software and
development expenses; facility costs; foreign exchange expenses; professional
fees; insurance costs; investor relations; computing and communications
expenses; regulatory filing fees and travel and related costs. General and
administrative expenses increased to Cdn$5.734 million during the year ended
December 31, 1998 from Cdn$3.157 million in year ended December 31, 1997, an
increase of 81.6%. As a percentage of revenues, general and administrative
expenses decreased to 28.5% of revenues in 1998 from 118.2% of revenues in 1997.
The increase in general and administrative expenses is attributable t an
increase in salary and related expenses resulting from staff hired to
accommodate the growth in business during 1998, and an increase in office
supplies, rent, communication and other ancillary costs due primarily to the
Company's growth during 1998 and losses due to foreign currency exchange
expenses. The reduction in general and administrative expenses as a percentage
of sales reflects economies of scales achieved as a result of a significant
growth of revenues during the year ended December 31, 1998. See "-Foreign
Currency Fluctuations."
Software Development and Technology Expenses. Software development and
technology expenses consist of costs associated with acquired and internally
developed software, license agreements and research and development expenses,
including fees to independent contractors and salaries and related expenses of
Company personnel engaged in these activities. Software development and
technology expenses increased to Cdn$889,000 for the year ended December 31,
1998 from Cdn$661,000 for the year ended December 31, 1997, a 34.5% increase. As
a percentage of revenues, software development and technology expenses decreased
to 4.4% of revenues during the year ended December 31, 1998 from 24.7% during
the year ended December 31, 1997. The increase in software development and
technology expenses is attributable primarily to the increased expenses incurred
in connection with the redevelopment of the Company's auction platform, the
purchase of a new accounting software package and the purchase and
implementation of the personalization software engine. The reduction in software
development and technology expense as a percentage of revenues is attributable
to the significant growth in revenues during the period, and resulting economies
of scale.
Depreciation and Amortization. Depreciation and amortization expense was
Cdn$201,000 for the year ended December 31, 1998 as compared to Cdn$122,000 for
the year ended December 31, 1997, an increase of 64.8%. This increase was a
result of a significant increase in equipment, computers, furniture and fixtures
acquired by the Company during 1997 as the result of the growth of the
Company.
Comparison of Years Ended December 31, 1996 and 1997 and Four Month Period
Ended December 31, 1995
Revenues. The Company did not commence actively marketing and promoting its
Web site auctions until May 1997, and therefore generated only minimal revenues
until May 1997. During the four month period ended December 31, 1995, the
Company had no revenues as it was in the early stage of development of its
technology platform and retail concept. Revenues for the year ended December 31,
1996 were Cdn$51,000. Revenues for the year ended December 31, 1997 were
Cdn$2.671 million as a result of the commencement of more significant
transactional business on the Web site in May 1997 and the growth of the
Company's customer base due to alliances with the Company's strategic and
marketing partners and the significant increase in Company's advertising.
37
<PAGE>
Direct Expenses. Direct Expenses for the four months ended December 31,
1995 and for the year ended December 31, 1996 were nil and Cdn$12,000,
respectively, because the Company did not generate any significant revenues
during these periods. Direct expenses were Cdn$2.916 million for the year ended
December 31, 1997, resulting in a negative gross margin of Cdn$(245,000). The
significant increase in direct expenses during 1997 and the resulting negative
gross margin is attributable to a substantial increase in revenues. In addition,
1997 gross margins were affected by higher shipping and handling costs incurred
by the Company to minimize shipping delays during a UPS strike. The Company
elected not to pass these costs on to its customers.
Advertising and Promotion Expenses. Advertising and promotion expenses were
Cdn$2.521 million in the year ended December 31, 1997, including Cdn$698,000 for
loss leader promotions. Advertising and promotion expenses were Cdn$403,000
in the year ended December 31, 1996 and Cdn$12,000 in the four months ended
December 31, 1995. The Company conducted preliminary marketing during 1996, but
substantially increased its efforts in 1997 with the execution of alliances with
AOL and the Toronto Star.
General and Administrative Expenses. General and administrative expenses
for the years ended December 31, 1997 and 1996 were Cdn$3.157 million and
Cdn$1.453 million, respectively. General and administrative expenses were
Cdn$112,000 for the four month period ended December 31, 1995. The increase from
period to period reflects the growth of the Company's infrastructure and staff
as the Company progressed from the development to revenue generation stage.
Software Development and Technology Expenses. Software development and
technology expense was Cdn$10,000 for the four months ended December 31, 1995,
Cdn$194,000 for the year ended December 31, 1996 and Cdn$661,000 for the year
ended December 31, 1997. Software development and technology expenses for the
four months ended December 31, 1995 and the year ended December 31, 1996 were
attributable primarily to the engagement of a software consultant. Software
development and technology expenses increased in 1997 due to the addition of a
second software consultant and increased expenses incurred in connection with
the redevelopment of the Company's auction platform launched in early 1998.
Depreciation and Amortization. Depreciation and amortization expense for
the four months ended December 31, 1995 and the years ended December 31, 1996
and 1997, were, respectively, Cdn$1,000, Cdn$100,000 and Cdn$122,000.
Liquidity and Capital Resources
The Company has been funded to date primarily through a series of private
placements of equity and, in one instance a convertible debenture, sales of
equity to and investments from strategic partners and cash flow from operations.
The Company has received aggregate proceeds of Cdn$52.043 million through its
private offerings, including, as of March 19, 1999, an aggregate of Cdn$15.984
million from the subsequent exercise of options and Common Share purchase
warrants sold in such offerings, and an aggregate of Cdn$4.30 million (including
Cdn$1.0 million in the form of advertising credits) from sales to and
investments from Rogers Media, Toronto Star and AOL.
As of March 19, 1999, the Company had cash on hand and marketable
securities of approximately Cdn$20.17 million. In addition, as of March 19,
1999, the Company had outstanding 3,795,659 exercisable options and warrants
which expire at various times from 1999 and to 2002 ("Exercisable Warrants").
The exercise price of the Exercisable Warrants range from Cdn$1.00 to Cdn$1.75,
and on March 19, 1999, the closing sales price of the Company's Common Shares on
the TSE was Cdn$13.90. See "Trading History." If all of the Exercisable Warrants
are exercised prior to their expiration, the Company will receive aggregate
proceeds of Cdn$7.16 million, of which Cdn$3,867,500 represents proceeds from
the exercise of Exercisable Warrants expiring in 1999. At December 31, 1998, the
Company had cash on hand and marketable securities of approximately Cdn$16.6
million. See "Risk Factors-Need For Additional Financing."
The Company believes that its present capital, anticipated proceeds from
the expected exercise of the Exercisable Warrants and revenue from operations
will be sufficient to finance its cash requirements for the next 12 months.
Thereafter, the Company may need to raise additional funds. The exact amount of
the Company's future
38
<PAGE>
capital requirements will depend on numerous factors, including, but not limited
to, slower growth and adverse changes in the E-commerce environment, delays in
the growth of the Company's customer base, government regulations, failure or
delays in executing marketing programs, failure or delays in connection with
expansion to Europe, growth that is more rapid than anticipated or competitive
pressures. The Company may also need to raise additional funds sooner than
anticipated in order to acquire businesses, technologies or products or fund
investments and other relationships the Company believes are strategic. In
addition, while the exercise prices of the Exercisable Warrants may currently be
below the trading prices of the Company's Common Shares on the TSE, there can be
no assurance that the Common Shares will continue to trade at prices that
justify the exercise of the Exercisable Warrants, or that the holders of such
warrants will, in fact, exercise them. Accordingly, the Company's actual capital
requirements may vary from currently anticipated needs and such variations could
be material.
There can be no assurance that additional financing will be available when
needed on commercially reasonable terms or at all. If adequate funds are not
available or are not available on acceptable terms, the Company may not be able
to funds its expansion, take advantage of strategic acquisitions, investment or
licensing opportunities or respond to competitive pressures. Such inability to
obtain additional financing when needed would have a material adverse effect on
the Company's business, results of operations, financial condition and
prospects. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the shareholders of the
Company will be reduced, shareholders may experience additional dilution and
such securities may have rights, preferences and privileges senior to those of
the Company's Common Shares.
In the four month period ended December 31, 1995, the Company invested
Cdn$55,000 in fixed assets for computer hardware, equipment, furniture and
fixtures. Additions to fixed assets during 1996 and 1997 were Cdn$396,000 and
Cdn$247,000, respectively, primarily for computer hardware. During 1998, the
Company invested Cdn$351,000 in fixed assets, primarily for computer hardware,
leasehold improvements and furniture and fixtures, and Cdn$68,000 for
trademarks.
The Company has an agreement with a financial institution that settles
credit card transactions for online auction sales. Under this agreement, the
Company is required to maintain a cash reserve account in an amount determined
based on a percentage of sales for the preceding six months. As of December 31,
1998, the Company was required to maintain Cdn$1.50 million in this account.
The Company has available an aggregate of approximately Cdn$27.635 million
of net operating losses for tax purposes that may be used to reduce taxable
income in future years, of which Cdn$135,000 expires in 2001, Cdn$2.1 million
expires in 2002, Cdn$6.7 million expires in 2003 and Cdn$18.7 million expires in
2004. The Company's net operating losses are subject to assessment of the
Company's tax returns by taxation authorities.
Since its inception, the Company raised a significant portion of its
funding from the following strategic investments and financings:
Strategic Investments. In February 1997, Toronto Star purchased from the
Company 1.0 million Common Shares and a warrant to purchase an additional
500,000 Common Shares which it subsequently exercised, resulting in aggregate
proceeds to the Company of Cdn$1.425 million. In addition, in February 1997, AOL
purchased 1.0 million Common Shares for an aggregate purchase price of Cdn$1.0
million, which AOL paid by extending to the Company advertising credits in the
same amount in lieu of cash.
In July 1998, the Company issued to Rogers Media a Series B special warrant
and a Common Share warrant for an aggregate purchase price of Cdn$1.875 million.
The Series B special warrant was deemed exercised on October 7, 1998, and the
Company issued to Rogers Media 1,500,000 Common Shares for no additional
consideration. The Common Share purchase warrant entitles Rogers Media to
acquire up to 100,000 Common Shares of the Company at a price of Cdn$1.40 per
Common Share. This Common Share purchase warrant is exercisable on the date
which is the earlier of: (i) the 10th business day following the date on which
the Company delivers a notice to the holder of such common share warrant
confirming it has filed a registration statement or preliminary prospectus for
an initial public offering of shares of the Company in the United States for
proceeds of at least Cdn$7.0 million; and (ii) July 31, 1999.
39
<PAGE>
October 1997 Special Warrants. On October 3, 1997, the Company sold in a
private placement a total of 6,335,000 special warrants at a price of Cdn$1.50
per special warrant for aggregate gross proceeds of Cdn$9.503 million. Each
special warrant entitled the holder to acquire, for no additional consideration,
one unit consisting of one Common Share and one-half of one share purchase
warrant. The special warrants were exercised on February 2, 1998, for 6,335,000
Common Shares and 3,167,500 Common Share purchase warrants, each exercisable to
purchase one Common Share at Cdn$1.65 per share. The 3,167,500 Common Share
purchase warrants were exercised on January 3, 1999 resulting in additional
proceeds to the Company of Cdn$5.226 million.
The Company also granted to Yorkton Securities Inc. ("Yorkton") and First
Marathon Securities Limited ("First Marathon"), placement agents for the
offering, compensation warrants entitling them to receive, without the payment
of any further consideration, up to 633,500 units (each unit consisting of one
Common Share and one-half of one share purchase warrant) at a price of Cdn$1.50
per unit at any time until January 3, 1999. Both the compensation warrants and
the underlying warrants were exercised at $1.65 per share resulting in aggregate
proceeds to the Company of Cdn$1.473 million.
August 1998 Special Warrants. On August 4, 1998, the Company sold in a
private placement a total of 8,100,000 special warrants at a price of Cdn$1.40
per special warrant for aggregate gross proceeds of Cdn$11.340 million. Each
special warrant entitled the holder to acquire, for no additional consideration,
one unit consisting of one Common Share and one-half of one share purchase
warrant. The special warrants were exercised on September 30, 1998, for
8,100,000 Common Shares and 4,050,000 share purchase warrants, each exercisable
to purchase one Common Share at Cdn$1.65 per share. Of these 4,050,000 share
purchase warrants, as of March 19, 1999, 2,831,510 were exercised, resulting
in proceeds to the Company of Cdn$4.672 million. The remaining 1,218,490 share
purchase warrants are exercisable until the date which is the earlier of (i) 10
business days following the date upon which the Company delivers a notice to all
holders of such share purchase warrants confirming that it has filed a
preliminary prospectus or registration statement in connection with a public
offering in the United States of at least Cdn$7. 0 million; and (ii) August 4,
1999.
The Company also granted to Yorkton, placement agent for the offering,
compensation warrants entitling Yorkton to receive, without payment of any
further consideration, options to purchase up to 860,000 units (each unit
consisting of one Common Share and one-half of one share purchase warrant) at a
price of Cdn$1.40 per unit at any time until November 4, 1999. The options were
exercised for 860,000 Common Shares and 430,000 share purchase warrants
resulting in proceeds to the Company of Cdn$1.204 million. Of the 430,000 share
purchase warrants, as of March 19, 1999, 387,000 were exercised, resulting in
proceeds to the Company of Cdn$638,550. The remaining 43,000 share purchase
warrants are exercisable until November 4, 1999.
November 1998 Special Warrants. On November 30, 1998, the Company sold in a
private placement 5,714,984 special warrants at a price of Cdn$1.75 per special
warrant. The Company received proceeds of Cdn$10.001 million. Each special
warrant entitles the holder thereof to acquire, for no additional consideration,
one unit consisting of one Common Share and one-quarter of one share purchase
warrant. The special warrants issued by the Company were exercised on January
28, 1999 for 5,714,984 Common Shares and 1,428,746 share purchase warrants, each
exercisable to purchase one Common Share at Cdn$1.75 per share. Of these share
purchase warrants, as of March 19, 1999, 806,250 were exercised, resulting in
proceeds to the Company of Cdn$1.411 million. The remaining 622,496 warrants are
exercisable until 5:00 p.m. (Toronto time) on the date which is the earlier of
(i) 10 business days following the date upon which the Company delivers a notice
to all holders of share purchase warrants confirming that it has filed a
preliminary prospectus or registration statement in connection with a public
offering in the United States of America of at least Cdn$7.0 million, and (ii)
December 31, 1999.
The Company also granted to Yorkton, placement agent for the offering,
compensation warrants which entitle Yorkton to receive, without payment of
additional consideration, options to purchase up to 611,498 units (each unit
consisting of one Common Share and one-quarter of one share purchase warrant) at
a price of Cdn$1.75 per unit at any time prior to December 31, 1999. In January
1999, Yorkton exercised the options for units consisting of 611,498 Common
Shares and 152,875 Common Share purchas warrants, each exercisable to purchase
one Common Share at Cdn$1.75 per share, resulting in proceeds to the Company of
Cdn$1,070,122. As of March 19, 1999, 88,502 Common Share purchase warrants were
exercised, resulting in proceeds to the Company of Cdn$154,879.
40
<PAGE>
Year 2000
As the Year 2000 approaches, an issue exists for companies that rely on
computers as a result of the computer industry's past practice of using two
digits rather than four digits to identify the applicable year. Consequently,
many software applications and programs may not properly recognize calendar
dates beginning in the Year 2000. If not corrected, these applications and
programs could fail or create erroneous results. To correctly identify the Year
2000, a four-digit year code field will be required to be what is commonly
termed "Year 2000 compliant."
The Company has conducted a comprehensive examination of its information
technology systems and software applications to determine Year 2000 compliance.
Based on its examination, the Company believes that these systems and software
applications are Year 2000 compliant. The Company has hired a Year 2000
consultant to review the Company's examination and anticipates the consultant's
review to be completed within the second quarter of 1999. The Company's auction
site at www.bid.com has been developed to be fully Year 2000 compliant.
The Company is reviewing its communications systems and other
non-information technology systems to ascertain whether they are Year 2000
compliant. The Company expects to complete this review by the end of April 1999.
The Year 2000 consultant will also review the Company's examination of
these systems.
The Company contacted significant suppliers and third-party service
providers to identify Year 2000 problems and provide solutions to prevent the
disruption of BID.COM business activities. The Company and its consultant are in
the process of reviewing reponses from suppliers and third party providers.
Material areas of potential exposure include electronic data exchange systems
operated by third parties with whom the Company transacts business, credit card
processing companies and banks on whom the Company relies for purchase
transactions and other Internet providers and services such as AOL and Rogers
Media, on whom the Company relies for advertising and promotion. The Company
expects to complete its review of the compliance efforts by these parties in
April 1999.
Until the Company gains a better understanding of the readiness and plans
of its third-party suppliers and service providers, it does not have a basis for
determining, or developing a response to, or contingency plans for, a worst case
scenario which might result from their failure to be Year 2000 compliant. At
present, management anticipates that a likely worst case scenario would involve
disruption of credit card transactions for purchases of products on the Web site
auctions. This would likely lead to material interruption in product sales. When
the Company completes its review of significant third party suppliers, it will
assess worst case scenarios and, if necessary, develop one or more contingency
plans.
Management estimates that total costs attributable to Year 2000 compliance
efforts, both for past efforts and present and anticipated future efforts, will
be approximately Cdn$270,000, of which the Company has incurred approximately
Cdn$200,000 to date. Management's estimate includes the expense the Company will
incur in reviewing whether its significant suppliers and third-party service
providers have resolved their own Year 2000 problems, including the costs of the
Year 2000 consultant. The Company may incur additional expenses in connection
with the development and implementation of a contingency plan, should the
Company learn that any of its significant suppliers or third-party service
providers may fail to achieve Year 2000 compliance on a timely basis. These
expenses cannot be quantified at this time.
Readers are cautioned that forward-looking statements contained in this
subsection "Year 2000" should be read in conjunction with the Company's
disclosure under the heading "Forward Looking Statements" in the forepart of
this Registration Statement.
Foreign Currency Fluctuations
The Company purchases substantially all of its products from suppliers, and
sells substantially all of its products to customers, in U.S. dollars. The
Company also incurs a significant amount of advertising and marketing expenses
in U.S. dollars. However, the majority of the Company's other operating
expenses are in Canadian dollars. Fluctuations in the U.S./Canadian dollar
exchange rate with respect to the Company's operations are a function,
primarily, of: (i) the relative value of the Canadian dollar to the U.S. dollar
at any given time; and (ii) the relationship between the amount of revenues and
financing received by the Company in U.S. dollars and the amount of Company
expenditures being paid in Canadian dollars, on the one hand, and the amount of
revenues and financing received by the Company in Canadian dollars and the
amount of Company expenditures being paid in U.S. dollars, on the other hand.
The Company does not have any hedging programs in place to manage the potential
exposure to fluctuations in the U.S./Canadian dollar exchange rate.
The Company incurred net losses from foreign currency exchange fluctuations
of Cdn$724,000 in 1998 and Cdn$34,949 in 1997. The increase in the losses
resulted from the devaluation of the Canadian dollar in 1998 as compared to
1997, the significant overall increase in Company revenue and expenditures in
1998 as compared to 1997 and, in particular, the significant increase in Company
advertising and marketing expenses in 1998 as compared to 1997 See "Exchange
Rates" at the forepart of this Registration and "-Results of Operation" above.
41
<PAGE>
ITEM 9A- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
(a) Quantitative Information about Market Risk
Not applicable.
(b) Qualitative Information about Market Risk
Not applicable.
42
<PAGE>
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
The following table sets forth the name, age and position of each of
the directors and executive officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Paul Godin(2),(4) 45 Chairman of the Board of Directors and Chief Executive Officer
Jeffrey Lymburner(2),(4) 42 Director, President, Secretary and Treasurer
T. Christopher Bulger(1),(2),(3),(4) 41 Director, Executive Vice President and Assistant Secretary
Michael Abramsky 40 Director
Dr. Duncan Copeland(1),(3) 42 Director
David Pamenter 51 Director and Assistant Secretary
Fred Singer 35 Director
Charles S. Walker 62 Director
Paul Hart 43 Chief Financial Officer
Brent Bowes 40 Vice President, Corporate Controller and Assistant Secretary
Robert W.A. Joynt 51 Vice President--General Merchandising Manager
James I. Moskos 36 Vice President--Technology
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Executive Committee
(3) Member of the Compensation Committee
(4) Member of the Stock Option Committee
The business experience of each of the directors and executive officers of
the Company for at least the last five years is as follows:
Paul Godin is a founding shareholder of the Company and has served as Chairman
of the Board of Directors and Chief Executive Officer since September 1995. Mr.
Godin served as President of the Company from September 1995 until June 1998.
Mr. Godin has 20 years of marketing experience in the retail and wholesale
electronics and computer industries. From 1994 to 1995, Mr. Godin was Senior
Vice President--Corporate Sales and Marketing for Completely Mobile Inc., a
Canadian company which designs and implements wireless data systems. From 1993
to 1994, he was Vice President and General Manager of Casio Canada Inc., makers
of calculators and household electronic goods. From 1990 to 1993 Mr. Godin was
Vice President--Sales and Marketing, for Alpine Electronics of Canada Inc. and,
prior to that, he privately consulted to Canadian Airlines, H.J. Heinz, and
Clarion Canada.
Jeffrey Lymburner is a founding shareholder of the Company and has served as
President of the Company since August 1998, Executive Vice President from
September 1995 until August 1998 and as a Director, Secretary and Treasurer
since September 1995. Mr. Lymburner is also President of the Company's
subsidiary, Internet Liquidators USA Inc. From 1990 to 1995, Mr. Lymburner was
President of Completely Mobile Inc., and prior to that, he served in various
management positions with Multitech Warehouse Direct, Canadian consumer
electronics retail chain.
T. Christopher Bulger has served as Executive Vice President of the Company
since September 1998, and as a Director since June 1996 and as Assistant
Secretary since September 1996. Mr. Bulger served as Chief Financial Officer of
the Company from April 1996 to September 1998. Since 1994, Mr. Bulger has been
an officer and a partner with HDL Capital Corporation, a Toronto-based merchant
bank. Mr. Bulger devotes substantially all of his business time to Company
affairs.
Michael Abramsky has served as a Director of the Company since August 1998.
Mr. Abramsky joined Rogers New Media, in March 1997 and since January 1998 has
been its President. From March 1996 to March 1997, Mr.
43
<PAGE>
Abramsky was Vice President-Marketing for InSystems, a software development
company. From February 1993 to March 1996, Mr. Abramsky was Vice President-
Marketing for Delrina Corp. (now part of the Symantec Group), a software
company. Prior to joining Delrina, Mr. Abramsky was the Marketing Director for
Interleaf Canada.
Dr. Duncan Copeland has served as a Director of the Company since September
1995. Dr. Copeland is the President of Copeland & Company, a Washington D.C.-
based international consultancy firm, and is a Visiting Professor of business at
Georgetown University. From July 1989 to June 1996, Dr. Copeland served on the
faculty of the Richard Ivey School of Business at the University of Western
Ontario as a professor of Information Management and as Chief Information
Officer of the institution.
David Pamenter has served as a Director of the Company since June 1997 and as an
Assistant Secretary since January 1997. Since July 1995, Mr. Pamenter has been a
partner in the Toronto, Ontario law firm of Gowling, Strathy & Henderson,
Barristers & Solicitors, and from 1977 to 1995, Mr. Pamenter was a partner in
the Toronto law firm of Lang Michener, Barristers & Solicitors.
Fred Singer has served as a Director of the Company since June 1997. Mr.
Singer has been the Senior Vice President of AOL Studios, a division of AOL,
since November 1997. Mr. Singer also serves as an advisor and board member on
several AOL Studios companies. From April 1996 to November 1996, Mr. Singer was
Vice President--Corporate Development of AOL, and from November 1996 to November
1997 he was Vice President of AOL Studios. From 1992 to March 1996, Mr. Singer
was founder and Vice President of Digital Inc., the Washington Post electronic
subsidiary, and from August 1992 to July 1993, he served as a director of
corporate development for the Washington Post Company. Mr. Singer also
previously worked as an international consultant at Bain and Company and in
various brand management positions with Proctor and Gamble.
Charles S. Walker has served as a Director of the Company since February 1999.
Since January 1968, Mr. Walker haS served as the President and Chief Executive
Officer of the Walker Group, Inc., a privately owned company involved in
manufacturing, administration, fulfillment services and marketing to the
automotive and consumer goods industries.
Paul Hart has served as Chief Financial Officer of the Company since October
1998 and Senior Vice President - Finance from August 1998 to September 1998.
From March 1995 to July 1998, Mr. Hart was Vice President-Finance of Canadian
Automatic Data Processing Services, Limited, and from June 1990 to February
1995, Mr. Hart served as Vice President and Treasurer of Simcoe Erie Investor
Limited, an insurance company and part of the GAN Group.
Brent Bowes has served as Vice President of the Company since October 1998,
as its Corporate Controller since May 1996 and as an Assistant Secretary since
January 1997. From February 1991 to April 1996, Mr. Bowes was a Senior
Accountant in the Corporate Finance Group of Deloitte & Touche, Chartered
Accountants. Prior to that, Mr. Bowes served in various management positions
within the manufacturing, financial and retail sectors.
Robert W.A. Joynt has served as the Vice President--General Merchandising
Manager of the Company since January 1996. From July 1994 to December 1995, Mr.
Joynt was Vice President--Sales and Marketing of Logitech Electronics Inc., a
consumer electronics company and from September 1984 to June 1994, he served as
President of Koss Limited and Vice President of Koss Corporation, a consumer
electronics company.
James I. Moskos has served as the Vice President--Technology of the Company
since September 1997. From September 1994 to August 1997, Mr. Moskos was Senior
Technology Manager for the Canadian Department of Indian Affairs and Northern
Development (the "Department") responsible for setting the technical direction
for all aspects of application development. From 1992 to 1994, Mr. Moskos was
Client Services Manager for the Department.
Under Canadian law, a majority of the Board of Directors must be residents
of Canada. Each director of the Company holds office until the next annual
meeting of shareholders or until his successor has been elected and qualified.
The executive officers of the Company are appointed by the Board of Directors of
the Company and serve at the discretion of the Board of Directors.
44
<PAGE>
ITEM 11 - COMPENSATION OF DIRECTORS AND OFFICERS
Summary Compensation Table
The following table provides a summary of compensation earned during the
fiscal year ended December 31, 1998 by the Executive Officers of the Company.(1)
<TABLE>
<CAPTION>
Other
Annual Compensation Annual All Other
------------------- Compen- Options Compen-
Name And Principal Position Salary Bonus sation Granted Sation
--------------------------- ------ ----- ------ ------- ------
(Cdn.$) (Cdn $) (Cdn $) (#) (Cdn $)
<S> <C> <C> <C> <C> <C>
Paul Godin.................... 178,300 Nil 12,000/(2)/ 50,000 Nil
Chairman & CEO
Jeffrey Lymburner............. 170,500 Nil Nil 100,000 Nil
President
T. Christopher Bulger......... 132,000 100,000 12,000/(2)/ 125,000 Nil
Executive Vice-President
Paul Hart..................... 46,875 Nil 4,500/(2)/ 100,000 Nil
Chief Financial Officer
Brent Bowes................... 80,800 Nil 6,000/(2)/ 50,000 Nil
Vice-President, Corporate
Controller
Robert W.A. Joynt............ 154,300 8,500 6,000/(2)/ 35,000 21,000/(3)/
Vice-President
James I. Moskos................ 102,200 Nil 4,500/(2)/ 100,000 Nil
Vice-President, Technology
</TABLE>
- ----------
(1) For the purposes of disclosure of Compensation of Directors and
Executive Officers in Item 11, "Executive Officer" means the Chairman,
President, Chief Executive Officer, Chief Financial Officer,
Vice-President, and any other officer of the Corporation or person who
performed a policy making function and whose total compensation earned
during the fiscal year was greater than Cdn $100,000.
(2) Received on account of car reimbursement expenses and other expenses.
(3) Net proceeds on the exercise of stock options.
During 1998, the Company did not provide any pension, retirement or similar
benefits to its directors and officers.
Each of Paul Godin and Jeffrey Lymburner has entered into a non-competition
and salary protection agreement with the Company dated February 21, 1997, which
provides, among other things, that he (i) will not compete with the Company for
a period of 12 months, which may be extended by the Company to 24 months,
following the termination of his employment with the Company, in consideration
of which the Company will pay his full annual salary during such period; and
(ii) if his employment with the Company is terminated other than by reason of
death, disability or cause (as such terms are defined in such agreements), the
Company will continue to pay his full annual salary for 12 months (or 24 months
if the Company exercises its option to extend the non-competition restrictions
for 24 months) following the date of termination.
Stock Option Plan
The Company has adopted a Stock Option Plan pursuant to which it grants
options to purchase Common Shares. The purpose of the Stock Option Plan is to
afford directors, executive officers and key employees of the
45
<PAGE>
Company and its subsidiaries (such persons, collectively, "Insiders") who are
responsible for the continued growth of the Company an opportunity to acquire an
ownership interest in the Company, and thus create in such persons an increased
interest in, and a greater concern for, the welfare of the Company and its
subsidiaries.
The Stock Option Plan is administered by the Board of Directors. The Board
of Directors determines those individuals who will receive options, the time
period during which the options may be partially or fully exercised and the
number of Common Shares that may be purchased under each option. Options may be
granted for a term not to exceed ten years. The Board of Directors may determine
the exercise price of options granted under the Stock Option Plan, provided that
the options may not have an exercise price of an amount less than the closing
market price of the Common Shares on the trading day prior to date of the grant.
There are 2,100,000 Common Shares available for option grants under the
plan. The granting of options under the Stock Option Plan is subject to the
following conditions: (i) not more than 10% of the number of Common Shares
issued and outstanding from time to time (the "Outstanding Issue") may be
reserved for the granting of options to Insiders within a one-year period; and
(ii) not more than 5% of the Outstanding Issue may be issued to any one Insider
in a one-year period. Options granted unde the Stock Option Plan are not
transferable. Except under certain circumstances such as death, disability or
retirement and unless otherwise specified by the Board of Directors, options
granted under the Stock Option Plan become null and void upon the termination of
an option holder's employment with the Company. Subject to certain limits, the
Board of Directors may amend the Stock Option Plan.
Options Granted to Executive Officers During Fiscal Year Ended December 31, 1998
The following table sets forth the stock options granted to the
Executive Officers pursuant to the Stock Option Plan during the fiscal year
ended December 31, 1998.
<TABLE>
<CAPTION>
Market Value
Per Share of
% of Total Securities
Options Underlying
Securities Granted to Exercise Price Options on the
Underlying Executives Per Share Date of Grant Expiration
Name Options Granted in Fiscal Year (Cdn $) (Cdn $) Date
- ---------------------- --------------- -------------- --------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Paul Godin........... 50,000 5.5% 1.40 1.40 6/30/00
Jeffrey Lymburner.... 50,000 5.5% 2.35 2.35 2/2/00
50,000 5.5% 1.40 1.40 6/30/00
T. Christopher Bulger 75,000 8.2% 2.35 2.35 2/2/00
50,000 5.5% 1.40 1.40 6/30/00
Brent Bowes.......... 25,000 2.7% 2.35 2.35 2/2/00
25,000 2.7% 1.40 1.40 6/30/00
Robert W. A. Joynt... 10,000 1.1% 1.40 1.40 6/30/00
25,000 2.7% 2.35 2.35 2/2/00
James I. Moskos...... 50,000 5.5% 2.35 2.35 2/2/00
50,000 5.5% 1.40 1.40 6/30/00
</TABLE>
46
<PAGE>
Options Exercised By Executive Officers During Fiscal Year Ended December 31,
1998
The following table sets forth certain information regarding stock options
exercised by the Executive Officers during the fiscal year ended December 31,
1998.
<TABLE>
<CAPTION>
Number of Value of
Number of Unexercised Unexercised
Securities Options at 12/31/98 in-the-Money
Acquired Value Exercisable/ Options at
Name on Exercise Realized Unexercisable 12/31/98
- --------------------- ------------------ ------------------ ------------------- --------
(Cdn$) (Cdn$)
<S> <C> <C> <C> <C>
Paul Godin............... NIL NIL 150,000/NIL 348,000
Jeffrey Lymburner........ NIL NIL 175,000/NIL 352,250
T. Christopher Bulger.... NIL NIL 300,000/NIL 621,000
Brent Bowes.............. NIL NIL 50,000/NIL 87,250
Robert W. A. Joynt....... 15,000 21,000 47,500/NIL 86,067
James I. Moskos.......... NIL NIL 150,000/NIL 305,500
</TABLE>
ITEM 12 - OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
As of March 19, 1999, options and warrants to purchase 3,795,659 Common
Shares were outstanding as follows:
Issued Under Stock Option Plan
<TABLE>
<CAPTION>
Optionee Number of Shares Date of Grant Exercise Price Expiry Date
- -------- ----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Executive Officers 10,000 September 2, 1997 1.00 August 31, 1999
(7 persons) 200,000 September 2, 1997 1.25 August 31, 1999
210,000 February 3, 1998 2.35 February 2, 2000
235,000 June 23, 1998 1.40 June 30, 2000
100,000 October 22, 1998 1.00 November 17, 2002
265,000 January 25, 1999 5.05 January 24, 2002
Directors who are not 50,000 September 2, 1997 1.25 August 31, 1999
Executive Officers 65,000 June 23, 1998 1.40 June 30, 2000
(3 persons) 25,000 January 25, 1999 5.05 January 24, 2002
Other 55,000 September 2, 1997 1.00 August 31, 1999
(27 persons) 97,300 February 3, 1998 2.35 February 2, 2000
90,000 June 23, 1998 1.40 June 30, 2000
35,000 January 25, 1999 5.05 January 24, 2002
---------
Total 1,437,300
=========
</TABLE>
47
<PAGE>
Issued Under Other Securities Exemptions
<TABLE>
<CAPTION>
Optionee Number of Shares Date of Grant Exercise Price Expiry Date
- -------- ----------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Other 60,000 September 2, 1997 1.00 August 31, 1999
250,000 November 11, 1998 1.16 November 10, 2001
100,000 July 29, 1998 1.40 (1)
1,218,490 September 30, 1998 1.65 (2)
443,000 September 30, 1998 1.65 November 4, 1999(5)
622,496 January 28, 1999 1.75 (3)
64,373(4) January 28, 1999 1.75 December 31, 1999
---------
Total 2,358,359
=========
</TABLE>
- ------------------
(1) This Common Share purchase warrant held by Rogers Media is exercisable
until 5:00p.m. (Toronto time) on the date which is the earlier of: (i) the
10th business day following the date on which the Company delivers a notice
to the holder of such common share warrant confirming it has filed a
registration statement or preliminary prospectus for an initial public
offering of shares of the Company in the United States for proceeds of at
least Cdn$7,000,000; and (ii) July 31, 1999.
(2) These Common Share purchase warrants, which are the unexercised portion of
the 4,050,000 Common Share purchase warrants issued upon exercise of
Special Warrants sold in the Company's August 1998 private placement, are
exercisable until 5 p.m. (Toronto time) on the date which is the earlier of
(i) ten (10) business days following the date upon which the Company
delivers a notice to all holders of such share purchase warrants confirming
that it has filed a preliminary prospectus or registration statement in
connection with a public offering in the United States of at least
Cdn$7,000,000; and (ii) August 4, 1999.
(3) These Common Share purchase warrants, which are the unexercised portion of
the 1,428,746 Common Share purchase warrants issued upon exercise of
Special Warrants sold in the Company's November 1998 private placement, are
exercisable until 5:00 p.m. (Toronto time) on the date which is the earlier
of (i) ten (10) business days following the date upon which the Company
delivers a notice to all holders of share purchase warrants confirming that
it has filed a preliminary prospectus or registration statement in
connection with a public offering in the United States of America of at
least Cdn$7,000,000, and (ii) December 31, 1999.
(4) Includes: 64,373 of unexercised Common Share purchase warrants issued to
Yorkton representing the remainder of 152,875 Common Share purchase
warrants issued upon its exercise of 611,498 options, issued in connection
with the Company's November, 1998 private placement. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations-
Liquidity and Capital Resources."
(5) Includes: 43,000 of unexercised Common Share purchase warrants issued to
Yorkton representing the remainder of 430,000 Common Shares purchase
warrants issued upon its exercise of 860,000 options issued in connection
with the Company's August, 1998 private placement. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations-
Liquidity and Capital Resources."
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Paul Godin and Jeffrey Lymburner, the founders and promoters of the
Company, sold all of their shares of Internet Liquidators Inc. to Avonlee
Capital Corporation (a predecessor of the Company) for consideration equal to
Cdn$0.80 per share payable in previously unissued shares of Avonlee Capital
Corporation. This transaction was completed on May 28, 1996 pursuant to a share
exchange agreement dated May 15, 1996. The value of the consideration received
by Messrs. Godin and Lymburner was based upon an independent valuation of
Internet Liquidators Inc. as of March 31, 1996, prepared by SLF Valuation
Services Inc.
48
<PAGE>
The Company and AOL have entered into marketing and related agreements. AOL
purchased 1.0 million Common Shares. The Company has granted to AOL certain
registration rights with respect to such Common Shares. Fred Singer, senior vice
president of AOL Studios, a division of AOL, is a director of the Company. Mr.
Singer was appointed as a director of the Company pursuant to a shareholders
agreement between AOL and the Company that had, among other things, granted AOL
the right to nominate representatives to the Company's Board of Directors. The
shareholders agreement was terminated in February 1998, but Mr. Singer remains a
director of the Company. See "Business--Marketing."
The Company and Toronto Star have entered into the Torstar Agreement and
related agreements. Toronto Star purchased 1.5 million Common Shares. Rocco
Rossi, an officer of Toronto Star, was a director of the Company from February
1997 through November 1998. Mr. Rossi was appointed as a director of the Company
pursuant to a shareholders agreement between Toronto Star and the Company that
had, among other things, granted the Toronto Star the right to nominate
representatives to the Company's Board of Directors. The shareholders agreement
was terminated in February 1998.
The Company and Rogers Media entered into the E-Commerce and Promotion
Services Agreement on July 29, 1998. Rogers Media purchased 1.5 million Common
Shares and warrants to purchase 100,000 Common Shares at Cdn$1.40 per Common
Share. Michael Abramsky, an officer of Rogers Media, is a director of the
Company. Mr. Abramsky was appointed as a director of the Company pursuant to the
E-Commerce and Promotion Services Agreement. See "Options to Purchase Securities
from Registrant and Subsidiaries."
During 1996, 1997 and 1998, the Company paid to HDL aggregate fiscal agent
fees of Cdn$178,000, Cdn$161,280 and Cdn$96,000, respectively, in connection
with investment banking services provided by HDL to the Company. T. Christopher
Bulger, a Director, Executive Vice President and Assistant Secretary of the
Company, is a principal and officer of HDL. HDL owns options to purchase 200,000
Common Shares. The Company believes that the fees paid to HDL where comparable
to fees that the Company would have been charged for similar services by an
unaffiliated fiscal agent in an arms length transaction.
David Pamenter, a director of the Company, is a partner in the Toronto law
firm of Gowling, Strathy & Henderson, which provided legal services to the
Company during 1996, 1997 and 1998 and continues to provide legal services to
the Company. The Company believes that the legal fees paid to Gowling, Strathy &
Henderson were comparable to fees that the Company would have been charged for
similar services by an unaffiliated law firm.
49
<PAGE>
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
The authorized capital of the Company consists of an unlimited number of
Common Shares and an unlimited number of preference shares ("Preference
Shares"), issuable in series. As of March 23, 1999, 48,125,396 Common Shares and
no Preference Shares were issued and outstanding. The issued and outstanding
Common Shares are fully paid and non-assessable.
Holders of Common Shares are entitled to one vote per share in the election
of directors and on all other matters on which shareholders are entitled or
permitted to vote. Cumulative voting in the election of directors is not
permitted. Holders of Common Shares have no redemption, conversion, preemptive
or other subscription rights. The holders of the Common Shares are entitled to
receive, on a pro-rata basis, such dividends as may be declared by the Board of
Directors of the Company out of funds legally available for such payments. In
the event of the liquidation, dissolution or winding-up of the Company, the
holders of Common Shares will be entitled, subject to the rights of any holder
of Preferred Shares, to share, on a pro rata basis, in all of the assets of the
Company remaining after payment of all the Company's liabilities.
Under the Company's Articles of Amalgamation, the Board of Directors is
authorized, subject to certain limitations prescribed by law, to issue an
unlimited number of Preference Shares without shareholder approval in one or
more series and to fix the designations, rights, privileges and restrictions
thereof, including the dividend rate, conversion or exchange rights and
redemption price of any such series. The Company's Articles of Amalgamation
currently provide that all series of such Preference Shares are entitled to
share ratably in the assets of the Company in the event of liquidation,
dissolution, or the winding up of the affairs of the Company.
The Company has not issued any Preference Shares to date. Any Preference
Shares issued in the future could have conversion rights which may result in the
issuance of additional Common Shares which could dilute the interests of the
holders of Common Shares. Such shares could also have voting rights and
liquidation preferences which are senior to the rights and preferences of the
Common Shares. Additionally, such shares could have dividend rates and
redemption or other provisions which could adversely affect the Company's
ability to pay dividends on the Common Shares or prohibit payment of such
dividends. Such shares could also be issued, under certain circumstances, in an
attempt to prevent a takeover of the Company, and such issuance could adversely
impact holders of Common Shares who might vote in favor of a proposed merger,
tender offer or similar transaction. The Company has no current plans to issue
any Preference Shares.
The Company's transfer agent and registrar for the Common Shares and
warrant agent for the Company's warrants is CIBC Mellon Trust Company, 320 Bay
Street, Toronto, Ontario, M5H 4A6, Canada.
50
<PAGE>
PART III
ITEM 15 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 16 - CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
Not applicable.
PART IV
ITEM 17 - FINANCIAL STATEMENTS
Attached. See Item 19(a).
ITEM 18 - FINANCIAL STATEMENTS
Not applicable.
ITEM 19 - FINANCIAL STATEMENTS AND EXHIBITS
(a) CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THIS REGISTRATION
STATEMENT.
<TABLE>
<S> <C>
Auditors' Report for the periods ended December 31, 1998 and 1997..................................... F-1
Consolidated Balance Sheets as at December 31, 1998 and 1997 (audited)................................ F-2
Consolidated Statements of Operations for the periods ended December 31, 1998, 1997 and 1996 (audited) F-3
Consolidated Statements of Deficit for the periods ended December 31, 1998, 1997 and 1996 (audited)... F-4
Consolidated Statements of Cash Flows for the periods ended December 31, 1998, 1997 and 1996 (audited) F-5
Notes to Financial Statements for the periods ended December 31, 1998, 1997 and 1996 (audited)........ F-6
(b) EXHIBITS FILED AS PART OF THIS REGISTRATION STATEMENT.
*1.1 Articles of Incorporation of the Company.
*1.2 By-laws of the Company.
</TABLE>
51
<PAGE>
<TABLE>
<C> <S>
*3.1 Subscription Agreement dated February 12, 1997, between the
Company and Toronto Star. (This Agreement is filed in
redacted form as it is subject to a request for
confidentiality submitted to the SEC.)
*3.2 E-Commerce Services Agreement dated as of February 12, 1997
between The Company and Toronto Star and Clarification letter
dated July 22, 1998. (This Agreement is filed in redacted
form as it is subject to a request for confidentiality
submitted to the SEC.)
*3.3 Intellectual Property Rights and Non-Competition Agreement
dated February 12, 1997 between the Company and the Toronto
Star.
*3.4 Subscription Agreement dated February 18, 1997, between the
Company and AOL. (This Agreement is filed in redacted form as
it is subject to a request for confidentiality submitted to
the SEC.)
*3.5 Intellectual Property Rights and Non-Competition Agreement
dated February 21, 1997 between the Company and AOL.
*3.6 Interactive Marketing Agreement dated as of November 1, 1997
between the Company and AOL (replacing the Auction Services
Agreement dated February 21, 1997, between the Company and
AOL). (This Agreement is filed in redacted form as it is
subject to a request for confidentiality submitted to the
SEC.)
**3.7 Form of Subscription Agreement dated October 3, 1997 between
the Company and each of the Investors in the October 3, 1997
private placement.
**3.8 Special Warrant Indenture dated October 3, 1997 between the
Company and CIBC Mellon Trust Company.
*3.9 Share Purchase Warrant Indenture dated October 3, 1997
between the Company and CIBC Mellon Trust Company.
**3.10 Underwriting Agreement dated October 3, 1997 between the
Company, Yorkton Securities Inc. and First Marathon
Securities Limited.
**3.11 Form of Subscription Agreement dated August 4, 1998 between
the Company and each of the Investors in the August 4, 1998
private placement
**3.12 Special Warrant Indenture dated August 4, 1998 among the
Company, certain Selling Shareholders and CIBC Mellon Trust
Company.
**3.13 Share Purchase Warrant Indenture dated August 4, 1998 among
the Company, certain Selling Shareholders and CIBC Mellon
Trust Company.
**3.14 Underwriting Agreement dated August 4, 1998 between the
Company and Yorkton Securities Inc.
*3.15 Subscription Agreement dated July 29, 1998 between the
Company and Rogers Media.
*3.16 E-Commerce and Promotional Services Agreement between the
Company and Rogers Media dated as of July 29, 1998. (This
Agreement is filed in redacted form as it is subject to a
request for confidentiality submitted to the SEC.)
**3.17 Form of Subscription Agreement dated November 30, 1998 among
the Company and the Investors in the November 30, 1998
private placement.
**3.18 Underwriting Agreement dated November 30, 1998 between the
Company and Yorkton Securities Inc.
</TABLE>
52
<PAGE>
<TABLE>
<C> <S>
**3.19 Special Warrant Indenture dated November 30, 1998 among the
Company, certain Selling Shareholders and CIBC Mellon Trust
Company.
**3.20 Share Purchase Warrant Indenture dated November 30, 1998
among the Company, certain Selling Shareholders and CIBC
Mellon Trust Company.
*3.21 License Agreement between the Company and American
Interactive Media Inc. (This Agreement is filed in redacted
form as it is subject to a request for confidentiality
submitted to the SEC.)
*3.22 Distribution Agreement between the Company and Micra
SoundCards. (This Agreement is filed in redacted form as it
is subject to a request for confidentiality submitted to the
SEC.)
*3.23 Stock Purchase Agreement between the Company and American
Interactive Media Inc. (This Agreement is filed in redacted
form as it is subject to a request for confidentiality
submitted to the SEC.)
*3.24 Termination Agreement dated as of March 16, 1999 between
the Company and AOL (terminating the Interactive Marketing
Agreement dated as of November 1, 1997 between the Company
and AOL).
*3.25 Advertising Insertion Order dated as of March 16, 1999
between the Company and AOL (replacing the Interactive
Marketing Agreement dated as of November 1, 1997 between the
Company and AOL). (This Agreement is filed in redacted form
as it is subject to a request for confidentiality submitted
to the SEC.)
*3.26 Salary Protection Letter, dated February 21, 1997, between
the Company and Paul Godin.
*3.27 Salary Protection Letter, dated February 12, 1997, between
the Company and Jeffrey Lymburner.
*3.28 Salary Protection Letter, dated February 12, 1997, between
the Company and Paul Godin.
</TABLE>
- -----------------
* Filed herewith
** Previously filed.
53
<PAGE>
Auditors' Report
To the Directors of
Bid.Com International Inc.
(formerly known as Internet Liquidators International Inc.)
We have audited the consolidated balance sheets of Bid.Com International Inc. as
at December 31, 1998 and 1997 and the consolidated statements of operations,
deficit and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in accordance with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Chartered Accountants
Toronto, Ontario
March 3, 1999
F-1
<PAGE>
BID.COM INTERNATIONAL INC.
(formerly Internet Liquidators International Inc.)
Consolidated Balance Sheets
(expressed in thousands of Canadian Dollars)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1998 1998 1997
-------------- -------------------- ------------
<S> <C> <C> <C>
Convenience
translation into
U.S. $ (Note 14)
ASSETS
CURRENT
Cash $ 9,792 $ 6,399 $ 1,019
Marketable securities 6,806 4,448 1,158
Accounts receivable 1,102 720 166
Special warrants receivable (Note 5) 2,311 1,510 2,189
Inventory 169 110 201
Deposits and prepaid expenses 174 114 1,678
- ----------------------------------------------------------------------------------------------------------------
20,354 13,301 6,411
- ----------------------------------------------------------------------------------------------------------------
CAPITAL ASSETS - AT COST 1,049 686 698
Less accumulated depreciation 404 264 223
- ----------------------------------------------------------------------------------------------------------------
645 422 475
- ----------------------------------------------------------------------------------------------------------------
TRADEMARKS AND INTELLECTUAL PROPERTY 48 31 -
- ----------------------------------------------------------------------------------------------------------------
$ 21,047 $ 13,754 $ 6,886
================================================================================================================
LIABILITIES
CURRENT
Accounts payable $ 2,155 $ 1,408 $ 1,216
Accrued liabilities 133 87 107
Deferred revenue 137 90 -
- ----------------------------------------------------------------------------------------------------------------
2,425 1,585 1,323
- ----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital (Note 4) 37,217 24,321 6,140
Special warrants (Note 5) 9,083 5,936 8,394
Deficit (27,678) (18,088) (8,971)
- ----------------------------------------------------------------------------------------------------------------
18,622 12,169 5,563
- ----------------------------------------------------------------------------------------------------------------
$ 21,047 $ 13,754 $ 6,886
================================================================================================================
</TABLE>
ON BEHALF OF THE BOARD
................... Director ................... Director
F-2
<PAGE>
BID.COM INTERNATIONAL INC.
Consolidated Statements of Operations
(expressed in thousands of Canadian Dollars)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1998 1998 1997 1996
-------------- --------------------- ------------- -------------
<S> <C> <C> <C> <C>
Convenience
translation into
U.S. $ (Note 14)
Revenue $ 20,089 $ 13,128 $ 2,671 $ 51
- --------------------------------------------------------------------------------------------------------------------------
Direct expenses 19,361 12,653 2,916 12
Advertising and promotion (Note 10) 12,594 8,230 2,521 403
General and administrative 5,734 3,747 3,157 1,453
Software development and expense 889 581 661 194
Depreciation and amortization 201 131 122 100
Interest expense 17 11 19 -
- --------------------------------------------------------------------------------------------------------------------------
38,796 25,353 9,396 2,162
- --------------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $(18,707) $(12,225) $(6,725) $(2,111)
==========================================================================================================================
LOSS PER SHARE $(0.79) $(0.52) $(0.55) $(0.21)
==========================================================================================================================
</TABLE>
F-3
<PAGE>
BID.COM INTERNATIONAL INC.
Consolidated Statements of Deficit
(expressed in thousands of Canadian Dollars)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1998 1998 1997 1996
-------------- --------------------- ------------- -------------
<S> <C> <C> <C> <C>
Convenience
translation into
U.S. $ (Note 14)
DEFICIT, BEGINNING OF YEAR $ (8,971) $ (5,863) $(2,246) $ (135)
NET LOSS FOR THE YEAR (18,707) (12,225) (6,725) (2,111)
- --------------------------------------------------------------------------------------------------------------------------
DEFICIT, END OF YEAR $(27,678) $(18,088) $(8,971) $(2,246)
==========================================================================================================================
</TABLE>
F-4
<PAGE>
BID.COM INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian Dollars)
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1998 1998 1997 1996
-------------- -------------------- ------------- -------------
Convenience
translation into
U.S. $ (Note 14)
NET INFLOW (OUTFLOW)
OF CASH RELATED TO THE
FOLLOWING ACTIVITIES
OPERATING
<S> <C> <C> <C> <C>
Net loss for the year $(18,707) $(12,225) $(6,725) $(2,111)
Item not affecting cash
Depreciation and amortization 201 131 122 100
- -----------------------------------------------------------------------------------------------------------------------
(18,506) (12,094) (6,603) (2,011)
Changes in non-cash operating working
capital items (Note 9) 1,702 1,112 (1,085) 381
- -----------------------------------------------------------------------------------------------------------------------
(16,804) (10,982) (7,688) (1,630)
- -----------------------------------------------------------------------------------------------------------------------
INVESTING
Purchase of capital assets (351) (229) (247) (396)
Acquisition of net assets of subsidiary - - - (27)
Purchase of trademarks and
intellectual property (68) (44) - -
Marketable securities (5,648) (3,691) (1,158) -
- -----------------------------------------------------------------------------------------------------------------------
(6,067) (3,964) (1,405) (423)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING
Issuance of common shares (Note 4) 22,683 14,823 4,103 1,786
Issuance of special warrants
(net of expenses) (Note 5) 9,083 5,936 8,394 -
Special warrants receivable (122) (80) (2,189) -
Loan payable - - (258) 258
- -----------------------------------------------------------------------------------------------------------------------
31,644 20,679 10,050 2,044
- -----------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW (OUTFLOW)
DURING THE YEAR 8,773 5,733 957 (9)
CASH, BEGINNING OF YEAR 1,019 666 62 71
- -----------------------------------------------------------------------------------------------------------------------
CASH, END OF YEAR $ 9,792 $ 6,399 $ 1,019 $ 62
=======================================================================================================================
</TABLE>
F-5
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Bid.Com International Inc. ("Bid.Com") is a sales and marketing company
striving to become the pre-eminent online auction house and a leading E-
tailer. The Company operates business-to-consumer online auctions at its
BID.COM Web site and at other URLs. The Company recently completed the
development of a business-to-business auction service and intends to operate
business-to-business auctions in selected vertical industry sectors and to
conduct liquidation auctions for bankruptcy trustees and other liquidators.
The Company also seeks to license its proprietary online auction technology
to support private brand online auctions and interactive auctions in a
variety of other communications media.
The business of the Company was commenced by Internet Liquidators Inc., an
Ontario corporation, in September 1995. In May 1996, Internet Liquidators
USA Inc., a wholly owned subsidiary of Internet Liquidators Inc. was
incorporated under the laws of Florida. In January 1997, the Company was
formed, as an Ontario corporation, by amalgamation of Internet Liquidators
Inc. and Internet Liquidators International Inc. In May 1998, Bid.Com USA Inc
and Lapis Group USA Inc., were incorporated as wholly owned subsidiaries. In
June 1998, the Company changed its name from Internet Liquidators
International Inc. to Bid.Com International Inc. The accompanying
consolidated financial statements are issued under the name of "BID.COM
International Inc." (formerly "Internet Liquidators International Inc.") but
are considered a continuation of the financial statements of Internet
Liquidators Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements are prepared in accordance
with accounting principles generally accepted in Canada which are
substantially the same as generally accepted accounting principles in the
United States (see Note 12).
Principals of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material inter-company
transactions have been eliminated.
Inventory
The Company's operating policy is not to purchase inventory for resale but to
ship direct from suppliers. Inventory on the balance sheets reflects sales
returns in transit which are valued at the lower of cost and net realizable
value and at the option of the Company are held for resale or returned to
suppliers for credit.
Advertising
The Company expenses the costs of producing advertisements at the time
production occurs, and expenses the costs of communicating advertising in the
period in which the advertising space or airtime is used. Internet
advertising expenses are recognized based on specifics of the individual
agreements, but generally using the greater of (i) the ratio of the number of
impressions delivered over the total number of impressions and (ii) the
straight-line basis over the term of the contract. This policy complies with
the Requirements of Statement of Position No. 93-7, "Reporting on Advertising
Costs" issued by the American Institute of Certified Public Accountants.
F-6
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Capital assets and depreciation
Capital assets are carried at cost less accumulated depreciation.
Depreciation is calculated on the straight-line basis in amounts sufficient
to amortize the cost of capital assets over their estimated useful lives as
follows:
Equipment 20% per year
Furniture and fixtures 20% per year
Computer hardware 30% per year
Leasehold improvements 3 years
Trademarks and intellectual property
Trademarks and intellectual property are recorded at cost and amortized on a
straight-line basis over two years.
Software development costs
The costs of acquired software and internally developed software are expensed
as incurred.
Translation of foreign currencies
The accompanying consolidated financial statements are prepared in Canadian
dollars. All foreign denominated transactions are translated using the
temporal method whereby monetary assets and liabilities are translated at the
rates in effect on the balance sheet date, non-monetary items at historical
rates and revenues and expenses at the average monthly rate. Gains or losses
from exchange translations are included in the statements of loss.
Loss per share
The basic loss per share calculation is based on the weighted average number
of shares outstanding during the period. No fully diluted calculation is
included as it would reduce the loss per share.
Revenue recognition
Revenue from product sales, commissions, shipping and handling are recognized
when the goods are shipped to customers.
Use of significant accounting estimates.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.
Actual results could differ from those estimates.
Stock based compensation
Under Canadian generally accepted accounting principles, stock based
compensation is not recorded in the accounts of the Company. Stock based
compensation under United States GAAP is accounted for in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, under both Canadian and US GAAP
no accounting recognition is given to stock options granted at fair market
value until they are exercised. Upon exercise, the net proceeds are credited
to shareholders' equity. The impact of Statement of Financial Accounting
Standards (SFAS) 123, "Accounting for Stock Based Compensation," is disclosed
in the notes to these financial statements under Reconciliation of United
States GAAP.
F-7
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
3. INCOME TAXES
The Company's non-capital loss carryforwards as at December 31, 1998, the
benefit of which has not been recognized in the financial statements, expire
as follows:
2001 $ 135,000
2002 $ 2,100,000
2003 $ 6,700,000
2004 $18,700,000
4. SHARE CAPITAL
a) Authorized
Unlimited number of common shares
Unlimited number of preference share -
issuable in series
b) Common shares
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Common Common
Shares Amount Shares Amount
-------------- -------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Opening balance 14,188 $ 6,140 9,598 $2,037
Issued for:
Cash 16,375 21,068 1,577 1,531
Exercise of options 615 681 263 318
Exercise of warrants 5,989 9,328 1,750 1,254
Other - - 1,000 1,000
-------------------------------------------------------------------------------------------------------------
Closing balance 37,167 $37,217 14,188 $6,140
=============================================================================================================
</TABLE>
c) Stock options
The Company has a stock option plan which provides for the issuance to
employees of incentive stock options, which may expire as much as 10
years from the date of grant, at prices not less than the fair market
value of the common shares on the date of grant. The aggregate purchase
price for options outstanding at December 31,1998 was approximately $2.2
million. The Stock Option Committee reserves the right to attach vesting
periods to stock options granted. Certain of the stock options
outstanding at the end of 1998 have vesting periods attached which range
from six months to thirty-two months. The options expire between 1999
and 2002.
F-8
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
4. SHARE CAPITAL (continued)
c) Stock options (continued)
A summary of changes in the stock option plan for the two years ended
December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Number of Options Average Price
-------------------------------- ------------------------------
1998 1997 1998 1997
--------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year 651 424 $1.15 $1.19
Options granted 916 450 1.76 1.15
Options exercised (115) (218) 0.98 1.06
Options cancelled (11) (5) 2.35 1.25
--------------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 1,441 651 $1.55 $1.15
==============================================================================================================
Options exercisable,
end of year 1,251 501 $1.60 $1.20
==============================================================================================================
Shares reserved for
issuance under
stock option plan 326 632
==============================================================================================================
</TABLE>
The Company also has stock options outstanding to third parties. The
aggregate purchase price for third party stock options outstanding at
December 31, 1998 was approximately $530,000. The options expire between
1999 and 2001.
A summary of changes in the stock options to third parties for the two
years ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Number of Options Average Price
-------------------------------- ------------------------------
1998 1997 1998 1997
--------------- --------------- -------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year 640 475 $1.14 $1.25
Options granted 350 210 1.06 0.90
Options exercised (500) (45) 1.14 1.25
--------------------------------------------------------------------------------------------------------------
Options outstanding,
end of year 490 640 $1.08 $1.14
==============================================================================================================
Options exercisable,
end of year 490 640 $1.08 $1.14
==============================================================================================================
</TABLE>
F-9
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
4. SHARE CAPITAL (continued)
d) Compensation and share purchase warrants
The Company has issued warrants to investors under private placement
equity issues during 1996,1997 and 1998. A summary of changes in the
warrants to investors for the two years ended December 31,1998 is as
follows
<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
Warrants Amounts Warrants Amounts
--------------- --------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C>
Opening balance 4,301 $ 6,802 1,750 $ 1,400
Granted 7,797 12,829 4,301 6,802
Exercised (5,989) (9,393) (1,750) (1,400)
---------------------------------------------------------------------------------------------------------------
Closing balance 6,109 $10,238 4,301 $ 6,802
===============================================================================================================
</TABLE>
A further 43,000 share purchase warrants exercisable at $1.65 and 152,875
share purchase warrants exercisable at $1.75 are subject to issuance upon
the exercise of outstanding compensation warrants and are not included in
the above table.
5. SPECIAL WARRANTS
On November 30, 1998 the Company closed a private placement of $10,001,222 in
equity for net proceeds of $6,863,460 with the remaining $2,311,098 of net
proceeds held in trust pending the filing of a final prospectus. The Company
issued 5,714,984 special warrants, each special warrant being exercisable to
acquire one unit (subject to adjustment in certain circumstances) for no
additional consideration, at a price of $1.75 per special warrant. Each unit
consisted of one common share of the Company and one quarter of one common
share purchase warrant. Each common share purchase warrant entitles the
holder to purchase one common share at a price of $1.75 per common share up
to December 31, 1999.
The Company also issued 611,498 compensation warrants. Each compensation
warrant entitles the underwriter to purchase one unit, consisting of one
common share and one quarter of one common share purchase warrant at a price
of $1.75 per unit up to December 31, 1999.
On January 21, 1999, the final prospectus was filed resulting in the
conversion of 5,714,984 special warrants into 5,714,984 common shares and the
issue of 1,428,746 common share purchase warrants.
F-10
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
6. FINANCIAL INSTRUMENTS
Foreign exchange risk
The Company transacts substantially all of its product sales and purchases in
United States dollars and a significant portion of operating expenditures are
in United States dollars. The Company does not use derivative instruments to
manage exposure to foreign exchange fluctuations.
Interest rate risk
The Company has limited exposure to any fluctuation in interest rates. The
Company does not use derivative instruments to reduce its exposure to
interest rate risk.
Credit risk
Credit risk arises from the potential that a customer will fail to meet its
obligations. The collection risk is minimized because the majority of sales
are settled before shipping by pre-authorized credit card payments through a
significant financial institution. In addition, the diverse customer base
minimizes any concentration of credit risk.
Fair value
Fair value of assets and liabilities approximate amounts at which they could
be exchanged between knowledgeable and unrelated persons. The amounts
recorded in the financial statements approximate fair value.
7. COMMITMENTS AND CONTINGENCIES
(a) As a condition of the agreement with a financial institution to settle
sales transactions through pre-authorized credit card payments, the
Company must maintain a cash reserve account based on a percentage of
sales for the preceding six months. At December 31, 1998, the Company
was required to maintain $1,500,000 in this reserve account (December
31, 1997 - $300,000). This arrangement was renegotiated by the Company
at a reduced percentage of sales for 1999 and a corresponding reduced
reserve account balance.
(b) Minimum lease payments during the next five years are as follows:
1999 $211,200
2000 192,300
2001 155,000
(c) The Company is committed under an Interactive Marketing Agreement with
AOL to expend $1,250,000 U.S. per quarter for advertising and promotion
with AOL to November 1, 1999. In February 1999 the AOL Interactive
Marketing Agreement was re-negotiated, resulting in a one-time payment
of $1,250,000 U.S. and an insertion order of $1,750,000 U.S. These
amounts are being amortized over the life of the agreement beginning
February 1, 1999 and expiring March 31, 2000.
F-11
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The year 2000 Issue arises because many computerized systems use two digits
rather than four to identity a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise
in some systems that use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 Issue may be experienced before,
on, or after January 1, 2000, and, if not addressed, the impact on operations
and financial reporting may range from minor errors to significant system
failure, which could affect a company's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or third parties, will be fully resolved.
9. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1998 1998 1997 1996
------------- -------------------- -------------- -----------
Convenience
translation into
U.S. $ (Note 14)
<S> <C> <C> <C> <C>
(in thousands)
Accounts receivable $ (936) $ (612) $ (117) $ 19
Inventory 32 21 (200) -
Deposits and prepaid expenses 1,504 983 (1,668) 1
Accounts payable 939 614 819 361
Accrued liabilities 26 17 81 -
Deferred revenue 137 89 - -
--------------------------------------------------------------------------------------------------------------------
$1,702 $1,112 $(1,085) $ 381
====================================================================================================================
</TABLE>
10. OPERATIONS
In June 1997, the Company, as part of its marketing program in conjunction
with America Online Inc. ("AOL"), introduced special promotional pricing in
order to stimulate new bidder registrations and first time sales. This
initiative contributed to annual sales growth in 1997 of over 5,100% and 1998
of 652%. This special promotional pricing cost the Company approximately
$3,520,000 in 1998 ($698,000 in 1997) and has been included in advertising
and promotion.
In November 1997, the Company entered into an interactive marketing agreement
with AOL. Under the terms of the agreement the Company will be provided with
a specific number of advertising impressions featuring it as the preferred
provider of business-to-consumer auction services on AOL's service. In
consideration for the impressions, the Company has committed to pay $10.0
million U.S. over the two-year term of the agreement. Of the $10.0 million
U.S. total commitment, $5.0 million U.S. was paid during the first year of
the contract. In February 1999, the agreement with AOL was re-negotiated,
thereby significantly reducing the contractual advertising spent with AOL for
1999 in comparison to AOL advertising expenditures in 1998. The
renegotiation also extended the term of the original agreement.
In March 1998 the Company launched its new consumer brand "BID.COM".
F-12
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
11. SUBSEQUENT EVENTS
(a) Issue of Shares and Share Purchase Warrants
The Company filed a final prospectus on January 21, 1999 in connection
with the special warrants issued on November 30, 1998 and received the
remaining $2,311,098 of the special warrants receivable. Upon the
exercise of the special warrants on January 21, 1999, the Company issued
5,714,984 common shares and 1,428,746 common share purchase warrants.
The Company also issued compensation warrants to the underwriter
entitling the underwriter to acquire up to 611,498 units at a price of
$1.75 per unit up to December 31, 1999. Each unit consists of one common
share and one-quarter of one share purchase warrant. In exercising the
compensation options, the underwriter may, at its option, elect to
receive a number of common shares based on a formula dependent upon the
market value of the common shares as of the day preceding the election
(see Note 5).
(b) Stock Option Plan
The Stock Option Committee of the Board of Directors approved the issue
of 328,000 options to directors and employees on January 22, 1999
exercisable at $5.05 per share until January 21, 2002.
(c) Nasdaq listing application and filing of Form 20 F with Securities
and Exchange Commission
On February 16, 1999 the Company filed a listing application with the
Nasdaq SmallCap Market ("Nasdaq") as part of the process to qualify for
trading on Nasdaq. Concurrently, the Company filed a Registration
Statement on Form 20-F with the Securities and Exchange Commission
("SEC") in order to register its shares for trading on Nasdaq. The
Nasdaq and SEC review process is expected to last approximately 45 to 60
days
(d) Exercise of options
During the period from January 1, 1999 to March 3, 1999, the Company
issued 390,000 common shares upon the exercise of options at prices
ranging from $0.80 to $2.35 per share for aggregate consideration of
$514,250 and canceled 2,500 stock options at $2.35 per common share
subsequent to termination of employment of an employee.
(e) Exercise of compensation warrants
During the period from January 1, 1999 to March 3, 1999, the Company
issued 86,000 common shares upon the exercise of 86,000 compensation
warrants at $1.40 per share and issued 43,000 share purchase warrants
exercisable at $1.75 per share. The Company also issued 300,000 common
shares upon the exercise of 300,000 compensation warrants at $1.75 per
share and issued 75,000 share purchase warrants exercisable at $1.75 per
share.
(f) Exercise of share purchase warrants
During the period from January 1, 1999 to March 3, 1999, the Company
issued 1,846,312 common shares upon the exercise of 1,846,312 share
purchase warrants at $1.65 per share and issued 521,250 common shares
upon the exercise of 521,250 share purchase warrants at $1.75 per share.
F-13
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
12. RECONCILIATION OF UNITED STATES GAAP
As discussed in Note 2, the Company's accounting for its stock-based awards
to employees using the intrinsic value method is in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net income (loss) and earnings (loss) per share had
the Company adopted the fair value method since the Company's inception.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradeable, fully
transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards.
The Company's calculations for employee grants were made using the Cox
Rubinstein Binomial Model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Dividend yield - - -
Risk free interest rate 4.80% 4.90% 3.68%
Expected term, in years 1.18 1.40 2.02
</TABLE>
If the computed minimum values of the Company's stock-based awards to
employees had been amortized to expense over the vesting period of the
awards as specified under SFAS No. 123, the loss attributable to common
shareholders and the basic and diluted loss per share on a pro forma basis
(as compared to such items as reported) would have been:
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Loss attributable to common shareholders (in thousands)
As reported $(18,707) $(6,725) $(2,111)
Pro forma $(19,941) $(8,134) $(2,281)
Basic and diluted net loss per share:
As reported $ (.79) $ (.55) $ (.21)
Pro forma $ (.84) $ (.66) $ (.23)
</TABLE>
Impact of new accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1
provides guidance on accounting for the costs of computer software
developed or obtained for internal use. This pronouncement identifies the
characteristics of internal use of software and provides guidance on new
cost recognition principles. SOP 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not
expect the adoption of this pronouncement to have a material impact upon
its financial statements.
F-14
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
(expressed in Canadian Dollars)
- -------------------------------------------------------------------------------
13. RECLASSIFICATION OF PRIOR YEARS
Certain prior year amounts have been reclassified to conform to the current
year's basis of presentation.
14. CONVENIENCE TRANSLATION
The financial statements as at December 31, 1998 and for the year then ended
have been translated into U.S. dollars using the exchange rate of the U.S.
dollar at December 31, 1998 as published by the Federal Reserve Bank of New
York (U.S. $1.000 = Cdn. $1.5302). The translation was made solely for the
convenience of readers in the United States. The translated U.S. dollar
figures should not be construed as a representation that the Canadian
currency amounts actually represent or could be converted into U.S. dollars.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
BID.COM INTERNATIONAL INC.
By: /s/ Paul Godin
---------------------------
Name: Paul Godin
Title: Chief Executive Officer
Dated: March 29, 1999
<PAGE>
Exhibit 1.1
<TABLE>
<CAPTION>
ONTARIO CORPORATION NUMBER
MUMERO DE SOCIETE EN ONTARIO
1217515
- -----------------------------------------------------------------------------------------------------------------------------------
Form 4 ARTICLES OF AMALGAMATION
Business STATUS DE FUSION
Corporations
Act
1. The name of the amalgamated corporation is: Denomination sociale de la societe issue de la fusion:
-----------------------------------------------------------------------------------------------------------
Formula 4 I N T E R N E T L I Q U I D A T O R S
La sur les -----------------------------------------------------------------------------------------------------------
Societe I N T E R N A T I O N A L I N C .
per actions -----------------------------------------------------------------------------------------------------------
<S> <C>
2. The address of the registered office is: Address du siege social:
5915 Airport Road, Suite 330
--------------------------------------------------------------------------------------------------------
(Street & Number, or R.R. Number & if Multi-Office Building give Room No.)
(Rue et numero, ou numero de la R.r. et, s'il s'agit d'un edifice a bureau, numero du bureau)
Mississauga, Ontario L 4 V 1 T 1
--------------------------------------------------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau de poste) (Code postal)
3. Number (or minimum and maximum) number of directors is: Nombere (ou nombres minimal et maximal)
d'administrateurs:
Minimum of 3; Maximum of 10
4. The director(s) is/are: Administratuerus:
First name, initials and Residence address, giving Street & No. Resident
surname or R.R. No., municipality and Canadian
Prenom, initiales et nom postal code State
de famile Address personelle, y compris la rue at Yes or
le numbero, le numero de la R.R., No
le nom de la municipalite et la code postal Resident
Canadien
Oui/non
------------------------------------------------------------------------------------------------------------
Paul Godin 175 Lloyd's Lane, Box 133, R.R. #2, Yes
Kettleby, Ontario LOG 1JO
Christopher Bulger 63 Bowmore Road, Yes
Toronto, Ontario M4L 3J1
</TABLE>
1
<PAGE>
<TABLE>
<S> <C> <C> <C>
Duncan Copeland 862 Waterloo Street, Yes
London, Ontario N6A 3W6
Jeffrey Lymburner 99 Lake Promenade, Yes
Etobicoke, Ontario M8W 1A2
Frank Clegg 2365 Price John Boulevard, Yes
Mississauga, Ontario L5K 2J2
(A) _____amalgamation, corporations as required by [ ] (A) _____ conformement au paragraphe 176(4) de
subsection 176 (4) of the Business Corporation Act on the la loi sur les societe par acions a la date
date set out below mentionee ci-dessous.
Check Cocher
A or A ou B
(B)The amalgamation has been approved by the directors of [X] (B) Les administrateurs de chaque societe qui
each amalgamating corporation by a resolution as required by fusions ont approuve la fusion par voie de
section 177 of the Business Corporation Act on the date set resolution conformement a l'article 177 de la loi
out below. sur les societe par acions a la date mentionee
The articles of amalgamation in substance contain the ci-dessous.
provisions of the articles of incorporation of: Les statuts de fusion reprennent essentiellment
les dispositions des status constituts de:
INTERNET LIQUIDATORS INTERNATIONAL INC.
--------------------------------------------------------------------------------------------------------------------
and are more particularly set out in these Et sont enonces textuellement aux presents statuts.
articles.
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations Numero de la societe en Ontario Date d'adoption ou d'approbation
Denominations sociale des
societes qui fusionnent
--------------------------------------------------------------------------------------------------------------------
Internet Liquidators 571083 November 25, 1996
International Inc.
Internet Liquidators Inc. 1145907 November 25, 1996
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
5. The classes and any maximum number Catgegories et nombre maximal, si'l y a lieu, d'actions
of shares that the corporation is authorized to issue: que la societe est autorisee a emettre:
An unlimited number of common shares and an unlimited number of Preference Shares, issuable in series.
</TABLE>
(i) the preference shares may from time to time be issued in one or more
series and subject to the following provisions, and subject to the
sending of articles of amendment in prescribed form, and the
endorsement on them of a Certificate of amendment in respect of them,
the directors may fix from time to time before such issue the number of
shares that is to comprise each series and the designation, rights,
privileges, restrictions and conditions attaching to each series of
preference shares including, without limiting the generality of the
foregoing, the rate or amount of dividends or the method of calculating
dividends, the dates of payment, the redemption, purchase and/or
conversion prices and terms and conditions of redemption, purchase
and/or conversion, and any sinking fund or other provisions;
(ii) the preference shares of each series shall, with respect to the payment
of dividends and the distribution of assets or return of capital in the
event of liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or any other return of capital or
distribution of the assets of the Corporation among its shareholders
for the purpose of winding up its affairs, rank on a parity with the
preference shares of every other series and be entitled to preference
over the common shares and over any other shares of the Corporation
ranking junior to the preference shares. The preference shares of fees
may also be given such other preferences, not inconsistent with these
any se articles, over the common shares and any other shares of the
Corporation ranking junior to such preference shares as may be fixed in
accordance with clause (b)(i);
(iii) if any cumulative dividends or amounts payable on the return of capital
in respect of a series of preference shares are not paid in full, all
series of preference shares shall participate ratably in respect of
such dividends and return of capital;
(iv) the preference shares of any series may be voting shares, entitled to
vote pari passu With the common shares at meetings of the common
shareholders of e Corporation; and,
(v) the preference shares of any series may be made convertible into common
shares.
First Series - Series "A" 7% Cumulative Preference Shares
- ---------------------------------------------------------
1. creating an unlimited number of 7% cumulative preference shares with the
following terms, rights, conditions and attributes:
3
<PAGE>
(i) Liquidation- Dissolution or Winding-Up
--------------------------------------
In the event of the liquidation, dissolution or winding-up of the
Corporation or other distribution of assets of the Corporation among
shareholders for the purpose of winding-up its affairs:
(a) the holders of the 7% cumulative preference sham 'shall be
entitled to receive from the assets of the Corporation a sum
equivalent to the aggregate Redemption Amount (as hereinafter
defined) of all of the shares held by them respectively before any
amount shall be paid or any property or assets of the Corporation
distributed to the holders of any common share or shares of any
other class ranking junior to the shares. After payment to the
holders of the shares of the amount so payable to them as above
provided they shall not be entitled to share in any further
distribution of the assets or property of the Corporation. The
Redemption Amount is hereby defined as $10.00 per share and the
aggregate Redemption Amount shall be $10.00 times the total amount
of issued and outstanding 71/6 cumulative preference shares at
such time as any one of the above defined events occurs.
(ii) Voting Rights
-------------
(a) the holders of the 71/6 cumulative preference shares shall not be
entitled to receive notice of or to attend any meeting of the
shareholders of the Corporation unless the meeting is called for
the purpose of authorizing the dissolution of the Corporation or
the sale of its undertaking or a substantial part thereof, in
which case the holders of the 7% cumulative preference shares
shall be entitled to receive notice of such meeting. The holders
of the 7% cumulative preference shares shall not be entitled
either to vote at any meeting of the shareholders of the
Corporation or to sign a resolution in writing, except a meeting
called to consider, or a resolution in writing in respect of, any
amendment to these Articles in respect of which the holders of the
7% cumulative preference shares would be entitled to vote
separately as a class pursuant to the Act.
(iii) Dividends
---------
The holders of the 7% cumulative preference shares shall be entitled to
receive out of the moneys of the Corporation, fixed, preferential,
cumulative, cash dividends at the rate of SO. 70 per share per annum
payable quarterly on dates to be fixed from time to time by the
directors; such dividends shall accrue and be cumulative from the
respective dates of issue of the 7% cumulative preference shares if the
Corporation shall not have paid the said dividends in full on all of
the 7% cumulative preference shares then issued and outstanding, such
dividends on the unpaid amount thereof shall be paid on a subsequent
date or dates in priority to dividends on any convertible preference
shares and any shares of any other class ranking junior to the 7%
cumulative preference shares; no dividend shall be declared or paid or
set apart for the No cumulative preference shares and any shares of any
other class ranking junior to the 7% cumulative preference shares then
issued and outstanding until such dividends or the unpaid part thereof
on all No cumulative preference shares then issued and outstanding
shall have been declared or paid or provided for at the date of such
declaration on payment or setting apart.
(iv) Redemption at the Option of the Holder
--------------------------------------
(a) A holder of 7% cumulative preference shares shall be entitled to
require the Corporation to redeem at any time and from time to
time upon giving notice as hereinafter provided, all or any number
of the 7% cumulative preference shares registered in the name of
such holder on the books of the Corporation at a redemption price
per share of $10.00 and all unpaid cumulative dividends, whether
or not declared, which shall have accrued thereon and which, for
such purpose, shall be treated as accruing up to the date of such
redemption (less the amount of any tax which the Corporation is
required to and does withhold therefrom).
(b) A holder of 7% cumulative preference shares exercising his option
to have the Corporation redeem, shall give notice to the
Corporation which notice shall set out the date on which the
Corporation is to redeem which date shall not be less than 10 days
nor more than 3 0 days from the ate of the notice and if the
holder desires to have less than all the 7% cumulative preference
shares registered in his name redeemed by the Corporation, the
number of the holder's shares to be redeemed. The date on which
the redemption at the option of the holder is to occur shall be
the option redemption date. The holder of any 7% cumulative
preference shares may, with the consent of the Corporation, revoke
such notice prior to the option redemption date.
4
<PAGE>
(c) Upon delivery to the Corporation of a share certificate or
certificates representing the 7% cumulative preference shares
which the holder desires to have the Corporation redeem, the
Corporation shall on the option redemption date, to the extent
permitted by applicable law, redeem such 7% cumulative preference
shares by paying to the holder the redemption price therefor.
(d) Upon payment of the redemption price of the 7% cumulative
preference shares so redeemed by the Corporation, the holder
thereof shall cease to be entitled to dividends or to exercise any
rights of holders in respect thereof.
(e) If the redemption by the Corporation on any option redemption date
of all 7% cumulative preference shares to be redeemed on such date
would be contrary to applicable law, the Corporation shall be
obligated to redeem only the maximum number of 7% cumulative
preference shares (rounded to the next lower multiple of 100
shares) which the Corporation determines it is then permitted to
redeem., such redemptions to be made pro rata (disregarding
fractions of shares) according to the number of 71/9 cumulative
preference shares required by each such holder to be redeemed by
the Corporation and the Corporation shall issue new certificates
representing the 7% cumulative preference shares not redeemed by
the Corporation and the Corporation shall redeem in the manner
contemplated by paragraph (iv) on each dividend date thereafter
the maximum number of such 71/6 cumulative preference shares as
would then be not contrary to applicable law.
(v) Redemption at the Option of the Corporation
-------------------------------------------
(a) The Corporation may at its option at any time from the date of
issue redeem all or from time to time any part of the outstanding
7% cumulative preference shares on payment to the holders thereof,
for each share to be redeemed, an amount equal to $1. 0.00 and all
unpaid cumulative dividends, whether or not declared, which shall
have accrued thereon and which, for such purpose, shall be treated
as accruing up to the date of such redemption (less the amount of
any tax which the Corporation is required to and does withhold tax
therefrom).
(b) Before redeeming any 7% cumulative preference shares the
Corporation shall mail to each person who, at the date of such
mailing, is a registered holder of shares to be redeemed, notice
of the intention of the Corporation to redeem such shares held by
such registered holder; such notice shall be mailed by ordinary
prepaid post addressed to the last address of such holder as it
appears on the records of the Corporation or, in the event of the
address of any such holder not appearing on the record of the
Corporation, then to the last known address of such holder, at
least 30 days before the date specified for redemption; such
notice shall set out the redemption price, the date on which
redemption is to take place and, if part only of the shares held
by the person to whom it is addressed is to be redeemed, the
number thereof so to be redeemed; on or after the date so
specified for redemption the Corporation shall pay or cause to be
paid the redemption price to the registered holders of the shares
to be redeemed, on presentation and surrender of the certificates
for the shares so called for redemption at such place or places as
may be specified in such notice, and the certificates for such
shares shall thereupon be cancelled, and the shares represented
thereby shall thereupon be redeemed. In case a part only of the
outstanding 7% cumulative preference shares is at any time to be
redeemed, the shares to be redeemed shall be selected, at the
option of the directors, either by lot in such manner as the
directors in their sole discretion shall determine or as nearly as
may be pro rata (disregarding fractions) according to the number
of 7% cumulative preference shares held by each holder. In case a
part only of the 7% cumulative preference shares represented by
any certificate shall be redeemed, a
5
<PAGE>
new certificate for the balance shall be issued at the expense of
the Corporation. From and after the date specified for redemption
in such notice, the holders of the shares called for redemption
shall cease to be entitled to dividends and shall not be entitled
to any rights in respect thereof, except to receive the redemption
price, unless payment of the redemption price shall not be made by
the Corporation in accordance with the foregoing provisions, in
which case the rights of the holders of such shares shall remain
unimpaired. On or before the date specified for redemption the
Corporation shall have the right to deposit the redemption price
of the shares called for redemption in a preference account with
any chartered bank or trust company in Canada. named in the notice
of redemption to be paid without interest, to or to the order of
the respective holders of such shares called for redemption upon
presentation and surrender of the certificates representing the
same and, upon such deposit being made, the shares in respect
whereof such deposit shall have been made shall be redeemed and
the rights of the several holders thereof, after such deposit,
shall be limited to receiving, out of the moneys so deposited,
without interest, the redemption price applicable to their
respective shares against presentation and surrender of the
certificates representing such shares.
No shareholder shall be entitled to sell, assign, transfer or otherwise dispose
of any Preference Share or Shares without both:
(a) the previous express sanction of the directors of the Corporation
expressed by a resolution passed at a meeting of the Board of
Directors of the Corporation or consented to by an instrument or
instruments in writing signed by a majority of the directors; and
(b) the prior written consent of the Ontario Securities Commission.
<TABLE>
<S> <C>
6. Other provisions, if any, are: Autres dispositions, s'il y a lieu:
None
7. The statements required by subsection 178(2) of Les declarations exigees aux termes du paragaphe 178(2) de la
the Business Corporations Act are attached as loi sur les societes par actions constituent l'annexe "A."
Schedule "A".
8. A copy of the amalgamation agreement or directors Une copie de la convention de fusion ou les resolutions des
resolutions (as the case may be) is/are attached as adminstrateurs (selon le cas) constitue(nt) l'annexe "B."
Schedule "B."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Name of the amalgamating corporations and signatures Denomination socieale des societes qui fusionnent, signature et
and descriptions of office of their proper officers fonction de leurs dirigeants requirement designees.
INTERNET LIQUIDATORS, INC.
INTERNET LIQUIDATORS INTERNATIONAL INC.
Per: Per:
----------------------------------- -------------------------------------------
Paul Godin, President Paul Godin, President
</TABLE>
7
<PAGE>
SCHEDULE "A"
STATEMENT
IN THE MATTER OF THE AMALGAMATION OF
INTERNET LIQUIDATORS INTERNATIONAL INC.
AND INTERNET LIQUIDATORS INC.
The undersigned, PAUL GODIN, President of INTERNET LIQUIDATORS INTERNATIONAL
INC. states that:
1. there are reasonable grounds for believing that:
(a) each of Internet Liquidators International In. and Internet Liquidators
Inc. is and the amalgamated corporation will be able to pay its
liabilities as they become due, and
(b) the realizable value of the amalgamated corporation's assets will not
be less than the aggregate of its liabilities and stated capital of all
classes of its shares
2. there are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation; and
3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations
Act, 1990, no creditors have notified Internet Liquidators International
Inc. that they object to the present amalgamation.
DATED the 7th day of January, 1997.
--------------------------------
Paul Godin
8
<PAGE>
SCHEDULE "A"
STATEMENT
IN THE MATTER OF THE AMALGAMATION OF
INTERNET L.IQUIDATORS INC. AND
INTERNET LIQUIDATORS INTERNATIONAL INC.
The undersigned, PAUL GODIN, the President of INTERNET LIQUIDATORS INC. states
that:
1. there are reasonable grounds for believing that:
(a) each of Internet Liquidators Inc. and Internet liquidators
International fix., is and the amalgamated corporation will be able to
pay its liabilities as they become due and
(b) the realizable value of the amalgamated corporation's assets will not
be less than the aggregate of its liabilities and stated capital of all
classes of its shares;
2. there are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation; and
3. with respect to paragraphs 178 (2) (c) and (d) of the Business Corporations
Act, 1990, no creditors have notified Internet Liquidators Inc. that they
object to the present amalgamation.
DATED the 7th day of January, 1997.
----------------------------------
Paul Godin
9
<PAGE>
SCHEDULE "B"
CERTIFIED COPY OF AN EXTRACT FROM THE MINUTES OF A MEETING
OF THE BOARD OF DIRECTORS
OF
INTERNET LIQUIDATORS INTERNATIONAL INC.
(the "Corporation')
"Amalgamation with Internet Liquidators Inc.,
- ---------------------------------------------
WHEREAS the Corporation wholly owns and has decided to amalgamate
with Internet Liquidators Inc. pursuant to subsection (1) of Section 177 of the
Business Corporations Act (Ontario);
IT IS RESOLVED THAT:
1. The amalgamation of the Corporation and Internet Liquidators Inc. under the
Business Corporations Act (Ontario), pursuant to subsection (1) of Section
177 thereof is approved;
2. The amalgamation shall become effective as of the opening of business on the
date on which the Director, Companies Branch, endorses his certificate on
the Articles of Amalgamation.
3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178
of the Business Corporations Act (Ontario), all shares in the capital of
Internet Liquidators Inc., including all shares which have been issued and
are outstanding at the date hereof, shall be cancelled on the amalgamation
without any repayment of capital in respect thereof;
4. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178
of the Business Corporations Act (Ontario), all shares in the capital of the
Corporation, including all shares which have been issued and are outstanding
at the date hereof, be and the same are hereby converted on a one-for-one
basis into shares of the amalgamated corporation;
5. The Articles of Amalgamation of the amalgamated corporation shall be the
same as the Articles of Incorporation, as amended, of the Corporation;
6. The by-laws of the amalgamated corporation shall be the same as the by-laws
of the Corporation;
7. No securities shall be issued and no assets shall be distributed by the
Amalgamated Corporation in connection with the amalgamation; and
8. Any officer or director of the Corporation is authorized to do all things
and execute all instruments and documents necessary or desirable to carry
out and give effect to the foregoing. '
CERTIFIED a true copy of a resolution passed at a Meeting of the
Board of Directors of INTERNET UQUIDATORS INTERNATIONAL INC. held on the 25th
day of November, 1996 and that such resolution is still in full force and
effect, unamended,
-------------------------------------
Paul Godin, President
10
<PAGE>
SCHEDULE "B"
CERTIFIED COPY OF
AN EXTRACT FROM THE MINUTES OF A MEETING OF
THE BOARD OF DIRECTORS OF
INTERNET LIQUIDATORS INC.
(the "Corporation')
"Amalgamation with Internet Liquidators International Inc.
- ---------------------------------------------------------
WHEREAS the Corporation is a wholly-owned subsidiary of and has
decided to amalgamate with Internet Liquidators International Inc. pursuant to
subsection (1) of Section 177 of the Business Corporations Act (Ontario);
IT IS RESOLVED THAT:
1. The amalgamation of the Corporation and Internet Liquidators International
Inc. under the Business Corporations Act (Ontario), pursuant to subsection
(1) of Section 177 thereof is approved;
2. The amalgamation shall become effective as of the opening of business on the
date on which the Director, Companies Branch, endorses his certificate on
the Articles of Amalgamation.
3. Upon the issuance of a Certificate of Amalgamation pursuant to Section 178
of the Business Corporations Act (Ontario), all shares in the capital of the
Corporation, including all shares which have been issued and are outstanding
at the date hereof, shall be cancelled on the amalgamation without any
repayment of capital in respect thereof;
4. The Articles of Amalgamation of the amalgamated corporation shall be the
same as the Articles of Incorporation of Internet Liquidators International
Inc., as amended;
5. The by-laws of the amalgamated corporation shall be the same as the by-laws
of Internet Liquidators International Inc.;
6. No securities shall be issued and no assets shall be distributed by the
amalgamated corporation in connection with the amalgamation; and
7. Any officer or director of the Corporation is authorized to do all things
and execute all instruments and documents necessary or desirable to carry
out and give effect to the foregoing."
CERTIFIED a true copy of a resolution passed at a Meeting of the
Board of Directors of INTERNET LIQUIDATORS INC. held on the 25th day of
November, 1996 and that such resolution is still in full force and effect,
unamended,
-------------------------------------
Paul Godin, President
11
<PAGE>
<TABLE>
<CAPTION>
ONTARIO CORPORATION NUMBER
MUMERO DE SOCIETE EN ONTARIO
1217515
Form 3 ARTICLES OF AMENDMENT
Business STATUS DE MODIFICATION
Corporations
Act
1. The present name of the corporation is: Denomination sociale actuelle de la societe:
Formula 3 I N T E R N E T L I Q U I D A T O R S
La sur les
--------------------------------------------------------------------------------------------------------------
Societe I N T E R N A T I O N A L I N C .
per actions --------------------------------------------------------------------------------------------------------------
<S> <C>
2. The name of the corporation is changed to (if Nouvelle denomination sociale de la societe
applicable): (s'il y a lieu):
Formula 3 B I D . C O M I N T E R N A T I O N A L
La sur les
I N C .
Societe ----------------------------------------------------------------------------------------------------------
per actions
3. Date of incorporation/amalgamation: Date de la constitution ou de la fusion:
1997 Jan 9
------------------------------------------------------------------------------------------------------------
(Year, Month, Day) (annee, mois, jour)
4. The articles of the corporation are amended as Les statuts de la societe sont modifies de la
follows: facon suivante:
To change the name of the Corporation to Bid.Com
International Inc.
To increase the allowable maximum number of directors
from ten (10) to fifteen (15).
5. The amendment has been duly authorized as La modification a ete conformement aux articles
required by Sections 168 and 170 (as applicable) of 168 et 170 (selon de cas) de la loi sur les
the Business Corporation Act. societes par actions.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
6. The resolutions authorizing the amendment was Les actionnaires (selon le cas) de la societe
approved by the shareholders (as applicable) of the ont approuve la resolution autorisant la
corporation on: modification le:
1998 Jun. 23
------------------------------------------------------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in Les presents status sont signes en double exemplaire.
duplicate.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
------------------------------------------------------------------
(Name of Corporation)
(Denomination sociale de la societe)
By:
--------------------------------------------------------------
</TABLE>
13
<PAGE>
Exhibit 1.2
BY-LAW NO. 5
A by-law relating generally to the
transaction of the business and affairs of
INTERNET LIQUIDATORS INTERNATIONAL INC.
ARTICLE 1. DEFINITIONS
(1) Definitions - In this by-law and in all other by-laws of the Corporation
unless the context otherwise requires:
(1) "Act" means the Business Corporations Act (Ontario) R.S.O. 1990 c.B.
17, as from time to time amended, and a reference to a particular provision
or part of the Act shall be deemed to be a reference to such provision or
part as the same may thereafter from time to time be amended or
supplemented;
(2) "Board" means the board of directors of the Corporation; and
(3) "Corporation" means Internet Liquidators International Inc.
(2) Expressions Defined in Act - Save as aforesaid, words and expressions
defined in the Act have the same meanings when used herein.
(3) Interpretation - Words importing the singular number include the plural and
vice versa; words importing gender include the masculine, feminine and
neuter genders; and words importing persons include individuals, bodies
corporate, partnerships, trust and unincorporated organizations.
ARTICLE 2. BOARD NUMBER
Where the Articles of the Corporation provide for a minimum and maximum
number of directors, the number of directors and the number to be elected at the
annual meeting shall be the number fixed by special resolution of the
shareholders or by resolution of the directors from time to time.
ARTICLE 3. BUSINESS OF THE CORPORATION
<PAGE>
(1) Registered Office - Until changed in accordance with the Act, the
registered office of the Corporation shall be at the City of Mississauga in
the Province of Ontario and at such location therein as the Board may from
time to time determine.
(2) Financial Year - Until changed by the Board, the financial year of the
Corporation shall end on the 30th day of November in each year.
ARTICLE 4. MEETINGS OF SHAREHOLDERS
(1) Annual Meetings - The annual meeting of shareholders shall be held at such
time in each year and, subject to section 4(c), at such place as the Board,
the Chairman of the Board or the President may from time to time determine,
for the purpose of considering the financial statements and reports
required by the Act to be placed before the annual meeting, electing
directors, appointing auditors and for the transaction of such other
business as may properly be brought before the meeting.
(2) Special Meetings - The Board, the Chairman of the Board or the President
shall have power to call a special meeting of shareholders at any time.
(3) Place of Meetings - Meetings of shareholders shall be held at the
registered office of the Corporation or at such other place in or outside
Ontario as the directors determine.
(4) Notice of Meetings - Notice of the time and place of each meeting of
shareholders shall be given in the manner provided in section 6(a) not less
than 21 nor more than 50 days before the date of the meeting to each
director, to the auditor and to each shareholder who at the close of
business on the record date for notice is entered in the securities
register as the holder of one or more shares carrying the right to vote at
the meeting. Notice of a meeting of shareholders called for any purpose
other than consideration of the financial statements and auditor's report,
election of directors and reappointment of the incumbent auditor shall
state the nature of such business in sufficient detail to permit the
shareholders to form a reasoned judgment thereon and shall state the text
of any special resolution to be submitted to the meeting. A shareholder and
any other person entitled to attend a meeting of shareholders may in any
manner waive notice of or otherwise consent to a meeting of shareholders.
(5) List of Shareholders Entitled to Notice - For every meeting of
shareholders, the Corporation shall prepare a list of shareholders entitled
to receive notice of the meeting, arranged in alphabetical order and
showing the number of shares entitled to vote at the meeting held by each
shareholder. If a record date for the meeting is fixed pursuant to section
4(f), the shareholders listed shall be those registered at the close of
business on such record date. If no record date is fixed, the shareholders
listed shall be those registered at the close of business on the day
immediately preceding the day on which notice of the meeting is given, or
where no such notice is given, on the day on which the meeting is held. The
list shall be available for examination by any shareholder during usual
business hours at the registered office of the
<PAGE>
- 3 -
Corporation or at the place where the securities register is maintained and
at the meeting for which the list was prepared. Where a separate list of
shareholders has not been prepared, the names of persons appearing in the
securities register at the requisite time as the holder of one or more
shares carrying the right to vote at such meeting shall be deemed to be a
list of shareholders.
(6) Record Date for Notice - The Board may fix in advance a date, preceding the
date of any meeting of shareholders by not more than 50 days and not less
than 35 days, as a record date for the determination of the shareholders
entitled to notice of the meeting. If a record date is fixed, unless notice
thereof is waived in writing by every holder of a share of the class or
series affected whose name is set out in the share register at the close of
business on the day the directors fix the record date, notice thereof
shall, not less than seven days before the date so fixed, be given in the
manner provided in the Act. If no record date is so fixed, the record date
for the determination of the shareholders entitled to notice of the meeting
shall be the close of business on the day immediately preceding the day on
which the notice is given or if no notice is given, the day on which the
meeting is held.
(7) Meetings Without Notice - A meeting of shareholders may be held without
notice at any time and place permitted by the Act:
(1) if all the shareholders entitled to vote thereat are present in person
or represented by proxy or if those not present or represented by proxy
waive notice of or otherwise consent to such meeting being held; and
(2) if the auditors and the directors are present or waive notice of or
otherwise consent to such meeting being held.
At such a meeting any business may be transacted which the Corporation at a
meeting of shareholders may transact. If the meeting is held at a place outside
Canada, shareholders not present or represented by proxy, but who have waived
notice of or otherwise consented to such meeting, shall also be deemed to have
consented to the meeting being held at such place.
(8) Chairman, Secretary and Scrutineers - The chairman of any meeting of
shareholders shall be the first mentioned of such of the following officers
as have been appointed and who is present at the meeting: Chairman of the
Board, President or a Vice-President who is a director. If no such officer
is present within 15 minutes from the time fixed for holding the meeting,
the persons present and entitled to vote shall choose one of their members
to be chairman. If the Secretary of the Corporation is absent, the chairman
shall appoint some person, who need not be a shareholder, to act as
secretary of the meeting. If desired, one or more scrutineers, who need not
be shareholders, may be appointed by a resolution or by the chairman with
the consent of the meeting.
<PAGE>
- 4 -
(9) Persons Entitled to be Present - The only persons entitled to be
present at a meeting of shareholders shall be those entitled to vote
thereat, the directors and auditors of the Corporation and others who,
although not entitled to vote, are entitled or required under any provision
of the Act or the articles or by-laws to be present at the meeting. Any
other person may be admitted only on the invitation of the chairman of the
meeting or with the consent of the meeting.
(10) Quorum - A quorum for the transaction of business at any meeting of
shareholders shall be the lesser of the number of shareholders or two
persons present in person, each being a shareholder or representative duly
authorized in accordance with the Act entitled to vote thereat or a duly
appointed proxy for a shareholder so entitled (and together holding or
representing by proxy not less than 20% of the outstanding shares of the
Corporation entitled to vote at the meeting). If a quorum is present at the
opening of the meeting, the shareholders present in person or by proxy may
proceed with the business of the meeting even if a quorum is not present
throughout the meeting.
(11) Right to Vote - Subject to the provisions of the Act as to authorized
representatives of any other body corporate, at any meeting of shareholders
in respect of which the Corporation has prepared the list referred to in
section 4(e), every person who is named in such list shall be entitled to
vote the shares shown thereon opposite his name, except:
(1) where the Corporation has fixed a record date in respect of such
meeting pursuant to section 4(f), to the extent that any such person has
transferred any of his shares after such record date and the transferee
either produces properly endorsed share certificates or otherwise
established that he owns such shares and demands, on or before the
commencement of the meeting, that his name be included in the list before
the meeting; or
(2) where the Corporation has not fixed a record date in respect of
such meeting pursuant to section 4(f), to the extent that any such person
has transferred any of his shares after the date on which the list referred
to in section 4(e) is prepared and the transferee, either produces properly
endorsed share certificates or otherwise establishes that he owns such
shares and demands, on or before the commencement of the meeting, that his
name be included in the list before the meeting,
in either of which cases the transferee is entitled to vote his shares at the
meeting.
In the absence of a list prepared as aforesaid in respect of a meeting of
shareholders, every person shall be entitled to vote at the meeting whose name
appears in the securities register as the holder of one or more shares carrying
the right to vote at such meeting.
(12) Proxies - Every shareholder entitled to vote at a meeting of shareholders
may appoint a proxyholder, or one or more alternate proxyholders, who need
not be shareholders, to
<PAGE>
- 5 -
attend and act at the meeting in the manner and to the extent authorized
and with the authority conferred by the proxy. A proxy shall be in writing
executed by the shareholder or his attorney and shall conform with the
requirements of the Act.
(13) Time for Deposit of Proxies - The Board may specify in a notice calling a
meeting of shareholders a time, preceding the time of such meeting by not
more than 48 hours exclusive of non-business days, before which time
proxies to be used at such meeting must be deposited. A proxy shall be
acted upon only if, prior to the time so specified, it shall have been
deposited with the Corporation or an agent thereof specified in such notice
or, if no such time is specified in such notice, unless it has been
received by the Secretary of the Corporation or by the chairman of the
meeting or any adjournment thereof prior to the time of voting.
(14) Joint Shareholders - If two or more persons hold shares jointly, any one of
them present in person or represented by proxy at a meeting of shareholders
may, in the absence of the other or others, vote the shares; but if two or
more of those persons are present in person or represented by proxy and
vote, they shall vote as one on the shares jointly held by them.
(15) Votes to Govern - At any meeting of shareholders every question shall,
unless otherwise required by the articles or by-laws or by law, be
determined by the majority of the votes cast on the question. In case of an
equality of votes either upon a show of hands or upon a poll, the chairman
of the meeting shall be entitled to a second or casting vote.
(16) Show of Hands - Subject to the provisions of the Act, any question at a
meeting of shareholders shall be decided by a show of hands unless a ballot
thereon is required or demanded as hereinafter provided. Upon a show of
hands every person who is present and entitled to vote shall have one vote.
Whenever a vote by show of hands shall have been taken upon a question,
unless a ballot thereon is so required or demanded, a declaration by the
chairman of the meeting that the vote upon the question has been carried or
carried by a particular majority or not carried and an entry to that effect
in the minutes of the meeting shall be prima facie evidence of the fact
without proof of the number or proportion of the votes recorded in favour
of or against any resolution or other proceeding in respect of the said
question, and the result of the vote so taken shall be the decision of the
shareholders upon the said question.
(17) Ballots - On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon,
any shareholder or proxyholder entitled to vote at the meeting may require
or demand a ballot. A ballot so required or demanded shall be taken in such
manner as the chairman shall direct. A requirement or demand for a ballot
may be withdrawn at any time prior to the taking of the ballot. If a ballot
is taken each person present shall be entitled, in respect of the shares
which he is entitled to vote at the meeting upon the question, to that
number of votes provided by the Act or the articles, and the result of the
ballot so taken shall be the decision of the shareholders upon the said
question.
<PAGE>
- 6 -
(18) Adjournment - If a quorum is not present at or within 15 minutes from the
opening of a meeting of shareholders, the shareholders present may adjourn
the meeting to a fixed time and place but may not transact any other
business. If a meeting of shareholders is adjourned for less than 30 days,
it shall not be necessary to give notice of the adjourned meeting, other
than by announcement at the earliest meeting that is adjourned. If a
meeting of shareholders is adjourned by one or more adjournments for an
aggregate of 30 days or more, notice of the adjourned meeting shall be
given as for an original meeting.
(19) Resolution in Writing - Subject to the Act, a resolution in writing signed
by all the shareholders entitled to vote on that resolution at a meeting of
shareholders is as valid as if it has been passed at a meeting of the
shareholders.
(20) Only One Shareholder - Where the Corporation has only one shareholder or
only one holder of any class or series of shares, the shareholder present
in person or by proxy constitutes a meeting.
ARTICLE 5. MEETINGS OF DIRECTORS
(1) First Meeting - Immediately after the annual meeting of shareholders in
each year, a meeting of such of the newly elected directors as are then
present may be held (provided that they shall constitute a quorum) without
notice, for the appointment of officers of the Corporation and the
transaction of such other business as may come before the meeting.
(2) Notice - Subject to the foregoing and to the provisions of any resolution
of the Board, meetings of the Board may be called at any time by the
Chairman of the Board, the President or any two directors and notice of the
time and place for holding any meeting of the Board shall be given at least
forty-eight hours prior to the time fixed for the meeting. Any meeting so
called may be held at the registered office of the Corporation or such
other place as the Board may determine in or outside Ontario.
(3) Abbreviated Notice - In any case when it is considered by the Chairman of
the Board or the President in his discretion to be a matter of urgency that
a directors' meeting be convened, he may give notice of a meeting of
directors by telegraph or telephone not less than one hour before such
meeting is to be held and such notice shall be adequate for the meeting so
convened.
(4) Quorum - The quorum for the transaction of business of any meeting of the
Board shall be a majority of the number of directors or minimum number of
directors, as the case may be.
(5) Chairman - The chairman of any meeting of the Board shall be the first
mentioned of such of the following officers as have been appointed and who
is a director and is
<PAGE>
- 7 -
present at the meeting: Chairman of the Board, President or Vice-President.
If all such officers be absent or unable or refuse or fail to act, the
directors present may choose a chairman from among their number. The
chairman at any meeting may vote as a director.
(6) Votes to Govern - At all meetings of the Board every question shall be
decided by a majority of the votes cast on the question. In the case of an
equality of votes the chairman of the meeting shall be entitled to a second
or casting vote.
ARTICLE 6. NOTICES
(1) Method of Giving Notice - Any notice (which term includes any communication
or document) to be given (which term includes sent, delivered or served)
pursuant to the Act, the regulations thereunder, the articles, the by-laws
or otherwise to a shareholder, director, officer, auditor or member of a
committee of the Board shall be sufficiently given if delivered personally
to the person to whom it is to be given or if delivered to his recorded
address or if mailed to him at his recorded address by prepaid ordinary or
air mail or if sent to him at his recorded address by any means of prepaid
transmitted or recorded communication. A notice so delivered shall be
deemed to have been given when it is delivered personally or to the
recorded address as aforesaid; a notice so mailed shall be deemed to have
been given when deposited in a post office or public letter box; and a
notice so sent by any means of transmitted or recorded communication shall
be deemed to have been given when dispatched or delivered to the
appropriate communication company or agency or its representative for
dispatch. The Secretary may change or cause to be changed the recorded
address of any shareholder, director, officer, auditor or member of a
committee of the Board in accordance with any information believed by him
to be reliable.
(2) Notice to Joint Shareholder - If two or more persons are registered as
joint holders of any share, any notice shall be addressed to all of such
joint holders but notice to one of such persons shall be sufficient notice
to all of them.
(3) Computation of Time - In computing the date when notice must be given under
any provision requiring a specified number of days' notice of any meeting
or other event, the date of sending the notice shall be included and the
date of the meeting or other event shall both be excluded.
(4) Undelivered Notices - If any notice given to a shareholder pursuant to
section 4(a) is returned on three consecutive occasions because he cannot
be found, the Corporation shall not be required to give any further notices
to such shareholder until he informs the Corporation in writing of his new
address.
(5) Omissions and Errors - The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the
Board or the non-receipt of any notice by any such person or any error in
any notice not affecting the substance thereof
<PAGE>
- 8 -
shall not invalidate any action taken at any meeting held pursuant to such
notice or otherwise founded thereon.
(6) Persons Entitled by Death or Operation of Law - Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every
notice in respect of such share which shall have been duly given to the
shareholder from whom he derives his title to such share prior to his name
and address being entered on the securities register (whether such notice
was given before or after the happening of the event upon which he became
so entitled) and prior to his furnishing to the Corporation the proof of
authority or evidence of his entitlement prescribed by the Act.
(7) Waiver of Notice - Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee of the Board may at any
time waive the sending of any notice or waive or abridge the time for any
notice, required to be given to him under any provision of the Act, the
regulations thereunder, the articles, the by-laws or otherwise and such
waiver or abridgement shall cure any default in the giving or in the time
of such notice, as the case may be. Any such waiver or abridgement shall be
in writing except a waiver of notice of a meeting of shareholders or of the
Board which may be given in any manner.
ARTICLE 7. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation shall indemnify a director or officer of the Corporation, a
former director or officer of the Corporation, or a person who acts or acted at
the Corporation's request as a director or officer of a body corporate of which
the Corporation is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he or she is made a party by reason of being or having been a director or
officer of the Corporation or body corporate, if:
(a) he or she acted honestly and in good faith with a view to the best
interests of the Corporation; and
(1) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he or she had reasonable
grounds for believing that his or her conduct was lawful.
ARTICLE 8. EFFECTIVE DATE
This by-law shall come into force and effect when enacted by the Board,
subject to the Act, whereupon this by-law shall repeal and replace By-law Number
1 of the Corporation, without prejudice to any action previously taken pursuant
to such by-law.
<PAGE>
- 9 -
Enacted by the Board the 16th day of September , 1996.
-------------------------------------
Secretary
<PAGE>
EXHIBIT 3.1
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of the 12th day of February, 1997 (the "Effective
Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation
having a principal place of business at 5915 Airport Rd., Suite 330,
Mississauga, Ontario L4V 1T1 ("Issuer"), and TORONTO STAR NEWSPAPERS LIMITED, a
corporation having a principal place of business at 1 Yonge Street, Toronto,
Ontario, M5E 1E6 ("Subscriber" or "Torstar").
BACKGROUND
1. As more particularly described herein, Subscriber wishes to acquire, and
Issuer wishes to provide, an interest in Issuer by Subscriber subscribing
for previously unissued common shares in the capital of Issuer and by
obtaining a warrant to acquire further common shares of Issuer. Issuer is
a public company.
2. In conjunction with the subscription, the Subscriber and Issuer will enter
into certain agreements which will allow Subscriber and certain related
entities to use and exploit certain technology of Issuer to interface and
or provide a link for certain of their on-line interactive users to an
auction service provided by Issuer on the Internet.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
ARTICLE 1
INTERPRETATION
1.1 Definitions. In this Agreement, unless the context otherwise requires,
each capitalized term shall have the meaning attributed thereto in Schedule "A".
1.2 Schedules. The following are the schedules attached to and forming part of
this Agreement:
Schedule A Definitions
Schedule B Financial Statements
Schedule C Subsidiaries
Schedule D Options
<PAGE>
- 2 -
Schedule E Litigation
Schedule F Licences
Schedule G Major Shareholder Interests
Schedule H Material Contracts
Schedule I Encumbrances
Schedule J Intellectual Property Rights
Schedule K Opinion of Issuer Counsel
Schedule L E-Commerce Services Agreement
Schedule M Shareholders' Agreement
Schedule N Form of Warrant
1.3 Headings. The headings in this Agreement are for convenience of reference
only and shall not affect the construction or interpretation hereof.
1.4 Extended Meanings. Words in the singular include the plural and vice-versa
and words in one gender include all genders.
1.5 Entire Agreement. This Agreement and Schedules hereto constitute the
entire agreement between the Parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
oral or written, between the Parties. The execution of this Agreement has not
been induced by, nor do either of the Parties rely upon or regard as material,
any representations, warranties, conditions, other agreements or
acknowledgements not expressly made in this Agreement or in the agreements and
other documents to be delivered pursuant hereto.
1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in
this Agreement are in Canadian funds.
1.7 Invalidity. If any of the provisions contained in this Agreement is found
by a court of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby.
1.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Ontario and the federal laws of Canada applicable
therein and shall be treated, in all respects, as an Ontario contract. The
parties irrevocably attorn to the exclusive jurisdiction of the Courts of
Ontario in respect of the subject matter hereof.
1.9 Tender. Any tender of documents or money hereunder may be made upon the
Parties or their respective counsel and money shall be tendered by negotiable
cheque or draft and certified by a Canadian bank.
1.10 Performance on Holidays. If anything is required to be done or any action
is required to
<PAGE>
- 3 -
be taken pursuant to this Agreement on or by a specified date which is not a
Business Day, then such action shall be valid if taken on or by the next
succeeding Business Day.
1.11 Calculation of Time. In this Agreement, a period of days shall be deemed
to begin on the first day after the event which began the period and to end at
midnight (Toronto time) on the last day of the period, except that if the last
day of the period does not fall on a Business Day, the period shall terminate at
midnight (Toronto time) on the next Business Day.
ARTICLE 2
PURCHASE OF SHARES AND WARRANT
2.1 Purchase of Shares and Warrant. Subject to the terms of this Agreement,
Subscriber agrees to subscribe for and purchase, and Issuer agrees to issue and
sell to Subscriber, the Shares and the Warrant, all as provided in this
Agreement.
2.2 Subscription Price. The purchase price for the Shares shall be $.85 per
Share for an aggregate purchase price of $850,000 (the "Subscription Price").
Issuer acknowledges receipt of Subscriber's cheque for $42,500 as a deposit to
be applied against the Subscription Price.
2.3 Payment of Subscription Price. The unpaid balance of the Subscription
Price shall be paid by Subscriber to Issuer on the Closing.
2.4 Share and Warrant Certificate. Issuer shall deliver to Subscriber at the
Closing one share certificate representing the Shares and one warrant
certificate bearing appropriate legends to indicate the applicable hold period
representing the Warrant registered in the name of Subscriber. On Closing,
Issuer shall cause Subscriber to be entered on the books of Issuer as the holder
of the Shares and Warrant.
2.5 Place of Closing. The Closing shall take place at the Closing Time at the
offices of Gowling, Strathy & Henderson, Barristers & Solicitors, Commerce Court
West, Suite 4900, Toronto, Ontario, or at such other place as may be agreed upon
by Issuer and Subscriber.
<PAGE>
- 4 -
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Issuer. Issuer represents and warrants
to Subscriber as follows and acknowledge that Subscriber is relying upon such
representations and warranties in entering into this Agreement and completing
the transactions contemplated hereby.
3.1.1 Corporate Matters
(a) Issuer and each of the Subsidiaries is a corporation duly incorporated,
organized and validly existing in good standing under the laws of its
jurisdiction of incorporation. No proceedings have been taken or
authorized by any of Issuer, any Subsidiary or, to the best of Issuer's
knowledge, by any other Person with respect to the bankruptcy,
insolvency, liquidation, dissolution or winding up of Issuer or any of
the Subsidiaries.
(b) Issuer has all necessary power and capacity to execute and deliver, and
to observe and perform its covenants and obligations under this
Agreement and the Closing Documents to which it is a party. Issuer has
taken all corporate action and caused all necessary shareholder action
to authorize the execution and delivery of, and the observance and
performance of its covenants and obligations under, this Agreement and
the Closing Documents to which it is a party including, without
limitation, the issuance and delivery of the Shares and Warrant.
(c) Issuer and the Subsidiaries have all necessary power and authority to
own or lease the Assets and to carry on the Business as at present
carried on. Issuer and the Subsidiaries possess all Licences material to
the conduct of the Business. Neither the nature of the Business nor the
location or character of any of the Assets requires any of Issuer or the
Subsidiaries to be registered, licensed or otherwise qualified as an
extra-provincial or foreign corporation or to be in good standing in any
jurisdiction other than jurisdictions where it is duly registered,
licensed or otherwise qualified and in good standing for such purpose.
(d) This Agreement has been, and each Closing Document to which Issuer is a
party will on Closing be, duly executed and delivered by Issuer and this
Agreement constitutes, and each Closing Document to which Issuer is a
party will on Closing constitute, a valid and binding obligation of
Issuer enforceable against Issuer in accordance with its terms.
<PAGE>
- 5 -
(e) A true copy of the Articles and all by-laws of the Issuer each as
amended to date and currently in effect have been delivered to
Subscriber by Issuer. The Articles and such by-laws of the Issuer
constitute all of the constating documents and by-laws of such company,
are complete and correct and are in full force and effect, subject to
confirmation of Issuer's new general by-laws by its shareholders.
3.1.2 Authorized and Issued Capital of Issuer. The authorized capital of
Issuer consists of an unlimited number of common shares and an unlimited number
of preference shares. No more than 9,700,000 common shares are outstanding and
all such shares are fully paid and non-assessable shares. No preference shares
are outstanding. Except as listed in Schedule B, no other Voting Securities,
Convertible Securities or Rights of Issuer have been issued or are outstanding.
3.1.3 Options. Except as listed in Schedule D, no Person other than Subscriber
has any oral or written agreement, option, warrant, right, privilege or any
other right capable of becoming any of the foregoing (whether legal, equitable,
contractual or otherwise), for the purchase, subscription or issuance of any
Voting Securities, Convertible Securities or Rights of Issuer. Issuer has no
agreement or obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All of the
issued and outstanding shares of capital stock of the Issuer have been offered,
issued and sold by the Issuer in compliance with Applicable Law. There are no
pre-emptive rights, rights of first refusal, put or call rights or obligations
or anti-dilution rights with respect to the issuance, sale or redemption of the
Issuer's capital stock, other than rights to which the Subscriber is entitled as
set forth in this Agreement and the Closing Documents.
3.1.4 Subsidiaries. Issuer owns all of the issued shares and Voting
Securities, Convertible Securities and Rights of each Subsidiary. Neither Issuer
nor any Subsidiary holds or has agreed to acquire any shares, Voting Securities,
Convertible Securities or Rights of any other body corporate. None of Issuer or
the Subsidiaries is or has agreed to become a partner, member, owner, proprietor
or equity investor of or in any partnership, joint venture or other management
or business association or to acquire or lease any other business operation.
3.1.5 Insurance. Issuer and the Subsidiaries maintain valid policies of
insurance with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations of established
reputation engaged in the same or similar business and similarly situated.
There is no default under any such policy, nor, to the knowledge of Issuer, has
any event occurred which with notice, lapse of time or both would constitute a
material default thereunder.
3.1.6 Financial Statements. The Financial Statements:
<PAGE>
- 6 -
(a) have been prepared from and in accordance with the books and records of
Issuer and its Subsidiaries in accordance with Generally Accepted
Accounting Principles (except as disclosed in the notes thereto) applied
on a basis consistent with that of the preceding periods;
(b) present fairly the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of Issuer and the
Subsidiaries and the results of the operations of Issuer and the
Subsidiaries as at the date thereof and for the periods covered thereby;
and
(c) contain or reflect adequate reserves for all known or reasonably
anticipated liabilities and obligations of Issuer and the Subsidiaries
of any nature, whether absolute, contingent or otherwise, as at the date
thereof.
No information has come to the attention of Issuer that would render the
Financial Statements incomplete or inaccurate in any material respect.
3.1.7 Undisclosed Liabilities. None of Issuer or the Subsidiaries has any
known or reasonably anticipated liabilities (whether accrued, absolute,
contingent or otherwise) of any kind and whether due or to become due, except:
(a) liabilities disclosed or provided for in the Financial Statements; and
(b) liabilities incurred in the ordinary course of business from and after
the Financial Disclosure Date which are consistent with past practice,
are not, in the aggregate, material and adverse to the Business, Assets,
financial condition or results of operations of Issuer and the
Subsidiaries, and do not violate any covenant or obligation contained in
this Agreement or constitute a breach of any representation or warrant
made in or pursuant to this Agreement.
3.1.8 Absence of Changes. Since the Financial Disclosure Date;
(a) Issuer and each of the Subsidiaries has conducted the Business in the
ordinary course, has not incurred any debt, obligation or liability out
of the ordinary course of business or of an unusual or extraordinary
nature and has used its best efforts to preserve the Business and the
Assets;
(b) there has not been any change in the condition of the Business or the
Assets or the financial condition or results of operations of any of
Issuer, the Subsidiaries or the Business other than changes in the
ordinary course of business, and such changes have not, either
individually or in the aggregate, been materially adverse or have had or
may be reasonably expected to have, either before or after the Closing
Time, a material adverse effect on the Business, the Assets or the
future prospects of any of Issuer, any of the Subsidiaries or the
Business; and
<PAGE>
- 7 -
(c) to the best of Issuer's knowledge, there has not been any change in, or
creation of, any Applicable Law, any revocation of any Licence or any
damage, destruction, loss, labour dispute or other event, development or
condition of any character (whether or not covered by insurance)
materially and adversely affecting any of Issuer, any Subsidiary, the
Business or the Assets or the future prospects of any of Issuer, the
Subsidiaries or the Business.
3.1.9 Tax Matters. Issuer and each of the Subsidiaries has filed all Tax
Returns within the times and in the manner prescribed by law. Issuer and each
Subsidiary has paid all Taxes due and payable and has paid all installments and
made all other remittances required to be made on account of Taxes payable by
them. No Tax Return has been reassessed nor has there been any notice of
reassessment by any taxing authority and there are no actions, audits,
assessments, reassessments, suits, appeals, proceedings, investigations or
claims now pending or, to the best of Issuer's knowledge, threatened against
Issuer or any Subsidiary in respect of Taxes or governmental charges by any
Governmental Agency relating to claims for additional Taxes or assessments with
reference to any of Issuer, the Subsidiaries, the Assets or the Business. There
is in effect no waiver of applicable limitation of liability statutes with
respect to any Taxes owed by Issuer or any Subsidiary. The provision for Taxes
reflected in the Financial Statements is adequate for all Tax liabilities,
whether or not yet due and payable and whether or not disputed or under appeal,
for the periods covered by the Financial Statements and for all prior periods
and none of Issuer or the Subsidiaries has any liability for any Tax in respect
thereof of any nature other than those described in the Financial Statements and
those arising in the ordinary course of its business since the Financial
Disclosure Date.
3.1.10 Absence of Conflicting Agreements. None of the execution and delivery
of, or the observance and performance by Issuer of any covenant or obligation
under this Agreement or any Closing Document to which it is a party including
the issuance of Shares pursuant to the exercise of the Warrant, or the Closing,
contravenes or results in, or will contravene or result in, a material violation
of or a material default under (with or without the giving of notice or lapse of
time, or both), or in the acceleration of any material obligation under:
(a) any Applicable Law;
(b) any Licence held by or for Issuer, a Subsidiary or the Business;
(c) the articles, by-laws, directors' or shareholders' resolutions of Issuer or
any Subsidiary; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which Issuer or any Subsidiary is a party, or by which it or
its Assets are bound.
The representation and warranty in Section 3.1.10(b) shall not apply to Generic
Software.
<PAGE>
- 8 -
3.1.11 Consents, Approvals, Etc. Subject to those certain filings with
Canadian securities authorities identified in Section 3.1.19, no consent,
approval, Licence, Order or authorization, registration, declaration or filing
with any Governmental Agency or other Person is required by Issuer or any
Subsidiary, or with respect to the Business, in connection with (a) the Closing
or (b) the execution and delivery by Issuer of, and the observance and
performance by Issuer of its obligations under, this Agreement and the Closing
Documents to which it is a party.
3.1.12 Restrictions on Business. Other than statutory provisions and
restrictions of general application to the Business, the Issuer or the
Subsidiaries, none of Issuer or any Subsidiary is a party to any agreement,
lease, mortgage, security document, obligation or instrument, or subject to any
restriction in its articles or by-laws or directors' or shareholders'
resolutions or subject to any restriction imposed by any Governmental Agency or
subject to any Applicable Law which could materially restrict or interfere with
the conduct of the Business or which could materially limit or restrict or
otherwise adversely affect the Assets or the financial condition of Issuer on a
consolidated basis.
3.1.13 Compliance with Applicable Law. Each of Issuer and the Subsidiaries has
conducted and is conducting the Business in compliance with all Applicable Law,
and is not in breach of any Applicable Law except for breaches which in the
aggregate are not material to Issuer and the Subsidiaries.
3.1.14 Litigation. Except as disclosed in Schedule E, there is no claim,
demand, suit, action, cause of action, dispute, proceeding, litigation,
investigation, grievance, arbitration, governmental proceeding or other
proceeding including appeals and applications for review, in progress against or
relating to Issuer or any Subsidiary or affecting the Shares, the Warrant, the
Assets or the Business which, if determined adversely, would materially and
adversely affect any of Issuer, any Subsidiary, the Shares, the Warrant, the
Business or the or Assets or the validity of the Agreement or any of the Closing
Documents, nor are any of the same pending or to the best of the knowledge of
Issuer threatened. To the knowledge of Issuer, no event has occurred and no
condition exists or the basis for which any of the foregoing might properly be
instituted or commenced. There is not at present outstanding against Issuer or
any Subsidiary any Order that materially and adversely affects Issuer, any
Subsidiary, the Business or the Assets in any way or that in any way relates to
this Agreement or the transactions contemplated hereby.
3.1.15 Title to Properties. Except as disclosed in the Financial Statements;
Issuer and the Subsidiaries have good and marketable title to all of the Assets,
free and clear of all Encumbrances.
3.1.16 Title to Shares and Warrants. The Shares and the Warrant shall be duly
authorized and created upon Closing shall be validly issued and outstanding and
the Shares shall be fully paid and non-assessable shares in the capital of
Issuer, free and clear of all rights, liens or other Encumbrances and the shares
issuable upon exercise of the Warrants upon payment of the
<PAGE>
- 9 -
exercise price, will be fully paid and non-assessable Shares, free and clear of
all rights, liens and Encumbrances.
3.1.17 No Expropriation. None of Issuer or any Subsidiary has received any
notice of expropriation of any of the Assets. Issuer is not aware of any
expropriation proceeding, pending or threatened against or affecting any of the
Assets.
3.1.18 Licences. The only Licences necessary or desirable for the operation of
the Business and the ownership of the Assets are listed in Schedule F and are in
full force and effect unamended. Issuer or each Subsidiary, as the case may be,
is in compliance in all material respects with all the terms and conditions
relating to such Licences and there are no proceedings in progress, or to the
best of the knowledge of Issuer, pending or threatened, which may result in
revocation, cancellation, suspension or any adverse modification of any of such
Licences. No Licence is void or voidable as a result of the completion of the
transactions contemplated hereby or by the Closing Documents or by the exercise
of the Warrant nor is any consent or approval of any Person required to assure
the continued validity and effectiveness of any Licence in connection with the
purchase of the Shares, this Agreement, any Closing Document or by the exercise
of the Warrant or the transactions contemplated hereby or thereby.
3.1.19 Securities Legislation. Issuer is a "reporting issuer" in Ontario and
is not in default under applicable securities legislation in such province. In
particular, without limiting the foregoing, Issuer is in compliance with its
obligations to make timely disclosure of all material changes relating to it and
since the date hereof (other than in respect of material change reports filed on
a confidential basis and thereafter made public or material change reports filed
on a confidential basis and in respect of which the material change never came
to fruition) no such disclosure has been made on a confidential basis and there
is no material change relating to Issuer which has occurred and with respect to
which the requisite material change statement has not been filed, except to the
extent that this Agreement constitutes a material change. Issuer is not in
default of any requirements of such securities legislation, and the issuance of
the Shares and the Warrant to Subscriber will be made in compliance with all
applicable Canadian securities legislation. Subject to the filing of a Form 27,
Material Change Report, Form 20, Report of a Trade under clause 72(1)(d) and a
press release following the Closing, the issuance of the Shares and Warrant to
Subscriber, and any subsequent exercise of rights under the Warrant, will not
result in any contravention of any applicable Canadian securities legislation or
the regulations thereunder (subject to filings required on Warrant exercise).
The issuance of the Shares and the Warrant is exempt from the registration and
prospectus requirements of securities legislation of the Province of Ontario and
no prospectus will be required and no other document must be filed, proceeding
taken or approval obtained in Ontario to permit the offering, issue, sale and
delivery of the Shares and the Warrant to Subscriber or for the exercise of the
Warrant other than the filing of those private placement reports, undertakings
and questionnaires referred to above.
<PAGE>
- 10 -
The Issuer's Shares are not listed or quoted for trading on any stock exchange
or other public market other than the Canadian Dealing Network.
3.1.20 Environmental Matters. To the best of Issuer's knowledge:
(a) Issuer, each Subsidiary, the Business and the Assets are in full
compliance with all Applicable Law in respect of environmental matters
and are not the subject of any remedial or control action or Order, or
any investigation or evaluation as to whether any remedial or control
action or Order is needed to respond to an actual or threatened release,
discharge, deposit, emission or spill of any hazardous substance,
pollutant or contaminant into the environment or any facility or
structure;
(b) none of Issuer or the Subsidiaries is or may be liable to any Person as
a result of an actual or alleged release, discharge, deposit, emission
or spill of any hazardous substance, contaminant or pollutant into the
environment or any facility or structure, nor has there been any
release, discharge, deposit, emission or spill of any hazardous
substance, contaminant or pollutant into the environment or into any
facility or structure, which is the subject of or, after the giving of
notice or the lapse of time would give rise to, any claim, demand, suit,
action, cause of action, dispute, proceeding or Order relating to the
violation of Applicable Law in respect of environmental matters, nor is
there any basis for any thereof being commenced; and
(c) Issuer and each Subsidiary has complied in all material respects with
all environmental reporting and inspection requirements of all
Governmental Agencies having jurisdiction over it. All pollution control
equipment operated as part of the Business is effective in meeting
applicable emissions limits and effluent pre-treatment standards.
3.1.21 Significant Shareholders. Except as set forth in Schedules "G" and "D"
there are no loans, leases, licences, guarantees, contracts, transactions,
understandings or other arrangements or any nature between the Issuer or any
Subsidiary and any officer, director or ten percent (10%) stockholder of the
Issuer or any family member or affiliate of the foregoing persons. All persons
owning ten percent (10%) or more of the presently outstanding common shares to
the knowledge of the Issuer, are listed as Schedule "G".
3.1.22 Material Contracts. Except as set forth in Schedule "H" and otherwise
disclosed in this Agreement, neither Issuer nor any Subsidiary is a party or
subject to or bound by:
(a) any contract, lease or agreement creating any obligation of the Issuer
or any Subsidiary to pay to any third party $50,000 or more with respect
to any single such contract or agreement, except for purchase orders
entered into in the ordinary course of business;
(b) any contract or agreement for the sale, license, lease or disposition of
products in excess of $50,000;
<PAGE>
- 11 -
(c) any contract containing covenants directly or explicitly limiting the
freedom of the Issuer or any Subsidiary to compete in any line of
business or with any person or entity;
(d) any license agreement (as licensor or licensee) other than licenses to
off-the-shelf software;
(e) any contract or agreement or the purchase of any leasehold improvements,
equipment or fixed assets for a price in excess of $50,000;
(f) any indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for borrowing in excess of $50,000 or any
pledge or security arrangement except as disclosed in Schedule I;
(g) any material joint venture, partnership, manufacturing, development or
supply agreement;
(h) any employment contracts, or agreements with officers, directors,
employees or stockholders of the Issuer or any Subsidiary or persons or
organizations related to or affiliated with any such persons;
(i) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Issuer or any
Subsidiary, including without limitation any agreement relating to the
capital stock of the Issuer or any Subsidiary, including without
limitation any agreement relating to anti-dilution rights, registration
rights, voting arrangements, operating covenants or similar provisions;
(j) any pension, profit sharing, retirement or stock option plans;
(k) any royalty, dividend or similar arrangement based on the sales volume
of the Issuer or any Subsidiary;
(l) any acquisition, merger or similar agreement; or
(m) any other contract not executed in the ordinary course of business.
All of such agreements and contracts are valid, binding and in full
force and effect. Neither Issuer nor any Subsidiary, nor, to the knowledge of
the Issuer, any other party is in material default under any of such agreements
or contracts (nor, to the knowledge of the Issuer, has any event occurred which
with notice, lapse of time or both would constitute a material default
thereunder), except to the extent that any such default would not have a
material effect on the assets, liabilities, properties, business or proposals of
the Issuer or any Subsidiary, and the Issuer or any Subsidiary, has not received
notice of any alleged default under any such contract, or agreement.
<PAGE>
- 12 -
3.1.23 Intellectual Property Rights.
(a) Rights
Schedule "J" contains a true and complete list of all Intellectual
Property Rights which have been registered, or for which applications
for registration have been filed in any jurisdiction.
(b) Ownership
Except as set forth in Schedule "J" or "Permitted Encumbrances", the
Issuer is or at Closing will be the exclusive owner of the Technology
and all right, title and interest in and to the Technology, free and
clear of all Encumbrances, other than those Encumbrances arising in the
ordinary course of Issuer's Business, and the Issuer has no knowledge of
any claim of adverse ownership in any Technology. Issuer has not:
(i) granted any third party license or other right to any of the
Intellectual Property Rights; or
(ii) made any contract or arrangement whereby it may be liable for any
royalty or other compensation for the use of Intellectual Property
Rights.
(c) Validity
The Intellectual Property Rights are in good standing and to the best of
the Issuer's knowledge have not been used or enforced or failed to be
used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the Intellectual Property
Rights. All registrations and filings necessary to preserve the rights
of the Issuer in and to the Intellectual Property Rights have been made.
(d) Complete
The Technology is sufficient and complete to enable the Issuer to carry
on the Business as currently carried on and to perform its obligations
under this Agreement and any related Closing Documents including the E-
Commerce Services Agreement.
<PAGE>
- 13 -
(e) Infringements by Issuer
Except as set forth in Schedule "J", there is no:
(i) (1) claim of adverse ownership or invalidity or other opposition
to or conflict with Issuer's ownership of the copyright,
trade marks or trade secrets forming part of the Technology
or the manner it is used in respect of the Business; or
(2) to the best of the knowledge of the Issuer, pending or
threatened suit, proceeding, claim, demand, action or
investigation of any nature or kind of which the Issuer has
received notice against Issuer relating to the Technology or
the manner it is used in respect of the Business; or
(ii) claim of which the Issuer has received notice (formal or
informal) or is otherwise aware that any products, software or
services manufactured, produced, used or sold by the Issuer or
any process, method, packaging, advertising, or material that the
Issuer employs in the manufacture, marketing, licensing or sale
of any such product, software or service, or the use of any of
the Technology breaches, violates, infringes or interferes with
any rights of any Person or requires payment for the use of any
copyright, trade mark or trade secret, know-how or technology of
another Person or, to the best of Issuer's knowledge any other
intellectual property of any Person.
(f) Licenses and Covenants Not to Sue
Schedule "J" sets forth a complete and correct list and brief description
of all judgments, covenants of Issuer not to sue, permits, grants,
franchises, licenses and other agreements and arrangements relating to any
of the Technology owned by Issuer which bind, obligate or otherwise
restrict it.
<PAGE>
- 14 -
(g) Third Party Infringements
There are no infringements of, passing-off related to, or other
interference with the Technology by third parties of which the Issuer has
received notice (formal or informal) or is otherwise aware..
(h) Protection of Confidentiality
Issuer has taken commercially reasonable precautions and made commercially
reasonable efforts to protect its trade secrets and secure the
confidentiality of its customer lists, and other proprietary information.
3.1.24 Major Suppliers and Customers. To the knowledge of the Issuer, no major
supplier or customer has any intention to change its relationship or any
material terms upon which it will conduct business with Issuer or the
Subsidiaries. There has been no interruption to or discontinuity in any
customer or supplier arrangements or relationships referred to in this Section
and Issuer and the Subsidiaries have not entered into any fixed price
commitments (whether written or oral) which extend beyond the Closing Date.
3.1.25 Material Change Reports. Since the Financial Disclosure Date, other
than in respect of material change reports filed on a confidential basis and in
respect of which the material change so reported did not come to fruition and
other than this Agreement:
(a) there has not been any material change in the assets, liabilities or
obligations (absolute, accrued, contingent or otherwise) of the Issuer or
its Subsidiaries which requires disclosure under applicable securities
legislation and that has not been publicly disclosed;
(b) there has not been any material change in the capital stock or long-term
debt of the Issuer or its Subsidiaries which requires disclosure under
applicable securities legislation and that has not been publicly disclosed;
and
(c) there has not been any material change in the business, business prospects,
condition (financial or otherwise) or results of the operations of the
Issuer or its Subsidiaries which requires disclosure under applicable
securities legislation and that has not been publicly disclosed.
3.1.26 Information Record. No portion of the Issuer's Information Record
contained a misrepresentation as at its date of public dissemination.
3.1.27 Reportable Disagreement. There has never been any reportable
disagreement (within the meaning of National Policy Statement No. 31 of the
Canadian Securities Administrators) with the present or any former auditor of
the Issuer.
<PAGE>
- 15 -
3.1.28 Canadian Dealing Network. The Issuer shall use its best efforts
exercised in a commercially reasonable manner to ensure that the Shares will
continue to be quoted on the Canadian Dealing Network upon their issue.
3.1.29 Employees. None of the employees of the Issuer or any Subsidiary is
represented by any labour union, and, to the best of Issuer's knowledge, there
is no labour strike or other labour trouble pending or threatened with respect
to the Issuer or any Subsidiary (including, without limitation, any
organizational drive).
3.1.30 Disclosure. No representation or warranty of Issuer in this Agreement
contains any untrue statement of a material fact or omits to state any material
fact necessary to make any such representation or warranty not misleading to a
prospective buyer of the Shares or Warrant seeking full information as to the
Business and the Assets. Without limiting the scope of the foregoing, none of
the Issuer or any Subsidiary is aware of any change, event or occurrence related
to the Business that has taken place or is pending that has, or in the future
would have, a material adverse effect on the value of the Shares, the Warrant,
the Assets or the Business which is not the result of general industry trends.
The copies of documents concerning Issuer, the Subsidiaries, the Business and
the Assets delivered to Subscriber on or prior to the date hereof are true and
complete.
3.2 Representations and Warranties of Subscriber. Subscriber represents and
warrants to Issuer as follows and acknowledges that Issuer is relying upon such
representations and warranties in connection with entering into this Agreement
and completing the transactions contemplated hereby.
3.2.1 Incorporation. Subscriber is a company duly incorporated, organized and
validly existing in good standing under the laws of Ontario.
3.2.2 Power, Capacity and Authority. Subscriber has all necessary power and
capacity to execute and deliver, and to observe and perform its covenants and
obligations under, this Agreement and the Closing Documents to which it is a
party. Subscriber has taken all corporate action necessary to authorize the
execution and delivery of, and the observance and performance of its covenants
and obligations under, this Agreement and the Closing Documents to which it is a
party.
3.2.3 Enforceability of Obligations. This Agreement has been, and the Closing
Documents to which Subscriber is a party will on Closing be, duly executed and
delivered by Subscriber and this Agreement constitutes, and each of the Closing
Documents to which Subscriber is a party will on Closing constitute, a valid and
binding obligation of Subscriber enforceable against Subscriber in accordance
with its terms.
<PAGE>
- 16 -
3.2.4 Absence of Conflicting Agreements. None of the execution and delivery
of, or the observance and performance of, by Subscriber of, any covenant or
obligation under, this Agreement or any Closing Document to which it is a party
or the Closing contravenes or results in (with or without the giving of notice
or lapse of time, or both) or will contravene or violate in any material respect
or result in any material breach or default of, or acceleration of any
obligation under:
(a) any Applicable Law to Subscriber;
(b) any Licence held by Subscriber;
(c) the articles, by-laws, directors' or shareholders' resolutions of
Subscriber; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which Subscriber is a party, or by which it or its assets
are bound.
3.2.5 Consents, Approvals, Etc. No consent, approval, Licence, Order or
authorization, registration, declaration or filing with any Governmental Agency
is required by Subscriber in connection with (a) the Closing or (b) the
execution and delivery by it of, or the observance and performance of its
obligations under, this Agreement or the Closing Documents to which it is a
party.
3.2.6 Relationship to Issuer. Subscriber is acting entirely at arm's length
with Issuer and is purchasing the Shares and Warrant as principal.
3.2.7 Knowledge. The Subscriber has no knowledge of any material fact which
would make any representation or warranty of Subscriber contained in this
Agreement untrue or misleading.
3.3 Commission. Each Party represents and warrants to the other Party that
the other Party will not be liable for any brokerage commission, finder's fee or
other like payment in connection with the transactions contemplated hereby
because of any action taken by, or agreement or understanding reached by, the
first mentioned Party.
3.4 Qualification of Representations and Warranties. The representations or
warranties made by a Party under Sections 3.1.1(d), 3.1.18, 3.1.22 and 3.2.3 as
to the enforceability of this Agreement or the Closing Documents against such
Party are subject to the following qualifications:
(a) specific performance, injunctive relief and other equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy; and
<PAGE>
- 17 -
(b) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally
affecting enforceability of creditors' rights.
3.5 Non-Waiver. No investigations made by or on behalf of Subscriber at any
time shall waive, diminish the scope of or otherwise affect any representation
or warranty made by Issuer in this Agreement or any Closing Document or any
document delivered pursuant to any of them.
3.6 Survival of Issuer Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements made by
Issuer in or pursuant to this Agreement shall survive the Closing as follows:
(a) the representations and warranties set forth in Sections 3.1.1 to 3.1.4
inclusive, 3.1.9, 3.1.16, 3.1.21, 3.1.23, 3.1.28 and Section 3.3 shall
survive the Closing and continue without time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall survive only for a period of
2 years from the Closing Time. After such period, Issuer shall not have
any further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such
period; and
(c) the covenants and agreements of Issuer contained in this Agreement shall
survive the Closing and continue in accordance with Applicable Law.
3.7 Survival of Subscriber Representations, Warranties, Covenants and
Agreements. All representations warranties, covenants and agreements made by
Subscriber in or pursuant to this Agreement shall survive the Closing as
follows:
(a) the representations and warranties set forth in Sections 3.2.1 to 3.2.3
inclusive and Section 3.3 shall survive the Closing and continue without
time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall survive only for a period of
2 years from the Closing Time. After such period, Subscriber shall have
no further liability hereunder with respect to such representations and
warranties except with respect to claims properly made within such
period; and
(c) the covenants and agreements of Subscriber contained in this Agreement
shall survive the Closing and continue in accordance with Applicable
Law.
<PAGE>
- 18 -
3.8 Knowledge of Issuer. Where any representation or warranty contained in
this Agreement is expressly qualified by reference to the "knowledge" of Issuer,
it shall be deemed to refer to the knowledge of each of Issuer and any of the
Subsidiaries and Issuer confirms that it has made due and diligent inquiry of
such Persons (including without limitation appropriate officers of Issuer and
the Subsidiaries) as it considers necessary as to the matters that are the
subject of such representations and warranties.
ARTICLE 4
OTHER COVENANTS OF THE PARTIES
4.1 Obligation of Issuer. From the date hereof to the Closing Time, Issuer
shall act, and shall cause the Subsidiaries to act, as set forth in this Section
4.1.
4.1.1 Conduct Business in Ordinary Course. Except as otherwise contemplated or
permitted by this Agreement, Issuer and the Subsidiaries shall conduct the
Business in the ordinary course and shall not, without the prior written consent
of Subscriber, enter into any transaction which, if entered into before the date
hereof, could cause any representation or warranty of Issuer contained herein to
be incorrect or constitute a breach of any covenant or agreement of Issuer
contained herein.
4.1.2 Action by Issuer and Subsidiaries. Each of Issuer and the Subsidiaries
shall at their sole cost take all action which may be necessary to ensure that
the representations and warranties contained herein shall be true and correct in
all material respects at the Closing Time.
4.1.3 Access for Investigation. Each of Issuer and the Subsidiaries shall
permit Subscriber and its employees, agents, counsel and accountants or other
representatives, without interference to the ordinary conduct of the Business,
to have free and unrestricted access during business hours to the properties of
Issuer and the Subsidiaries and to all the books, accounts and records relating
to each of Issuer, the Subsidiaries, the Business, the Assets and to the
employees of the Business. Issuer and each of the Subsidiaries shall furnish to
Subscriber such financial and operating data and other information with respect
to the Business and the Assets as Subscriber shall from time to time reasonably
request. Issuer agrees that Subscriber may conduct such environmental
investigations and tests on the properties of Issuer and the Subsidiaries as
Subscriber considers necessary.
4.2 Actions to Satisfy Closing Conditions. Each of the Parties shall take
all such action as is within its power to control, and shall use reasonable
efforts to cause other actions to be taken which are not within its power to
control, so as to ensure compliance with and satisfaction of all conditions set
forth in Article 6 which are for the benefit of any Party. The Parties will
cooperate in exchanging such information and providing such assistance as may be
reasonably required in connection with the foregoing.
<PAGE>
- 19 -
4.3 Injunctions. If any court having jurisdiction over either Party or any
of the Subsidiaries issues any injunction, decree or similar order prior to the
Closing Time which would prohibit or materially restrict or hinder the Closing,
the Parties shall use their respective reasonable efforts to have such
injunction, decree or order delivered or otherwise eliminated as promptly as
possible and, in any event, prior to the Closing Time.
4.4 Disclosure. Issuer shall forthwith disclose in writing to Subscriber in
supplemental schedules any matter which has become known to it prior to the
Closing Time which is inconsistent in any material respect with any of the
representations and warranties contained herein. No such disclosure shall cure
any misrepresentation or breach of warranty for the purposes of Section 6.1.1
hereof.
4.5 Reporting Issuer Status. Issuer shall use its best efforts exercised in
a commercially reasonable manner to maintain its status as a reporting issuer
not in default of any requirements of the Securities Act (Ontario) (the
"Securities Act") and the regulations thereunder and shall use its best efforts
exercised in a commercially reasonable manner not to be in default of any
requirement of any securities laws or regulation to which Issuer is subject.
4.6 Securities Act Exemptions and Rights of Re-sale. Issuer and Subscriber
agree and understand that:
(a) the trades which will result from the issue of the Shares and the
Warrant will be exempt from registration and prospectus filing
requirements under Section 35(1)(5) and Section 72(1)(d) of the
Securities Act respectively and Section 27(1) of the Regulation under
the Securities Act subject only to the Issuer filing a report of the
trades as required by the Securities Act and Regulation, which report
the Issuer agrees to file immediately after Closing;
(b) the trades which will result from the exercise of the Warrant will be
exempt from registration and prospectus filing requirements under
Sections 35(1)(12) and 72(1)(f)(iii) of the Securities Act respectively;
and
(c) the Shares issued to Subscriber and any Shares acquired by Subscriber
through exercise of the Warrant are and will be subject to a hold period
of at least one year from the date of the initial exempt trade as
specified in Section 72(4) of the Securities Act and cannot be
distributed within such period.
4.7 Licensing. The Parties acknowledge that the Issuer is negotiating with a
third party for a licensing arrangement and equity injection at prices not less
than that provided herein which may involve the grant of territorial rights in
some or all of the Intellectual Property Rights, board of directors
representation, warrants to acquire a larger proportion of voting shares, which
may impact control, and source code escrow.
<PAGE>
- 20 -
ARTICLE 5
INDEMNIFICATION
5.1 Definitions. As used in this Article 5:
"Claim" means any act, omission or state of facts and any demand, action, suit
or proceeding which may constitute or give rise to a right to indemnification
under Sections 5.2 or 5.3 hereof;
"Direct Claim" means any Claim by an Indemnified Party against an Indemnifier
which does not result from a Third Party Claim;
"Indemnified Loss" means any loss, liability, damage, cost or expense relating
to, resulting from or arising out of any Claim (including, without limitation,
the costs and expenses of any action, suit, proceeding, demand, assessment,
judgment, settlement or compromise relating thereto and all interest, punitive
damages, fines and penalties and reasonable legal fees and expenses incurred in
connection therewith but excluding loss profits and consequential damages) which
is suffered or incurred by an Indemnified Party and for which such Indemnified
Party is entitled to indemnification under the provisions hereof;
"Indemnifier" means any Party obligated to provide indemnification under this
Agreement;
"Indemnified Party" means any Person entitled to indemnification under this
Agreement;
"Indemnity Payment" means any amount of Indemnified Loss required to be paid
pursuant to Sections 5.2 or 5.3 hereof; and
"Third Party Claim" means any Claim asserted against the Indemnified Party by
any Person who is not a Party or an Affiliate of such a Party.
5.2 Indemnification by Issuer. Subject to the limits set forth in Section
5.11, Issuer shall indemnify, defend and save harmless Subscriber and each of
its directors, officers, employees, agents and representatives from and against
any and all Indemnified Losses suffered or incurred by them, as a direct or
indirect result of:
(a) subject to Section 3.6 hereof, any misrepresentation or breach of
warranty made or given by Issuer in this Agreement, any Closing Document
or in any document delivered pursuant to any of them; or
(b) any failure by Issuer to observe or perform any covenant or obligation
contained in this Agreement, any Closing Document or in any document
delivered pursuant to any of them to be observed or performed by it.
<PAGE>
- 21 -
5.3 Indemnification by Subscriber. Subject to the limits set forth in
Section 5.11, Subscriber shall indemnify, defend and save harmless Issuer and
its subsidiaries and each of their respective directors, officers, employees,
agents and representatives from and against any and all Indemnified Losses
suffered or incurred by them, as a direct or indirect result of:
(a) subject to Section 3.7, any misrepresentation or breach of any warranty
made or given by Subscriber in this Agreement, any Closing Document or
in any document delivered pursuant to any or them; or
(b) any failure by Subscriber to observe or perform any covenant or
obligation contained in this Agreement, any Closing Document or in any
document delivered pursuant to any of them to be observed or performed
by it.
5.4 Notice of and the Defense of Third Party Claims. If an Indemnified Party
receives notice of the commencement or assertion of any Third Party Claim, the
Indemnified Party shall give the Indemnifier reasonably prompt written notice
thereof, but in any event no later than 30 calendar days after receipt of such
notice of such Third Party Claim. Such notice to the Indemnifier shall describe
the Third Party Claim in reasonable detail and shall indicate, if reasonably
practicable, the estimated amount of the Indemnified Loss that has been or may
be sustained by the Indemnified Party. The Indemnifier shall have the right to
participate in or, by giving notice to that effect to the Indemnified Party not
later than 30 calendar days after receipt of such notice of such Third Party
Claim and subject to the rights of any insurer or other third party having
potential liability therefor, to elect to assume the defense of any Third Party
Claim at the Indemnifier's own expense and by such Indemnifier's own counsel,
and the Indemnified Party shall co-operate in good faith in such defense. The
Indemnified Party shall have the right to participate in the defense of any
Third Party Claim assisted by counsel of its own choosing. If the Indemnified
Party has not received notice within such 30 calendar day period that the
Indemnifier has elected to assume the defence of such Third Party Claim, the
Indemnified Party may, at its option, elect to settle or compromise the Third
Party Claim or assume such defence, assisted by counsel of its own choosing and
the paid or incurred in connection therewith.
5.5 Assistance for Third Party Claims. In the event of any Third Party
Claim, the Indemnifier and the Indemnified Party will use all reasonable efforts
to make available to the Party which is undertaking and controlling the defense
of such Third Party Claim,
(a) those employees whose assistance, testimony or presence is necessary to
assist such Party in evaluating and in defending any Party Claim; and
(b) all documents, records and other materials in the possession of such
Party reasonably required by such Party for its use in defending any
Third Party Claim,
and shall otherwise cooperate with the Party defending such Third Party Claim.
The Indemnifier
<PAGE>
- 22 -
shall be responsible for all expenses associated with making such documents,
records and materials available and for all expenses of any employees made
available by the Indemnified Party to the Indemnifier hereunder, which expense
shall be equal to an amount to be mutually agreed upon per person per hour or
per day for each day or portion thereof that such employees are assisting the
Indemnifier but such expenses shall not exceed the actual cost to the
Indemnified Party associated with such employees.
5.6 Settlement of Third Party Claims. If an Indemnifier elects to assume the
defence of any Third Party Claim as provided in Section 5.4 hereof, the
Indemnifier shall not be liable for any legal expenses subsequently incurred by
the Indemnified Party in connection with the defence thereof. However, if the
Indemnifier fails to take reasonable steps necessary to defend diligently such
Third Party Claim within 30 calendar days after receiving notice from the
Indemnified Party that the Indemnified Party bona fide believes on reasonable
grounds that the Indemnifier has failed to take such steps, the Indemnified
Party may, at its option, elect to assume the defence of and to compromise or
settle the Third Party Claim assisted by counsel of its own choosing and the
Indemnifier shall be liable for all costs and expenses paid or incurred in
connection therewith. Without the prior written consent of the Indemnified
Party, the Indemnifier shall not enter into any compromise or settlement of any
Third Party Claim which would lead to liability or create any financial or other
material obligation on the part of the Indemnified Party for which the
Indemnified Party is not entitled to indemnification hereunder. If a firm offer
is made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the Indemnified Party
for which the Indemnified Party is not entitled to indemnification hereunder and
the Indemnifier desires to accept such offer, the Indemnifier shall give written
notice to the Indemnified Party to that effect. If the Indemnified Party fails
to consent to such firm offer within 30 calendar days after its receipt of such
notice, the Indemnified Party may continue to contest or defend such Third Party
Claim and, in such event, the maximum liability of the Indemnifier with respect
to such Third Party Claim shall be (a) the amount of the offer of settlement
which the Indemnified Party refused to accept plus the costs and expenses of the
Indemnified Party prior to the date the Indemnifier notifies the Indemnified
Party of the offer of settlement and (b) the actual out-of-pocket amount the
Indemnified Party is obligated to pay as a result of continuing to pursue such
matter, whichever is the lesser. An Indemnifier shall be entitled to recover
from the Indemnified Party any, additional expenses incurred by such Indemnifier
as a result of the decision of the Indemnified Party to contest or defend such
Third Party Claim.
5.7 Direct Claims. Any Direct Claim shall be asserted by giving the
Indemnifier reasonably prompt written notice thereof, but in any event not later
than 30 calendar days after the Indemnified Party becomes aware of such Direct
Claim, and the Indemnifier shall have a period of 30 calendar days within which
to respond in writing to such Direct Claim. If the Indemnifier does not so
respond within such 30 calendar day period, the Indemnifier shall be deemed to
have rejected such Claim, in which event the Indemnified Party shall be free to
pursue such remedies as may be available to the Indemnified Party.
<PAGE>
- 23 -
5.8 Failure to Give Timely Notice. A failure to give timely notice as
provided in this Article 5 shall not affect the rights or obligations of either
Party, except and only to the extent that, as a result of such failure, any
Party which was entitled to receive such notice was deprived of its right to
recover any payment under its applicable insurance coverage or was otherwise
directly and materially damaged as a result of such failure.
5.9 Reductions and Subrogation. If the amount of any Indemnified Loss, at
any time subsequent to the making of an Indemnity Payment, is reduced by (a) any
net tax benefit or (b) any recovery, settlement or otherwise under or pursuant
to any insurance coverage, or pursuant to any claim, recovery, settlement or
payment by or against any other Person, the amount of such reduction (less any
costs, expenses (including taxes) or premiums incurred in connection therewith),
together with interest thereon from the date of payment thereof at the Prime
Rate, shall promptly be repaid by the Indemnified Party to the Indemnifier. Upon
making any Indemnity Payment, the Indemnifier shall, to the extent of such
Indemnity Payment, be subrogated to all rights of the Indemnified Party against
any third party that is not an affiliate (as defined in the Act) of the
Indemnified Party in respect of the Indemnified Loss to which the Indemnity
Payment relates but only if the Indemnifier shall then be in compliance with its
obligations under this Agreement in respect of such Indemnified Loss. Until the
Indemnified Party recovers full payment of its Indemnified Loss, any and all
claims of the Indemnifier against any such third party on account of such
Indemnity Payment shall be postponed and subordinated in right of payment to the
Indemnified Party's rights against such third party. Without limiting the
generality or effect of any other provision hereof, the Indemnified Party and
Indemnifier shall duly execute upon request all instruments reasonably necessary
to evidence and perfect the above-described postponement and subordination
rights.
5.10 Interest on Indemnified Losses. All Indemnified Losses shall bear
interest at a rate per annum equal to the Prime Rate, calculated and payable
monthly, both before and after Judgment, with interest on overdue interest at
the same rate, from the date that the Indemnified Party disbursed funds,
suffered damages or losses or incurred a loss, liability or expense in respect
of an Indemnified Loss, to the date of payment by the Indemnifier to the
Indemnified Party.
5.11 Limitation.
(a) No claims for indemnification may be made hereunder by Subscriber
against Issuer in respect of any Indemnified Losses arising in
connection with any misrepresentation or breach of warranty made or
given by Issuer in this Agreement, any Closing Document or in any
document delivered pursuant to any of them, unless and until the
Indemnified Losses suffered or incurred by Subscriber and by all of its
directors, officers, employees, agents or representatives collectively,
in respect of all such misrepresentations or breaches of warranty,
exceed Twenty-five Thousand Dollars ($25,000) in the aggregate
(excluding claims each of which is less than $1,000), in which event the
amount of all such Indemnified Losses including such Twenty-five
Thousand Dollars ($25,000) amount (but excluding claims of less than
$1,000) may be recovered by Subscriber.
<PAGE>
- 24 -
(b) No claims for indemnification may be made hereunder by Issuer against
Subscriber in respect of any Indemnified Losses arising in connection
with any misrepresentation or breach of warranty made or given by
Subscriber in this Agreement, any Closing Document or in any document
delivered pursuant to any of them, unless and until the Indemnified
Losses suffered or incurred by Issuer and by all of its directors,
officers, employees, agents or representatives collectively, in respect
of all such misrepresentations or breaches of warranty, exceed Twenty-
five Thousand Dollars ($25,000) in the aggregate (excluding claims each
of which is less than $1,000) in which event the amount of all such
Indemnified Losses including such Twenty-five Thousand Dollars ($25,000)
amount (but excluding claims of less than $1,000) may be recovered by
Issuer.
5.12 Rights-in Addition. The rights of indemnity set forth in this Article 5
are in addition and supplemental to any other rights, actions, claims or causes
of action which may arise in respect of this Agreement, the Closing Documents
and the transactions contemplated hereby.
5.13 Determination of Indemnified Loss. In determining the amount of any
Indemnified Loss hereunder the market price of any securities of Issuer held by
the Indemnified Party shall be only one factor to be taken into account.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Subscriber's Conditions. The obligation of Subscriber to complete the
purchase of the Shares and Warrant shall be subject to the prior satisfaction
of, or compliance with, at or before the Closing Time, each of the conditions
precedent set out in this Section 6.1, each of which is acknowledged to be for
the exclusive benefit of Subscriber and may be waived by Subscriber in whole or
in part in writing and upon such terms and conditions, if any as Subscriber may
require.
6.1.1 Accuracy of Representations and Performance of Covenants. All of the
representations and warranties of Issuer made in or pursuant to this Agreement
shall be true and correct in all respects as at the Closing Time and with the
same effect as if made at and as of the Closing Time and as if any time at which
such representation or warranty were accurate read the "Closing Time" (except as
such representations and warranties may be affected by the occurrence of events
or transactions expressly contemplated and permitted hereby) and, as at the
Closing Time, Issuer shall have observed or performed in all respects, all of
its covenants and obligations hereunder to be observed or performed by it at or
before the Closing Time and Subscriber shall have received immediately prior to
the Closing Time a certificate from the chief executive officer and the chief
financial officer of Issuer confirming the foregoing to the best of his
knowledge, information and belief, after due enquiry.
6.1.2 No Material Adverse Change. No material adverse change shall have
occurred since
<PAGE>
- 25 -
the Financial Disclosure Date with respect to any of Issuer, the Subsidiaries,
the Business or the Assets or the future prospects for any of Issuer, the
Subsidiaries or the Business and Subscriber shall have received immediately
prior to Closing a certificate from the chief executive officer and the chief
financial officer of Issuer confirming that no such material adverse change has
occurred.
6.1.3 Litigation. No court order shall have been entered that enjoins,
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, or any of either Party's directors, officers,
advisors, employees or agents, shall be a defendant or third party to or
threatened with, any litigation or proceedings before any court or Governmental
Agency which, in the opinion of the Subscriber, acting reasonably, could prevent
or restrict Subscriber or Issuer from observing and performing any of their
respective covenants and obligations pursuant to this Agreement or the Closing
Documents.
6.1.4 Receipt of Closing Documentation. All actions and proceedings taken on
or prior to the Closing in connection with the performance by Issuer of its
covenants and obligations under this Agreement shall be satisfactory to
Subscriber acting reasonably and Subscriber shall have received copies of the
Closing Documents and all such documentation or other evidence as it may
reasonably request in connection with the Closing in form (as to certification
and otherwise) and substance satisfactory to Subscriber.
6.1.5 Opinion of Counsel for Issuer. Subscriber shall have received an opinion
dated the Closing Date from counsel for Issuer in the form of the opinion
attached hereto as Schedule K. In giving such opinion, counsel to Issuer may
rely on certificates of senior officers of Issuer as to factual matters provided
such certificates are attached to the opinion. Such opinion shall also cover
such other matters as Subscriber or its counsel may reasonably request.
6.1.6 Closing Documents. Each of the following documents shall have been
executed and delivered by the parties thereto other than Subscriber:
(a) the E-Commerce Services Agreement in the form of Schedule L including
the Source Code escrow agreement attached as a Schedule thereto;
(b) the Shareholders' Agreement in the form of Schedule M; and
(c) the Warrant Agreement in the form of Schedule N.
<PAGE>
- 26 -
6.1.7 Board Representation. The board of directors of Issuer shall have, on or
prior to the Closing Date, resolved to increase the board of directors of Issuer
by one and to appoint one nominee of Subscriber as a director of Issuer, such
resolution to be conditional upon the Closing and to take effect immediately
after the Closing, and Subscriber shall have received a copy of such resolution
certified by the secretary of Issuer in form and substance satisfactory to
Subscriber.
6.1.8 Cease Trade Orders. There shall be no cease trade orders in force by any
securities regulatory authorities or any other impediments (other than "control
block" and "hold period" restrictions) to the general free trading of the
Shares, the Warrant and the shares underlying the Warrant.
6.2 Issuer's Conditions. The obligation of Issuer to complete the issuance
of the Shares shall be subject to the satisfaction of or compliance with, at or
before the Closing Time, each of the conditions precedent set out in this
Section 6.2, each of which is hereby acknowledged to be for the exclusive
benefit of Issuer and may be waived by Issuer in whole or in part in writing
upon such terms and conditions, if any, as Issuer may require.
6.2.1 Accuracy of Representations and Performance of Covenants. All of the
representations and warranties of Subscriber made in or pursuant to this
Agreement shall be true and correct in all respects as at the Closing Time with
the same effect as if made at and as of the Closing Time and as if any time at
which such representation or warranty were accurate read the "Closing Time"
(except as such representations and warranties may be affected by the occurrence
of events or transactions expressly contemplated and permitted hereby) and, as
at the Closing Time, Subscriber shall have observed or performed in all
respects, all of its obligations and covenants hereunder to be observed or
performed by it at or before the Closing Time and Issuer shall have received
immediately prior to Closing Time a certificate from two senior officers of
Subscriber confirming the foregoing to the best of their knowledge, information
and belief, after due enquiry.
6.2.2 Litigation. No court order shall have been entered that enjoins,
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, nor any of either Party's directors,
officers, advisors, employees or agents, shall be a defendant or third party to
or threatened with any litigation or proceedings before any court or
Governmental Agency which, in the opinion of Issuer, acting reasonably, could
prevent or restrict Issuer or Subscriber from observing and performing any of
their respective obligations and covenants pursuant to this Agreement or the
Closing Documents.
<PAGE>
- 27 -
6.2.3 Receipt of Closing Documentation. All Closing Documents and all actions
and proceedings taken on or prior to the Closing in connection with the
performance by Subscriber of its covenants and obligations under this Agreement
shall be satisfactory to Issuer and Issuer shall have received copies of the
Closing Documents and all such documentation or other evidence as they may
reasonably request for the Closing in form (as to certification otherwise) and
substance satisfactory to it.
6.3 Waiver. Party may waive, by notice to the other Party, any condition set
forth in this Article 6 which is for its exclusive benefit. No waiver by a Party
of any condition, in whole or in part, shall operate as a waiver of any other
condition.
6.4 Failure to Satisfy Conditions. If any condition set forth in Sections
6.1 or 6.2 is not satisfied on or before the Closing Time, the Party entitled to
the benefit of such condition (the "First Party") may send notice in writing to
the other Party that this Agreement is to be terminated. Upon termination, the
First Party shall be released from all obligations hereunder, and unless the
First Party can show that the condition or conditions which have not been
satisfied and for which the First Party has terminated this Agreement are
reasonably capable of being performed or caused to be performed by the other
Party or have not been satisfied by reason of a default by the other Party
hereunder, then the other Party shall also be released from all obligations
hereunder.
6.5 Destruction or Expropriation. If, prior to the Closing Time, there
occurs any material destruction or damage by fire or other cause or hazard to
any of the Assets, or if the Assets or any material part of them are
expropriated or forcefully taken by any Governmental Agency or if notice of
intention to expropriate a material part of the Assets has been filed in
accordance with Applicable Law, then Subscriber may, at its option, terminate
this Agreement by notice to Issuer.
ARTICLE 7
GENERAL
7.1 Expenses. Each Party shall pay all expenses it incurs in authorizing,
preparing, executing and performing this Agreement and the transactions
contemplated hereunder, whether or not the Closing occurs, including all fees
and expenses of its legal counsel, bankers, investment bankers, brokers,
accountants or other representatives or consultants.
7.2 Time. Time is of the essence of this Agreement and each of its
provisions.
<PAGE>
- 28 -
7.3 Notice. Any notice or other communication (in this Section a "Notice")
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and
left with a receptionist or other responsible employee of the relevant
party at the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic
Transmission"), charges prepaid and confirmed by prepaid first class
mail;
in the case of a Notice to Subscriber addressed to it at:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M4E 1E6
Attention: VP Strategic Planning & New Media
Fax No.: (416) 869-4762
and in the case of a Notice to Issuer addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-5705
<PAGE>
- 29 -
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 7.3 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists
any general interruption of postal services due to strike, lockout or
other cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on
the first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 7.3.
7.4 Public Announcements. Before the Closing Date, neither Party shall make
any public statement or issue any press release concerning the transactions
contemplated by this Agreement except as may be necessary, in the opinion of
counsel to the Party making such disclosure, to comply with the requirements of
all Applicable Law. If any such public statement or release is so required, the
Party making such disclosure shall consult with the other Party prior to making
such statement or release, and the Parties shall use all reasonable efforts,
acting in good faith, to agree upon a text for such statement or release which
is satisfactory to both Parties.
<PAGE>
- 30 -
7.5 Assignment. None of this Agreement nor any right or obligation hereunder
is assignable in whole or in part by either Party without the prior written
consent of the other Party. Notwithstanding the foregoing, Subscriber may,
without the consent of Issuer, assign this Agreement and its rights hereunder to
any wholly-owned subsidiary on condition that Subscriber remains liable to
observe and perform all of its covenants and obligations hereunder. Subject
thereto, this Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors (including any successor by reason of
amalgamation or statutory arrangement of either Party) and permitted assigns.
7.6 Further Assurances. Each Party shall do such acts and execute and
deliver such further agreements, documents, conveyances, deeds, assignments,
transfers and the like, and shall cause the doing of such acts and the execution
and delivery of such further items as are within its power and as the other
Party may in writing at any time and from time to time reasonably request, in
order to give full effect to the provisions of this Agreement and the Closing
Documents.
7.7 Dispute Resolution Process. If any dispute, disagreement, controversy or
claim arising out of or relating to this Agreement including, without
limitation, its application, interpretation, performance, breach, termination,
enforcement or damages, or remedies arising out of the breach of or non-
compliance therewith, shall be finally determined by arbitration before a single
arbitrator to be commenced and conducted in the English language in Toronto in
accordance with the International Commercial Arbitration Act (Ontario) which
adopts the UNCITRAL Model Law on International Commercial Arbitration and the
rules provided therein (the "Model Law"). The Parties hereto agree that:
(a) subject to mutual agreement between the Parties to the contrary, the
arbitrator shall be a person who is legally trained and trained as a
professional arbitrator and who has a minimum of five (5) years
experience in the licensing of computer software;
(b) neither of them shall apply to the Courts of Ontario or any other
jurisdiction to attempt to enjoin, delay, impede or otherwise interfere
with or limit the scope of the arbitration or the powers of the arbitral
tribunal provided for in the Model Law;
(c) the award of the arbitral tribunal shall be a final and conclusive award
and judgment with respect to all matters properly before the arbitral
tribunal in accordance with the Model Law and neither Party shall appeal
such award in any manner whatever to any court, tribunal or other
authority; and
(d) the award of the arbitral tribunal may be entered and enforced by any
court in any jurisdiction having jurisdiction over the Parties hereto or
the subject matter of the award or the properties or assets of either of
the Parties hereto.
<PAGE>
- 31 -
Notwithstanding the foregoing, either Party may apply to the courts of the
Province of Ontario or any other jurisdiction for injunctive or other equitable
remedies to protect its rights to Confidential Information.
IN WITNESS WHEREOF the Parties have duly executed this Agreement.
INTERNET LIQUIDATORS INTERNATIONAL INC.
By:
-------------------------------------
(Duly Authorized Officer)
By:
-------------------------------------
(Duly Authorized Officer)
TORONTO STAR NEWSPAPERS
LIMITED
By:
-------------------------------------
(Duly Authorized Officer)
CP Doc #: 31478-1
February 12, 1997
<PAGE>
SCHEDULE "A"
DEFINITIONS
In this Agreement, unless the subject matter or context is inconsistent
therewith:
"Act" means the Business Corporations Act (Ontario) as amended or restated and
any successor legislation of comparable effect;
"Advertising Credits" means a credit to purchase advertising from the
Subscriber;
"Agreement" means this Subscription Agreement and all schedules annexed to this
Agreement as the same may be amended from time to time in accordance with the
provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar
expressions mean and refer to this Agreement and not to any particular article
or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement;
"Articles" means the articles of amalgamation of Issuer dated January 9, 1997;
"Applicable Law" means any domestic or foreign statute, law, ordinance, rule,
regulation, regulatory policy or guideline, by-law (zoning or otherwise) or
Order that applies to Issuer, the Subsidiaries, the Business, the way the
Business is carried on or to the Shares or Warrant;
"Assets" means all of the assets and undertaking of Issuer and the Subsidiaries,
both tangible and intangible, including goodwill;
"Business" means collectively the businesses carried on by Issuer and the
Subsidiaries including the maintenance of an internet website under the URL
www.internetliquidators.com which offers consumer products for sale via credit
card transactions through an auction and storefront mall format, for both retail
and wholesale suppliers;
"Business Day" means any day of the week other than a Saturday, Sunday or
statutory or civic holiday observed in Toronto, Ontario;
"Closing" means the issuance of the Shares and Warrant by Issuer to Subscriber
and the completion of all other transactions contemplated in connection with the
purchase of the Shares and Warrant;
"Closing Date" means February 12, 1997, or such other Business Day as the
Parties agree in writing as the date on which the Closing is to take place;
"Closing Document" means any document delivered at or subsequent to the Closing
Time as
<PAGE>
provided in or pursuant to, this Agreement;
"Closing Time" means 11:00 a.m. (Toronto time) on the Closing Date or such other
time on that date as the Parties agree that the Closing shall take place;
"Confidential Information" means all information relating to either Party or to
such Party's business, products, sales, customers, trade secrets, technology or
financial position to which access is obtained or granted hereunder, which when
disclosed to the other Party is marked or otherwise designated as confidential,
provided, however, that Confidential Information shall not include any data or
information which:
(i) is or becomes publicly available through no fault of the other Party;
(ii) is already in the rightful possession of the other Party prior to its
receipt from the other Party;
(iii) is independently developed by the other Party;
(iv) is rightfully obtained by the other Party from a third party not
subject to an obligation of confidentiality;
(v) is disclosed with the written consent of the Party whose information
it is; or
(vi) is disclosed pursuant to court order or other legal compulsion;
"Convertible Security" means a security of Issuer convertible into or
exchangeable for one or more Voting Securities of Issuer;
"Encumbrance" means any encumbrance of any kind whatever and includes a security
interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge,
trust or deemed trust (whether contractual, statutory or otherwise arising),
adverse claim, or any other option, right or claim of others of any kind
whatever affecting the Assets, Shares or Warrant, as applicable and any
restrictive covenant or other agreement, restriction or limitation (registered
or unregistered) on the Assets, Shares or Warrant, as applicable;
"Financial Disclosure Date" means final day reviewed by any of the Financial
Statements and being December 31, 1996;
<PAGE>
"Financial Statements" means the unaudited consolidated balance sheet of Issuer
as at December 31, 1996 and the unaudited consolidated statement of loss of
Issuer for the 12 month period ended December 31, 1996;
"Generally Accepted Accounting Principles" means generally accepted accounting
principles from time to time approved by the Canadian Institute of Chartered
Accountants, or any successor institute, applicable as at the date on which any
calculation or determination is required to be made in accordance with generally
accepted accounting principles, and where the Canadian Institute of Chartered
Accountants includes a recommendation in its Handbook concerning the treatment
of any accounting matter, such recommendation shall be regarded as the only
generally accepted accounting principle applicable to the circumstances that it
covers;
"Generic Software" means mass-market software which is readily substitutable by
the Business with minimum cost or interruption to the Business;
"Governmental Agency" means any domestic or foreign government whether federal,
provincial, state or municipal and any governmental agency, authority,
commission or instrumentality of any kind whatever;
"Information Record" means any statement contained in any press release,
material change report, financial statement or other document of Issuer or any
Subsidiary which has been or is publicly disseminated pursuant to any applicable
securities laws prior to the Closing Time;
"Intellectual Property Rights" includes: (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv)
design patent or industrial design law, (v) semi-conductor chip or mask work
law, or (vi) any, other statutory provision or common law principle applicable
to the Issuer, the Subsidiaries, the Business or Assets which may provide a
right in either (a) ideas, formulae, algorithms, concepts, inventions or know-
how generally, including trade law, or (b) the expression or use of such ideas,
formulae, algorithm, concepts inventions or know-how; and (B) any and all
applications, registrations, license, sub-licenses, franchise agreements or any
other evidence of a right in any of the foregoing;
"Licence" means any licence, permit, approval, right, privilege, concession or
franchise;
"ordinary course" when used in relation to the conduct by Issuer and the
Subsidiaries of the Business means any transaction which constitutes an ordinary
day-to-day business activity of Issuer and the Subsidiaries conducted in a
commercially reasonable and businesslike manner consistent with the past
practices of Issuer and the Subsidiaries;
"Order" means any order (draft or otherwise), judgment, injunction, decree,
award or writ of any, court, tribunal, arbitrator, Governmental Agency or other
Person;
<PAGE>
"Parties" means Issuer and Subscriber collectively, and "Party" means any one of
them;
"Person" shall be broadly interpreted and includes an individual, body
corporate, partnership, joint venture, trust, association, unincorporated
organization, the Crown, any Governmental Agency or any other entity recognized
by law;
"Permitted Encumbrances" means inchoate liens and all statutory liens, charges,
obligations and encumbrances not required by law to be registered;
"Prime Rate" for any day means the rate of interest expressed as a rate per
annum that The Royal Bank of Canada establishes at its head office in Toronto as
the reference rate of interest that it will charge on that day for Canadian
dollar demand loans to its customers in Canada and which it at present refers to
as its prime rate;
"Regulatory Filings" means all material and reports filed, or required to be
filed, with applicable securities regulatory authorities and any stock exchange
on which the securities of the relevant body corporate are listed;
"Rights" means any options, rights, warrants or subscription privileges issued
or granted by Issuer (whether or not currently exercisable or exercisable on
conditions) to purchase Voting Securities or Convertible Securities of Issuer;
"Shares" means the 1,000,000 common shares in the capital stock of Issuer to be
subscribed hereunder by Subscriber from Issuer;
"Subscription Price" has the meaning ascribed to that term in Section 2.2;
"Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary"
means any one of them;
"Taxes" means all federal, provincial, local, foreign or other taxes, imposts,
rates, levies, assessments and Government fees or dues lawfully levied, assessed
or imposed against Issuer and the Subsidiaries or in respect of the Business,
including income, premium, sales, excise, use, property, capital, goods and
services, business transfer and value added taxes and custom and import duties
and includes all interest, fines and penalties with respect thereto;
"Tax Returns" means all reports and returns filed or required to be filed by
Issuer and the Subsidiaries in respect of Taxes;
"Technical Information" means all right, title and interest in and to all know-
how of Issuer including
(i) all information of a scientific, technical or business nature whether
in oral,
<PAGE>
written, graphic, machine readable, electronic or physical form; and
(ii) all patterns, plans, designs, research data, research plans, trade
secrets and other proprietary know-how, processes, formulas, drawings,
technology, computer software and related manuals, unpatented blue
prints, flow sheets, equipment and parts lists, instructions, manuals,
records and procedures;
"Technology" means the Intellectual Property Rights and the Technical
Information;
"Voting Securities" means the common shares of Issuer and all other securities
of Issuer of any kind or class having power to vote for the election of
directors either under all circumstances or in certain circumstances or in
certain events (whether such circumstances or events exist or have occurred);
and
"Warrant" means the warrant for the purchase of common shares in the capital of
the Issuer to be issued to Subscriber hereunder in the form set out in Schedule
"N".
<PAGE>
SCHEDULE "B"
FINANCIAL STATEMENTS
Unaudited consolidated financial statements of Internet Liquidators
International Inc. for the twelve month period ended December 31, 1996.
Incorporated by Reference. See Registration Statement (File No. 001-14835) on
Form 20-F.
<PAGE>
SCHEDULE "C"
SUBSIDIARIES
Internet Liquidators USA, Inc.
a. Articles
Articles of Incorporation dated May 6, 1996
b. By-laws
By-laws dated May 6, 1996
<PAGE>
SCHEDULE "D"
OUTSTANDING OPTIONS AND WARRANTS
I. Option Holders:
Internet Liquidators International Inc.
---------------------------------------
<TABLE>
<CAPTION>
Optionee
No. of Date of Grant Exercise Expiry
Options Price Date
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paul Dodin 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Dr. Duncan
Copeland 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Jeffrey Lymburner 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Christopher Lobb 25, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
T. Christopher
Bulger 100, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Brent Bowes 100, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Rob Joynt 12, 500 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Nathan Feedman 12, 500 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Jeff Stephens 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Bruce Fowler 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Shannon McMahon 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
Rose Szot 5, 000 February 29, 1996 $1.25 February 28, 1999
- ------------------------------------------------------------------------------------
HDL Capital
Corporation 475, 000 May 1, 1996 $1.25 April 30, 1999
- ------------------------------------------------------------------------------------
Frank Clegg 50, 000 September 16, 1996 $0.99 September 15, 1998
- ------------------------------------------------------------------------------------
</TABLE>
CP Doc #: 29918-1
<PAGE>
SCHEDULE "E"
LITIGATION
As of the date hereof, there is currently no outstanding or contemplated
litigation involving or that may involve Internet Liquidators International Inc.
<PAGE>
SCHEDULE "F"
LICENSES
INTERNET LIQUIDATORS INTERNATIONAL INC.
THIRD PARTY SOFTWARE LICENCES PURCHASED
TO JANUARY 30, 1997
[confidential material filed separately with the SEC]
See attached papers.
CP 29729-1
March 23, 1999
<PAGE>
SCHEDULE "G"
MAJOR SHAREHOLDER INTERESTS
The following is a list of shareholders owning greater than 10% of the issued
and outstanding shares in the capital of Internet Liquidators International
Inc.:
Smythe Group Company - 1,850,000 shares
1184041 Ontario Inc. - 1,812,500 shares
CP-29729-1
March 23, 1999
<PAGE>
SCHEDULE "H"
MATERIAL CONTRACTS
Product Suppliers:
List of Suppliers (as of January 30, 1997)
Draft Supplier Agreements (Four Versions)
Draft Marked-up Version of Agreement with W3 Edge Inc.
Service Supplier Agreements (as of January 30, 1997):
Agreement between RV Storage & Assembly Co. Ltd. and Internet Liquidators Inc.
dated February 2, 1996.
Automated Shipping System Letter of Agreement between United Parcel Service and
Internet Liquidators Inc. dated April 2, 1996.
Courier Service Agreement between Purolator Courier Ltd. and Internet
Liquidators Inc. dated February 21, 1996.
Premium Finance Agreement between AIG Credit Corp. of Canada and Internet
Liquidators International Inc. dated October 8, 1996.
Visa Agreement between the Bank of Nova Scotia and Internet Liquidators Inc.
dated February 21, 1996.
Mastercard Agreement between the Bank of Montreal and Internet Liquidators Inc.
dated March 13, 1996.
Credit Card Processing Agreement between First USA Merchant Services, Inc. and
Internet Liquidators USA, Inc. dated July 17, 1996.
American Express Agreement between Amex Bank of Canada and Internet Liquidators
Inc. dated July 20, 1996.
<PAGE>
Employment Contractor Agreements:
Employment Agreement between Paul Godin and Internet Liquidators Inc. dated
January 1, 1996
Employment Agreement between Jeffrey Lymburner and Internet Liquidators Inc.
dated January 1, 1996.
Designated Insured Persons and Company Reimbursement Policy between Aetna and
Internet Liquidators International, Inc. dated October 10, 1996.
Indemnity Agreement between Frank Clegg and Internet Liquidators International
Inc. dated September 16, 1996.
Engagement Letter between HDL Capital Corporation Agreement and Internet
Liquidators International Inc. dated August 22, 1996.
Toronto Star Newspapers Limited Agreements
Subscription Agreement dated February 12, 1997 between Toronto Star Newspapers
Limited ("Torstar") and Internet Liquidators International Inc. ("IL").
Warrant certificate dated February 12, 1997 executed by IL evidencing the
Warrant.
Shareholders' Agreement dated February 12, 1997 between Torstar, IL, 1184041
Ontario Inc. ("1184041") and the Smythe Group Company ("Smythe").
E-Commerce Services Agreement dated February 12, 1997 between Torstar and IL.
Master Preferred Escrow Agreement dated February 12, 1997 between Torstar, IL
and Data Securities International, Inc.
IP Rights and Non-Competition Agreement dated February 12, 1997 between Torstar,
IL, 1184041, Smythe, Paul Godin and Jeff Lymburner.
CP Doc #: 133607-1
<PAGE>
SCHEDULE "I"
ENCUMBRANCES
Standard Mercantile Bancorp Limited Partnership re: Loan Agreement with Internet
Liquidators International Inc. dated October 18, 196
General Security Agreement between Internet Liquidators International Inc. and
Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996.
Indenture of Guarantee between Internet Liquidators International Inc. and
Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996.
CP-29729-1
March 23, 1999
<PAGE>
SCHEDULE "J"
INTELLECTUAL PROPERTY RIGHTS
. see attached copy of letter from MacBeth & Johnson, Barristers &
Solicitors, to Brent Bowes of Internet Liquidators Inc. dated August 29,
1996.
. IP Rights and Non-Competition Agreement between Toronto Star Newspapers
Limited, Paul Godin, 1184041 Ontario Inc., Jeff Lymburner, Smythe Group
Company and Internet Liquidators International Inc. made the 12th day of
February, 1997. A copy of the agreement is contained in Schedule "H".
<PAGE>
SCHEDULE L
E-COMMERCE SERVICES AGREEMENT
Incorporated by reference. See Exhibit 3.2.
CP-29729-1
March 23, 1999
CP Doc #: 133607-1
<PAGE>
SCHEDULE M
SHAREHOLDERS' AGREEMENT
Agreement has been terminated.
<PAGE>
SCHEDULE "N"
THIS WARRANT WILL BE VOID AND OF NO VALUE OR EFFECT UNLESS EXERCISED PRIOR TO
THE EXPIRY TIME.
COMMON SHARE PURCHASE WARRANT
INTERNET LIQUIDATORS INTERNATIONAL INC.
(the "Company")
(Amalgamated under the laws of Ontario)
No. TS-1
Right to Purchase Common Shares
THIS IS TO CERTIFY that for value received, Toronto Star Newspapers Limited
("Torstar"), the registered holder hereof, is entitled to exercise its rights
under this Warrant, in whole or in part, at any time, and from time to time,
from 9:00 a.m. (Toronto time) February 12, 1997 (the "Effective Date") to 4:00
p.m. (Toronto time) January 30, 1998 (the "Expiry Time"), to purchase 500,000
fully paid and non-assessable common shares without par value in the capital of
the Company as provided below (the "Common Shares"), as such Common Shares are
presently constituted, upon and subject to the terms and conditions hereinafter
referred to and at a subscription price as provided below (the "Exercise
Price"):
36. The Exercise Price for each Common Share shall be Cdn. $1.25 per
Common Share.
37. The Exercise Price to be paid by Torstar to the Company under this
Warrant will be paid in cash.
38. Transfer taxes and other taxes related to the issuance of Common
Shares pursuant to the exercise of this Warrant, if any, and other
ancillary expenses related to the issuance of such Common Shares shall be
paid by the Company.
39. If at any time there shall be a reclassification of the Common
Shares outstanding at any time or change of the Common Shares into other
shares or securities, or any other capital reorganization affecting the
Common Shares, or a consolidation, amalgamation or merger of the Company
with or into any other corporation (other than a consolidation,
amalgamation or merger which does not result in any reclassification of
the outstanding Common Shares or a change of the Common Shares into other
shares or securities), or a transfer of the undertaking or assets of the
Company as an entirety or substantially as an
<PAGE>
entirety to another corporation or other entity (any of such events being
called a "Capital Reorganization"), Torstar shall be entitled to receive
upon the exercise of the Warrant, and shall accept for the same aggregate
consideration, in lieu of the number of Common Shares to which it was
theretofore entitled upon the exercise of the Warrant, the kind and amount
of shares or other securities or property which it would have been
entitled to receive as a result of such Capital Reorganization if, on the
effective date thereof, it had been the registered holder of the number of
Common Shares to which it was theretofore entitled upon such exercise. If
determined appropriate by the Company, appropriate adjustments shall be
made as a result of any such Capital Reorganization in the application of
the provisions set forth in this paragraph with respect to the rights and
interests thereafter of Torstar to the end that the provisions set forth
in this paragraph with respect to the rights and interests thereafter of
Torstar to the end that the provisions set forth in this paragraph shall
thereafter correspondingly be made applicable as nearly as may reasonably
be in relation to any shares, other securities or of the property
thereafter deliverable upon the exercise of the Warrant.
40. The right to purchase Common Shares in the capital of the Company
may only be exercised by Torstar within the time hereinbefore set out by:
(1) duly completing in the manner indicated and executing the
subscription form annexed hereto, and
(2) surrendering this Warrant to the Company, at its registered office in
Toronto, together with a certified cheque payable to the order of the
Company at par for the subscription price of the Common Shares
subscribed for.
41. Subject to the terms and conditions of this Warrant, upon such
surrender and payment, Torstar shall be deemed for all purposes the holder
of record of such Common Shares and the Company covenants that it will
(subject to the provisions of this Warrant) cause a certificate or
certificates representing such Common Shares to be personally delivered to
Torstar at the address specified in such subscription form or if no
specification is made then to the address appearing in the register of
warrants maintained by the Company pursuant to this Warrant.
42. Torstar may subscribe for and purchase any lesser number of whole
Common Shares than the number of Common Shares purchasable under this
Warrant and in such event shall be entitled to receive a new Warrant in
respect of the balance of the Common Shares purchasable under this Warrant
not then subscribed for and purchased. To the extent that this Warrant
confers the right to purchase a fraction of a Common Share, the Company
shall not be required to issue such fractional Common Shares.
43. The holding of this Warrant shall not constitute Torstar a
shareholder of the Company or entitle Torstar to any right or interest in
respect thereof except as herein expressly provided.
<PAGE>
44. This Warrant may be transferred or assigned by Torstar to any
entity of which Torstar owns or has the right to acquire, whether directly
or indirectly, 50.1% or more of the outstanding securities entitled to
vote for the election of directors (or equivalent governing body) of such
entity provided Torstar complies with the Securities Act (Ontario) and the
Regulations thereunder, failing which any transfer or assignment shall be
null and void.
45. In case this Warrant shall become mutilated or be lost, destroyed
or stolen, the Company, in the reasonable exercise of its discretion, may
issue a new Warrant of like date and tenor as the one mutilated, lost,
destroyed or stolen in exchange for and in place of, and upon surrender
and cancellation of such mutilated Warrant or in lieu of and in
substitution for such lost, destroyed or stolen Warrant, and the
substituted Warrant shall be in like form and shall be entitled to like
benefits herewith.
46. The applicant for the issue of a new Warrant pursuant to the above
paragraph 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 Company such evidence of ownership and of the loss,
destruction or theft of the Warrant so lost, destroyed or stolen as shall
be satisfactory to the Company in the reasonable exercise of its
discretion and such applicant may also be required to furnish an indemnity
in amount and form satisfactory to the Company in the reasonable exercise
of its discretion, and shall pay the reasonable charges of the Company in
connection therewith.
47. This Agreement shall be governed by and construed in accordance
with the laws of the Province of Ontario and the laws of Canada and the
parties hereby irrevocably attorn to the exclusive jurisdiction of the
Courts of the Province of Ontario in respect of the subject matter hereof
(excluding any provisions that would result in the application of the laws
of another jurisdiction).
IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its duly
authorized officers as of the 12th day of February, 1997.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By:
---------------------------------
(Duly Authorized Officer)
By:
---------------------------------
(Duly Authorized Officer)
<PAGE>
SUBSCRIPTION FORM
TO: INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Company")
The undersigned registered holder of the within Warrant hereby exercises
the right to purchase and hereby subscribes for such number of Common Shares
without par value in the capital of the Company at the subscription price per
share in effect on the date hereof according to the terms of the within Warrant
and herewith makes payment of the subscription price in full for the said number
of Common Shares. Such Common Shares are to be issued as follows:
<TABLE>
Name Address in Full Number of Shares/%
---- --------------- ------------------
<S> <C> <C>
</TABLE>
DATED this ____ day of ____________, 19____.
TORONTO STAR NEWSPAPERS LIMITED
By:
---------------------------------
(Duly Authorized Officer)
Address in Full:
CP Doc #: 31477-1
February 12, 1997
<PAGE>
Exhibit 3.2
E-Commerce Services Agreement
THIS AGREEMENT is made as of the 12th day of February, 1997 (the "Effective
Date") by and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation
having a principal place of business at 5915 Airport Road, Suite 330,
Mississauga, Ontario, L4V 1T1 ("IL") and TORONTO STAR NEWSPAPERS LIMITED, a
corporation having a place of business at 1 Yonge Street, Toronto, Ontario, M5E
1E6 ("Torstar").
BACKGROUND:
1. IL has developed, and has all applicable rights in, certain electronic
auction software, technology and services (collectively, the "IL
Technology"), as more particularly described herein.
2. IL uses a portion of the IL Technology in an auction and storefront on-line
service over the internet provided at IL's website found at URL
"www.internetliquidators.com" (the "E-Commerce Service", as more
particularly described herein).
3. Torstar operates an on-line service for subscribers under the name T-O
Online and operates the largest circulation newspaper in Canada.
4. As more particularly described in this Agreement, IL wishes to allow
Torstar and certain related entities who provide interactive services to,
and Torstar has agreed to accept such rights to:
(i) use and commercially exploit the E-Commerce Service for T-O Online
Users in Ontario on an exclusive basis in a Local Auction and Mall
format, as specifically defined herein; and
(ii) for the foregoing purposes, use the IL Technology to allow T-O Online
Users to interface with the E-Commerce Service.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
<PAGE>
-2-
ARTICLE I
INTERPRETATION
I.1 Definitions.
In this Agreement, unless the context otherwise requires, each capitalized term
shall have the meaning attributed thereto in Schedule "A".
I.2 Schedules.
The following are the schedules attached to and forming part of this Agreement:
Schedule "A" - Definitions
Schedule "B" - Description of IL Technology
Schedule "C" - Response Times
Schedule "D" - Source Code Trust Agreement
I.3 Headings.
Words expressed in the singular include the plural and vice-versa and words in
one gender include all genders.
I.4 Extended Meanings.
Words expressed in the singular include the plural and vice-versa and words in
one gender include all genders.
I.5 Entire Agreement.
This Agreement, and any agreements and other documents to be delivered pursuant
to it, constitutes the entire agreement between the Parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, oral or written between the Parties. The
execution of this Agreement has not been induced by, nor do either of the
Parties rely upon or regard as material, any representations, warranties,
conditions, other agreements or acknowledgements not expressly made in this
Agreement or in the agreements and other documents to be delivered pursuant
hereto.
<PAGE>
-3-
I.6 Currency.
Unless otherwise indicated, all dollar amounts referred to in this Agreement are
in Canadian funds.
I.7 Invalidity.
If any of the provisions contained in this Agreement is found by a court of
competent jurisdiction to be invalid, illegal or unenforceable in any respect,
the validity, legality or enforceability of the remaining provisions contained
herein shall not be in any way affected or impaired thereby.
I.8 Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein and shall be
treated, in all respects, as an Ontario contract. The Parties hereby
irrevocably submit to the exclusive jurisdiction of the courts of Ontario in
respect of the subject matter hereof.
I.9 Provision of Services.
For the purposes of this Agreement, references to the sale of products through
the E-Commerce Service shall be deemed to include the provision of services as
well.
ARTICLE II
USE OF E-COMMERCE SERVICE
II.1 Torstar Exclusive E-Commerce Services.
Subject to the terms of this Agreement, IL grants to Torstar and Torstar
Affiliates the exclusive right to use the E-Commerce Service in a Local Auction
and Mall format to sell products from charitable and community organizations and
local retailers to purchasers in the Territory ("T-O Online Exclusive E-
Commerce"), with the E-Commerce Service functioning at a new URL chosen by
Torstar.
<PAGE>
-4-
II.2 Sourcing and Fulfillment for Torstar Exclusive E-Commerce.
Torstar will be responsible for sourcing products, operating the content of the
Local Auctions and Mall, and arranging for the fulfillment of products to the
end consumer. IL will be responsible for ensuring that Local Auctions
functionally take place, that credit card transactions for the Local Auctions
and Mall are processed, and for providing information to Torstar of approved
transactions.
II.3 Torstar Sponsored Auctions.
Torstar shall be allocated, at no additional cost to Torstar, on a non-
cumulative basis, at least sixty minutes per day on the IL's Canadian national
auction as a co-branded sponsor with IL ("Torstar Sponsored Auctions"). Torstar
will have the right to determine at which times on IL's Canadian national
auction the Torstar Sponsored Auctions shall occur, subject to IL's approval
which shall not be unreasonably withheld. During the time that IL is conducting
the Torstar Sponsored Auctions, IL will not conduct any other auctions through
the E-Commerce Service in Canada, nor will it authorize or allow any third party
to do so in Canada using the E-Commerce Service, other than Local Auctions.
II.4 Sourcing and Fulfillment for Torstar Sponsored Auctions.
For Torstar Sponsored Auctions on IL's Canadian national auction, IL will be
responsible for sourcing product from manufacturers and arranging for
fulfillment to the end consumer, as IL currently does with its national
auctions, coordinating with product sourced by Torstar as it may occur from time
to time.
II.5 Allocation of Product.
For Greater Clarity. All products sourced directly from manufacturers or
distributors will be offered for sale though the IL national auction, and all
products sourced from retailers in the Territory will be offered for sale
through the Local Auction and Mall in the Territory. It is further understood
that any business-to-business initiative by IL or charitable organizational work
for a local chapter of a national account of IL (such as Recording Artists
Against Drunk Driving) within the Territory, does not infringe on the exclusive
rights of Torstar for its Local Auctions and Mall in the Territory.
<PAGE>
-5-
II.6 Promotion and Avails.
(a) Sales of Ad Avails. Torstar will be entitled to sell up to [Confidential
Information filed separately with the SEC] of IL's banner advertisements in
Canada on the first page of the E-Commerce Service's Canadian website and
any page of the E-Commerce Service's website that is directly linked to the
first page. All revenue collected by Torstar for sales of these banner
advertisements and those of Torstar Exclusive E-Commerce in the Territory
shall be allocated net of third party sales commissions and such
commissions as are mutually agreed from time to time, [Confidential
Information filed separately with the SEC] to IL and [Confidential
Information filed separately with the SEC] to Torstar.
(b) Marketing and Advertising. IL will purchase advertising from T-O Online,
Torstar Exclusive E-Commerce and in The Toronto Star in an aggregate amount
equal to [Confidential Information filed separately with the SEC] by
January 17, 1998 (the "Required Advertising").
(c) Torstar's charges for such advertising shall not exceed the most favourable
rates charged to other advertisers for comparable advertising commitments.
II.7 Discounts to Third Parties.
[Confidential Information filed separately with the SEC]
II.8 General Revenue Splits for E-Commerce Service.
(a) All Net Revenue received in connection with the sale of products and
services through the E-Commerce Service will be allocated as by a Party as
follows:
<TABLE>
<CAPTION>
Torstar IL
-------------- --------------
<S> <C> <C>
Torstar Local Auctions & Mall Sales in Ontario:
(all transactions through the new URL chosen by Torstar) [XXX] [XXX]
Torstar Sponsored Auctions - Ontario Residence-Based Sales
through the URL www.internetliquidators.com: [XXX] [XXX]
IL Auction and Mall - Ontario Residence-Based Sales through the
URL www.internetliquidators.com: [XXX] [XXX]
(Exclusive of Torstar Sponsored Auctions)
</TABLE>
NOTE: [XXX] denotes Confidential Information filed separately with the SEC.
(b) The same revenues splits as described above shall apply for Torstar Local
Auction and Mall
<PAGE>
-6-
Sales for Ontario and Non-Ontario Residence Based Sales provided that if IL
grants a territorial license to an arm's length third party which would
prohibit sales from such territory through the new URL chosen by Torstar,
Torstar shall on notice, cease accepting sales from such territory.
ARTICLE III
RIGHT TO USE IL TECHNOLOGY
III.1 Scope of Licence re: IL Technology
(a) Subject to the terms of this Agreement, IL grants to Torstar, the right to
use the IL Technology including applicable Software and Documentation to
fully exploit the rights granted under Article Two.
(b) IL will on request grant Torstar a non-exclusive license to use the IL
Technology for non-auction related uses, including, without limitation, the
operation of games and contests on terms to be mutually agreed upon by the
Parties.
III.2 Acknowledgement of Title.
(a) Except as otherwise provided herein, Torstar acknowledges that ownership of
the IL Technology shall remain with IL.
(b) Torstar shall ensure that to the extent that Torstar Affiliates utilize the
licence in this Article Three they do so pursuant to this Agreement.
Subject to the terms of this Agreement Torstar shall indemnify, defend and
hold harmless IL for any breach of this agreement by Torstar or Torstar
Affiliates who have access to the IL Technology. Subject to the terms of
this Agreement, IL shall indemnify, defend and hold harmless Torstar and
Torstar Affiliates which are authorized by this Agreement to have access to
the IL Technology for any breach of this Agreement by IL.
(c) Torstar shall take all reasonable precautions to prevent third parties from
using the IL Technology in its possession in any way that would constitute
a breach of this Agreement including, without limitation, such precautions
as it would otherwise take to protect its own proprietary technology.
III.3 User Interface Branding.
Using the IL Technology and in coordination with IL, Torstar will create Torstar
branded user interfaces for use on T-O Online as "The Star Online Auction" or
such other brand as Torstar may choose using IL's trademark "Online Auction".
These branded versions of the user interfaces for the IL Technology will include
the IL brand as a sub-brand (the "Sub-Branded Interfaces"). The
<PAGE>
-7-
branding and look and feel of the Sub-Branded Interfaces shall be determined by
Torstar subject to IL's approval which shall not be unreasonably withheld.
III.4 Capability of IL Technology
(a) In co-operation with IL, Torstar shall be responsible for integrating the
IL Technology into T-O Online and for developing sub-branded interfaces.
IL will ensure that the Sub-Branded Interfaces will have the right and
capability to use all of the functionality that is used on connection with
the E-Commerce Service at the same time as such functionality is used on
the E-Commerce Service.
(b) Any updates or upgrades and corresponding instructional materials to the IL
Technology and E-Commerce Service will be provided by IL to Torstar at the
same time such updates or upgrades and corresponding instructional
materials are provided for the E-Commerce Service or to any third party.
(c) IL will continue to update and upgrade the IL Technology and E-Commerce
Service to ensure that it contains at least substantially the same
functionality as its competitors as reasonably determined by IL.
III.5 Support and Maintenance.
(a) In cooperation with IL, Torstar will be responsible for integrating and IL
will be responsible for maintaining and improving the IL Technology and the
E-Commerce Service and for providing all necessary assistance, training,
technical support, Software and Documentation in connection with the
Torstar Interactive Services, use of the IL Technology and the E-Commerce
Service. The foregoing will be provided by IL's senior software engineers
at IL's offices. Without limiting the foregoing, IL will provide Torstar
with no less than the most favourable support and maintenance terms (e.g.,
response times and training classes) provided to any third party. IL will
also provide initial assistance using its marketing personnel for Torstar's
sourcing of product, at no cost, as may be reasonable but without adversely
affecting IL's own operations.
(b) If Torstar requests the inclusion in the IL Technology or the E-Commerce
Service of functionality or customization changes for a "Torstar look", IL
will assist Torstar, on terms to be mutually agreed upon. Such
enhancements will be assisted by IL on a cost pass through basis.
<PAGE>
-8-
ARTICLE IV
SERVICES AND TAXES
IV.1 Additional Services.
Upon the prior written consent of Torstar, those additional Services rendered by
IL which are reasonably contemplated hereunder as being provided at an
additional charge and the charge for which is not otherwise set out herein may
be charged to Torstar at IL's standard rates then in effect plus reasonable out-
of-pocket expenses approved in advance by Torstar.
IV.2 Taxes.
Torstar shall pay to IL those taxes, duties, and other such assessments or
charges now in force or enacted in the future that are applicable to this
Agreement or are measured directly by payments made under it and are required to
be collected by IL or paid by IL to tax authorities. This provision includes
sales, use, service, and excise taxes, whether collected by withholding or
otherwise assessed, but does not include taxes based on IL's net income.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
V.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights.
(a) IL represents and warrants that it has the right to grant the licence
hereby granted and that IL has the right to provide the E-Commerce Service.
(b) IL agrees to defend and indemnify Torstar or Torstar Affiliates and hold
each harmless from all losses, claims, damages or liabilities, including
court costs and attorney's fees, in connection with or arising out of any
claim asserted against Torstar or Torstar Affiliates based upon a
contention that the E-Commerce Service or any of the Deliverables, or any
portion thereof in the form accepted by Torstar or Torstar Affiliates and
used within the scope of this Agreement infringes the Intellectual Property
Rights of any third party provided that:
(i) Torstar or Torstar Affiliates promptly notifies IL in writing of the
claim and of all material developments in connection with such claim
and provides all assistance otherwise reasonably requested by IL;
(ii) IL has the right to control, at its own cost, the defence and all
related settlement negotiations (Torstar has the right to participate
at its own expense);
<PAGE>
-9-
(iii) Torstar or Torstar Affiliates does not pay or settle any such claim
without the express written consent of IL; and
(iv) the liability in respect of which indemnity is sought does not arise
out of or in connection with any unauthorized use of the IL
Technology by Torstar or Torstar Affiliates.
In addition, if the E-Commerce Service, any of the Deliverables, or any
portion thereof is held to constitute an infringement of another Person's
rights, and use thereof is enjoined, IL shall, at its election and expense,
either:
(A) procure the right to use the infringing element thereof;
(B) procure the right to an element which performs the same function
without any material loss of functionality; or
(C) replace or modify the element thereof so that the infringing portion
is no longer infringing and still performs the same function without
any material loss of functionality;
and shall make every reasonable effort to correct the situation with
minimal effect upon the operations of Torstar or Torstar Affiliates.
V.2 Requirements of the E-Commerce Service.
IL warrants that the E-Commerce Service and the Deliverables shall perform in
conformance with Torstar's Requirements therefor provided that the IL Technology
is used in accordance with the Documentation and that IL shall have no liability
for performance failures due to events or causes beyond its reasonable control
or due to changes made by Torstar without the prior written approval of IL..
V.3 Disabling Device.
IL warrants that any Software provided hereunder shall not contain any clock,
timer, counter, or other limiting or disabling code, design or routine that
would cause the Software to be made inoperable or otherwise rendered incapable
of performing in accordance with Torstar's Requirements or otherwise limit or
restrict Torstar's or Torstar Affiliates' ability to use same or after the lapse
or occurrence of any triggering prompt.
V.4 Media.
IL represents and warrants that the media on which any Software is provided
shall be compatible with the computer system on which Torstar or Torstar
Affiliates advise it is to be installed and that
<PAGE>
-10-
the media, as supplied by IL, shall be free from defects and computer viruses.
V.5 Representations and Warranties re: Services.
IL agrees that all services to be provided by it hereunder shall be provided in
a timely fashion and in a professional manner by personnel appropriately trained
in the performance of such services in accordance with all applicable
governmental regulations governing such services. Response times shall be as
outlined in Schedule C. If IL does not meet the response time requirements for
a severity (1) or severity (2) event and such failure is not due to an event
beyond the reasonable control of IL, Torstar shall have the right to insist that
its' own engineers and designers assist IL's personnel at IL's premises to
rectify the problem and IL shall co-operate fully in this process.
V.6 Compliance with Applicable Laws.
IL shall comply with all laws applicable to the provision of the E-Commerce
Service or any part thereof.
V.7 Provision of Source Code Materials.
IL agrees to enter into a trust agreement with Torstar and Data Securities
International, Inc. in the form attached as Schedule D for the deposit of the
Source Code Materials such that in the event of default as provided therein,
Torstar will have access to the Source Code Materials.
V.8 Confidentiality.
Each Party covenants to the other Party that it shall keep confidential the
Confidential Information of the other Party to which such Party obtains access
to as a consequence of entering into this Agreement and that it will take all
reasonable precautions to protect such Confidential Information from any use,
disclosure or copying except as expressly authorized by this Agreement. Each
Party shall implement such procedures as the other Party may reasonably require
from time to time to improve the security of the Confidential Information in its
possession. This Section shall survive the termination of the Agreement. For
greater certainty, IL acknowledges and agrees that all information respecting
subscribers to T-O Online is the Confidential Information of Torstar including
e-mail addresses and personal information obtained pursuant to this Agreement.
IL shall not use such information for marketing purposes without the prior
written consent of Torstar.
V.9 Ownership of Software, etc.
Torstar acknowledges that the Software constitutes commercially valuable trade
secrets and proprietary data of IL and that no term of this Agreement shall be
construed to convey title in the Software or the Online Auction trademark to
Torstar. Notwithstanding the foregoing, all Intellectual Property Rights in the
Sub-Branded Interfaces shall vest in Torstar and the parties shall execute such
documentation as may be reasonably required to confirm the foregoing.
<PAGE>
-11-
V.10 Limitation on Warranties.
Except for those warranties otherwise provided herein, neither Party makes any
warranties or representations, and there are no conditions, express or implied,
in fact or in law, including without limitation, the implied warranties or
conditions of merchantable quality and fitness for a particular purpose and
those arising by statute or otherwise in law or from a course of dealing or
usage of trade.
ARTICLE VI
DEFAULT AND TERMINATION
VI.1 Term.
(a) The term of this Agreement (the "Term") shall commence on the Effective
Date and shall continue, subject to early termination in accordance with
the terms hereof, until January 31, 2000 (the "Initial Term"). Thereafter,
and subject to Section 7.1(b), the Agreement shall be automatically
extended for consecutive one (1) year terms (each, being a "Subsequent
Term") unless sixty (60) days prior notice in writing is given by Torstar
prior to the end of any of the Initial Term or any of the Subsequent Terms,
stating Torstar's intention to terminate the Agreement at the end of such
term.
(b) The extension of the Term of the Agreement into any of the Subsequent Terms
shall be conditional upon the Parties, using appropriate diligence and
acting in good faith, during the sixty days prior to the end of the Initial
Term and each Subsequent Term, negotiating and agreeing on reasonable Net
Revenue and advertising allocations for the upcoming Subsequent Term. If
the Parties cannot reach such an agreement, the Parties will submit the
determination of such allocation and fees to binding arbitration unless
Torstar elects to terminate within sixty (60) days before the commencement
of the Subsequent Term. Pending resolution of arbitration and subject to
the payment or repayment of any amount based upon the arbitrator's order,
as applicable, Torstar shall continue to pay the amounts paid during the
expiring term.
VI.2 Termination for Cause.
Subject to the time frames set out below, this Agreement may be terminated
immediately by either Party on written notice upon the occurrence of an event of
default by the other Party. Each of the following constitutes an event of
default for the purposes of this Agreement.
(i) if either Party fails to perform any material obligation set forth in
this Agreement (other than a failure to pay which is considered
separately in (iii)) and such default in
<PAGE>
-12-
the case of a default which is remediable continues for a period of
thirty (30) days after written notice of such failure has been given
by the non-defaulting Party;
(ii) if there is repeated and ongoing failure by a Party to comply with or
perform any of the material terms, conditions, agreements and
obligations imposed on it by this Agreement;
(iii) if a Party should fail to pay a material amount to the other when
payable hereunder (other than such portion of an amount which such
Party, in good faith, disputes is owing) and such breach is not cured
within sixty (60) days after written notice stating that such amount
is due and owing and that non-payment may result in termination; or
(iv) if a Party becomes bankrupt or insolvent or ceases the operation of
its business without a successor.
VI.3 Survival.
For a period of 12 months after this Agreement is terminated, all operative
terms of this Agreement will remain in full force and effect including the use
of the Sub-Branded Interfaces, allocation of Net Revenue and rights to share
revenue and advertising. Thereafter and for a period not to exceed three
months, IL will on request and at Torstar's expense cooperate with Torstar to
assist Torstar in transitioning to a new technology. Except as otherwise
provided herein, the terms of Articles II and VII and Sections 3.2 and 3.5 shall
survive any termination or expiry of this Agreement and shall
continue in force thereafter for the period contemplated by the Agreement as
shall any other provision of this Agreement which, by the nature of the rights
or obligations set out therein, might reasonably be expected to be intended to
so survive.
ARTICLE VII
ARBITRATION
VII.1 Dispute Resolution Process.
If any dispute, disagreement, controversy or claim arising out of or relating to
this Agreement including, without limitation, its application, interpretation,
performance, breach, termination, enforcement or damages, or remedies arising
out of the breach of or non-compliance therewith, shall be finally determined by
arbitration before a single arbitrator to be commenced and conducted in the
English language in Toronto in accordance with the Arbitration Act (Ontario).
The Parties hereto agree that:
(a) subject to mutual agreement between the Parties to the contrary, the
arbitrator shall be a person who is legally trained and trained as a
professional arbitrator and who has a
<PAGE>
-13-
minimum of five (5) years experience in the licensing of computer software;
(b) the Parties shall agree on the identity of the arbitrator within 10 days of
notice of reference to arbitration and in default thereof, either party may
apply to a Judge of the Supreme Court of Ontario, General Division, to
appoint an arbitrator with the foregoing qualifications;
(c) the Parties shall be required to make written submissions to the arbitrator
within 5 days of appointment and shall not be entitled to make verbal
representations or further submissions unless so requested by the
arbitrator. Any party who does not comply with the foregoing time period
shall not be entitled to make any submissions without the written approval
of the other party;
(d) the arbitrator shall be required to render his decision in writing within
10 days of the period mentioned in subsection 7.1(c);
(e) neither of the Partners shall apply to the Courts of Ontario or any other
jurisdiction to attempt to enjoin, delay, impede or otherwise interfere
with or limit the scope of the arbitration or the powers of the arbitral
tribunal provided for in the Arbitration Act (Ontario)
(f) the award of the arbitral tribunal shall be a final and conclusive award
and judgment with respect to all matters properly before the arbitral
tribunal in accordance with the Arbitration Act (Ontario) and neither Party
shall appeal such award in any manner whatever to any court, tribunal or
other authority; and
(g) the award of the arbitral tribunal may be entered and enforced by any court
in any jurisdiction having jurisdiction over the Parties hereto or the
subject matter of the award or the properties or assets of either of the
Parties hereto.
ARTICLE VIII
MANAGEMENT AND REPORTING
VIII.1 Management and Reporting.
The Parties each agree to designate an individual from their respective
companies with adequate authority and full technical competence to deal with
matters relating to the implementation of the Deliverables (each, being a
"Project Manager"). Specifically, these individuals will, on behalf of their
respective Parties, in accordance with the spirit of this Agreement, use
reasonable efforts to coordinate the provision of the E-Commerce Service. Upon
such designations, each of IL and Torstar shall concurrently provide the other
with details with respect to its Project Manager, including name, address and
telephone number, and each of IL and Torstar may from time to time change its
Project Manager with the consent of the other which will not be unreasonably
withheld.
<PAGE>
-14-
VIII.2 Reports.
IL will provide Torstar with a monthly usage report that tracks all elements
necessary to allocate revenues. In addition IL will provide such information as
is available to it as to the users of the E- Commerce Service in the Territory
and how users of the E-Commerce Service are navigating through the E-Commerce
Service.
VIII.3 Payment.
All parties shall make payments owing by them to the others within fifteen days
of the end of the month in which the obligation arises.
ARTICLE IX
GENERAL
IX.1 Notice.
Any notice or other communication (in this Section a "Notice") required or
permitted to be given or made hereunder shall be in writing and shall be well
and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to Subscriber addressed to it at:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M4E 1E6
Attention: Vice President, Strategic Planning
and New Media
Fax No.: (416) 869-4762
<PAGE>
-15-
and in the case of a Notice to Issuer addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-5705
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 9.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 9.1.
<PAGE>
-16-
IX.2 Assignment.
The rights and obligations of IL under this Agreement shall not be assigned, in
whole or in part, by IL without the prior consent in writing of Torstar and any
purported assignment made without that consent is void and of no effect. No
assignment of this Agreement shall relieve IL from any obligation under this
Agreement or impose any liability upon Torstar, unless otherwise agreed to in
writing by Torstar. Torstar may assign its rights and obligations under this
Agreement to any Affiliate but no such assignment shall release Torstar from any
obligation under this Agreement or impose any liability on IL, unless otherwise
agreed to in writing by IL.
IX.3 Binding on Successors.
This Agreement shall enure to the benefit of and be binding upon the Parties and
their respective successors and permitted assigns.
IX.4 Further Assurances.
Each Party agrees that upon the written request of the other Party, it will do
all such acts and execute all such further documents, conveyances, deeds,
assignments, transfers and the like, and will cause the doing of all such acts
and will cause the execution of all such further documents as are within its
power to cause the doing or execution of, as any other Party hereto may from
time to time reasonably request be done and/or executed as may be necessary or
desirable to give effect to this Agreement.
IX.5 Independent Contractors.
It is understood and agreed that in giving effect to this Agreement, no Party
shall be or be deemed a partner, agent or employee of another Party for any
purpose and that their relationship to each other shall be that of independent
contractors. Nothing in this Agreement shall constitute a partnership or a
joint venture between the Parties. No Party shall have the right to enter into
contracts or pledge the credit of or incur expenses of liabilities on behalf of
the other Party.
IX.6 Waiver.
A waiver by any Party hereto of any of its rights hereunder or of the
performance by another Party of any of its obligations hereunder shall be
without prejudice to all of the other rights hereunder of the Party so waiving
and shall not constitute a waiver of any such other rights or, in any other
instance, of the rights so waived, or a waiver of the performance by the other
Party of any of its other obligations hereunder or of the performance, in any
other instance, of the obligations so waived. No waiver by any Party of any of
its obligations hereunder shall be effective or binding upon such Party unless
the same shall be expressed in writing.
<PAGE>
-17-
IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date
first written, above.
INTERNET LIQUIDATORS INTERNATIONAL INC.
By:
-------------------------------------
(Duly Authorized Officer)
By:
-------------------------------------
(Duly Authorized Officer)
TORONTO STAR NEWSPAPERS LIMITED
By:
-------------------------------------
(Duly Authorized Officer)
By:
-------------------------------------
(Duly Authorized Officer)
<PAGE>
-18-
SCHEDULE "A"
DEFINITIONS
In this Agreement, unless the context otherwise requires, the following
expressions have the meanings indicated below:
"Above the Fold" means, in respect of a hyperlink, the ability to view the
hyperlink without having to scroll down the applicable web page;
"Agreement" means this E-Commerce Services Agreement and all schedules annexed
to this Agreement as the same may be amended from time to time in accordance
with the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and
similar expressions mean and refer to this Agreement and not to any particular
article or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement.
"Business Day" means any day from Monday to Friday inclusive, except statutory
or civic holidays observed in Toronto, Ontario;
"Confidential Information" means all information relating to either Party or to
such Party's business, products, sales, customers, trade secrets, technology or
financial position to which access is obtained or granted hereunder, which when
disclosed to the other Party is marked or otherwise designated as confidential,
provided, however, that Confidential Information shall not include any data or
information which:
(i) is or becomes publicly available through no fault of the other
Party;
(ii) is already in the rightful possession of the other Party prior to
its receipt from the other Party;
(iii) is independently developed by the other Party;
(iv) is rightfully obtained by the other Party from a third party not
subject to an obligation of confidentiality;
(v) is disclosed with the written consent of the Party whose information
it is; or
(vi) is disclosed pursuant to court order or other legal compulsion;
<PAGE>
-19-
"Deliverables" means the whole of the activities, services, materials, software,
matters and things required to be done, delivered or performed by IL in
accordance with the terms of this Agreement, including the software,
documentation and services and including all other rights and things, tangible
or intangible, including intellectual property rights to be provided hereunder
by IL to Torstar or Torstar Affiliates including, without limitation, any of the
foregoing as described in Schedule "B";
"Documentation" means user manuals and the written instructions for the Software
provided by IL which describe the design, performance and functional
specifications of the Software, and which facilitate the use, operation and
maintenance of the Software;
"E-Commerce Service" means those internet auction services and storefront online
commerce services provided by or on behalf of IL or its subsidiaries on the
Internet at the URL "www.internetliquidators.com" or any other comparable on-
line service which IL or its subsidiaries may provide or allow third parties to
provide now or at some future time using the IL Technology or otherwise;
"Effective Date" has the meaning attributed thereto on the face page of this
Agreement;
"Intellectual Property Rights" includes: (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv)
design patent or industrial design law, (v) semi- conductor ship or mask work
law, or (vi) any other statutory provision or common law principle applicable to
this Agreement or the Software which may provide a right in either (a) ideas,
formulae, algorithms, concepts, inventions or know-how generally, including
trade secret law, or (b) the expression or use of such ideas, formulae,
algorithms, concepts, inventions or know-how; and (B) any and all applications,
registrations, licenses, sub-licenses, franchises, agreements or any other
evidence of a right in any of the foregoing;
"IL Technology" means the technology and know-how known by IL or its
subsidiaries in respect of the provision of on-line auction services generally
(and including all Intellectual Property Rights therein), whether patented or
registered, and whether domestic or foreign including patent applications and
copyrighted software, as more particularly described in Schedule "C" and
including that technology and know-how used in respect of the operation of the
E-Commerce Service in accordance with Torstar's Requirements;
"Local Auction and Mall" means an auction or other conduct of online storefront
commerce using the E-Commerce Service to sell products and services of local
retailers and from charitable and community organizations to consumers;
"Net Revenue" means the aggregate amount of revenue (including without
limitation shipping and handling) received by a Party in connection with the
purchase by end users of products or services offered through the E-Commerce
Service, less cost of goods sold, credit card transaction fees, ISP
<PAGE>
-20-
carrier costs and revenue splits (such as America Online) all sales and use
taxes, duties, the cost of shipping and credits for returned goods or services
and bad debts;
"Parties" means IL, Torstar and Torstar Affiliates collectively and "Party"
means any of them;
"Person" includes an individual, company, corporation, partnership, government
or government agency, authority or entity howsoever designated or constituted;
"Required Advertising" has the meaning attributed thereto in Section 2.7(b);
"Services" means those services to be provided by IL to Torstar or the Torstar
Affiliates hereunder;
"Software" means that computer software being provided to Torstar by IL
hereunder to meet Torstar's Requirements, including any modifications or
improvements to the Software (whether developed by IL, Torstar or otherwise);
"Source Code Materials" means:
(a) a complete copy of the source code version of all software required to
allow Torstar to independently operate and maintain and support an auction
service in accordance with Torstar Requirements including the Software,
appropriate labeled to denote the version or release thereof, and the
currency date thereof, in each of:
(i) machine-readable form on machine-readable storage medium suitable for
long term storage and compatible with the Software as then being used
by Torstar and which, when compiled, will produce the object code
version of the Software; and
(ii) human-readable form with annotations in the English language on bond
paper suitable for long term archival storage; and
(b) a complete copy, in English, printed on bond paper, suitable for long term
archival storage, and appropriately labeled to describe the contents
thereof, of all applicable documentation and other explanatory materials
including programmer's notes, technical or otherwise, for the Software as
may be required by Torstar, using a competent computer programmer
possessing ordinary skills and experience, to further develop, maintain and
operate such software without further recourse to IL including, but not
necessarily limited to, general flow-charts, input and output layouts,
field descriptions, volumes and sort sequence, data dictionary, file
layouts, processing requirements and calculation formula and the details of
all algorithms;
"Sub-Branded Interfaces" has the meaning attributed thereto in Section 3.3;
"Territory" means the Province of Ontario;
<PAGE>
-21-
"Torstar Affiliate" means any entity of which Torstar owns or has the right to
acquire, whether directly or indirectly, 50.1% or more of the outstanding
securities entitled to vote for the election of directors (or equivalent
governing body) of such entity and which provides interactive services;
"Torstar Interactive Services" means interactive services provided by Torstar
and Torstar Affiliates, including, without limitation, the T-O Online service;
"T-O Online" has the meaning attributed thereto in the recitals;
"T-O Online Exclusive E-Commerce" has the meaning attributed thereto in Section
2.2;
"Torstar's Requirements" shall mean the statement of the functions and
capabilities of the E- Commerce Service provided hereunder by IL to Torstar and
Torstar Affiliates, as more particularly described in Schedule "B".
"Torstar Sponsored Auctions" has the meaning attributed thereto in Section 2.3;
and
"Work" means the Software and Documentation collectively.
CP Doc#: 31481-1
March 23, 1999
<PAGE>
SCHEDULE "B"
Internet Liquidators Auction and Mall Technology
------------------------------------------------
[Confidential Information filed separately with the SEC]
<PAGE>
SCHEDULE "C"
RESPONSE CHART
1. IL shall respond to a report of the Software failing to meet Torstar's
Requirements in accordance with the severity level. The severity shall be
reasonably determined by Torstar, and communicated to IL, based on the
following definitions:
Severity 1: indicates total inability to use Software, resulting in a
critical impact on user objectives;
Severity 2: indicates ability to use Software but user operation is
severely restricted;
Severity 3: indicates ability to use Software with limited functions which
are not critical to overall user operations; and
Severity 4: indicates that the problem has been bypassed or otherwise
temporarily corrected and is not affecting user operations.
2. IL shall correct the Software to cause it to perform in accordance with
Torstar's Requirements as follows:
Severity 1: within 48 hours of notification by Torstar;
Severity 2: within 96 hours of notification by Torstar;
Severity 3: within 30 days of notification by Torstar;
Severity 4: within 120 days of notification by Torstar;
CP Doc #: 29548-1
January 29, 1997
<PAGE>
SCHEDULE "D"
MASTER PREFERRED ESCROW AGREEMENT
Master Number
----------------------
This Agreement is effective February 12, 1997 among Data Securities
International, Inc.("DSI"), Internet Liquidators International Inc.
("Depositor"), and any additional party signing the Acceptance Form attached to
this Agreement ("Preferred Beneficiary") who collectively may be referred to in
this Agreement as "the parties."
1. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement in the form attached to such Preferred Beneficiary's
Acceptance Form regarding certain proprietary technology of Depositor
(referred to in this Agreement as "the license agreement").
2. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
3. The availability of the proprietary technology of Depositor is critical to
Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under
certain limited circumstances.
4. Depositor and Preferred Beneficiary desire to establish an escrow with DSI
to provide for the retention, administration and controlled access of
certain proprietary technology materials of Depositor.
ARTICLE 2 -- DEPOSITS
2.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, including the signing of the Acceptance Form, Depositor shall deliver
to DSI the proprietary information and other materials identified on an Exhibit
A. DSI shall have no obligation with respect to the preparation, signing or
delivery of Exhibit A.
2.2 Identification of Tangible Media. Prior to the delivery of the deposit
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed
by Depositor and delivered to DSI with the deposit materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2 below.
2.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in
the form provided by the
<PAGE>
-2-
Depositor and conduct a deposit inspection by visually matching the labeling of
the tangible media containing the deposit materials to the item descriptions and
quantity listed on the Exhibit B. In addition to the deposit inspection,
Preferred Beneficiary may elect to cause a verification of the deposit materials
in accordance with Section 1.6 below.
2.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a
copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B
to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Beneficiary is Preferred Beneficiary's notice that the deposit
materials have been received and accepted by DSI.
2.5 Depositor's Representations. Depositor represents as follows:
(1) Depositor lawfully possesses all of the deposit materials deposited
with DSI;
(2) With respect to all of the deposit materials, Depositor has the right
and authority to grant to DSI and Preferred Beneficiary the rights as
provided in this Agreement;
(3) The deposit materials are not subject to any lien or other encumbrance
other than encumbrances arising in the ordinary cause of Depositor's
business;
(4) The deposit materials consist of the proprietary information and other
materials identified in Exhibit A; and
(5) The deposit materials are readable and useable in their current form
or, if the deposit materials are encrypted, the decryption tools and
decryption keys have also been deposited.
2.6 Verification. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
2.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release of a
new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the escrow account.
<PAGE>
-3-
An independent record will be created which will document the activity for each
Exhibit B. The processing of all deposit updates shall be in accordance with
Sections 1.2 through 1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any updates.
2.8 Removal of Deposit Materials. The deposit materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 3 -- CONFIDENTIALITY AND RECORD KEEPING
3.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked facility in the greater Toronto area which is
accessible only to authorized representatives of DSI. DSI shall have the
obligation to reasonably protect the confidentiality of the deposit materials.
Except as provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the deposit materials. DSI shall not disclose the content of
this Agreement to any third party. If DSI receives a subpoena or other order of
a court or other judicial tribunal pertaining to the disclosure or release of
the deposit materials, DSI will immediately notify the parties to this
Agreement. It shall be the responsibility of Depositor and/or Preferred
Beneficiary to challenge any such order; provided, however, that DSI does not
waive its rights to present its position with respect to any such order. DSI
will not be required to disobey any court or other judicial tribunal order.
(See Section 7.5 below for notices of requested orders.)
3.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
3.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 4 -- GRANT OF RIGHTS TO DSI
4.1 Title to Physical Copies of Deposited Materials.
(1) Depositor transfers to DSI in trust all legal title in and to the
physical copies of the deposit materials provided to DSI from time to
time in accordance with the terms of this Agreement. It is
acknowledged by the parties hereto that such transfer by Depositor to
DSI under this Section is not intended to, nor does it, transfer any
intellectual property or other intangible rights in the deposit
materials. DSI agrees
<PAGE>
-4-
to hold the deposit materials in trust for Depositor and Preferred
Beneficiary as provided in this Agreement.
(2) The expression "in trust" is intended to refer strictly to the issue
of ownership of the deposit materials and not to the level of care
which must be taken by DSI in performing its duties under this
Agreement. The duties of DSI are strictly contractual in nature and
are as set out in this Agreement. It is not intended that DSI is to
have the fiduciary duty of a trustee.
4.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the deposit materials onto any copies made by DSI. With all
deposit materials submitted to DSI, Depositor shall provide any and all
instructions as may be necessary to duplicate the deposit materials including
but not limited to the hardware and/or software needed.
4.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right
to transfer deposit materials to Preferred Beneficiary upon any release of the
deposit materials for use by Preferred Beneficiary in accordance with Section
4.5. Except upon such a release or as otherwise provided in this Agreement, DSI
shall not transfer the deposit materials.
ARTICLE 5 -- RELEASE OF DEPOSIT
5.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the following:
(1) voluntary bankruptcy of Depositor;
(2) involuntary bankruptcy provided that the Depositor is not in good
faith diligently taking steps to contest or set aside such process;
(3) if Depositor becomes insolvent and ceases to continue to carry on its
business;
(4) if Depositor ceases the operation of its business and the business is
not continued by a successor acceptable to the Preferred Beneficiary,
acting reasonably; and
(5) any additional release conditions identified on the attached
Acceptance Form.
5.2 Filing For Release. If Preferred Beneficiary believes in good faith that a
Release Condition has occurred, Preferred Beneficiary may provide to DSI written
notice of the occurrence of the Release Condition and a request for the release
of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy
of the notice to Depositor.
<PAGE>
-5-
5.3 Contrary Instructions. From the date DSI delivers the notice requesting
release of the deposit materials, if the Release Condition is one defined in
4.1(b), 4.1(d) or 4.1(e) Depositor shall have ten business days to deliver to
DSI Contrary Instructions. If the Release Condition is one defined in 4.1(a) or
(c), DSI shall release the deposit materials pursuant to Section 4.4 within 48
hours of giving notice to the Depositor under Section 4.2. "Contrary
Instructions" shall mean the written representation by Depositor that a Release
Condition has not occurred or has been cured. Upon receipt of Contrary
Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally,
DSI shall notify both Depositor and Preferred Beneficiary that there is a
dispute to be resolved pursuant to the Dispute Resolution section of this
Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the
deposit materials without release pending (a) joint instructions from Depositor
and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution
provisions, or (c) order of a court.
5.4 Release of Deposit. If DSI does not receive Contrary Instructions from the
Depositor, DSI is authorized to release the deposit materials to the Preferred
Beneficiary or, if more than one beneficiary is registered to the deposit
materials, to release a copy of the deposit materials to the Preferred
Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized
representative is entitled to receive any fees due DSI or DSI's authorized
representative before making the release. This Agreement will terminate with
respect to the Preferred Beneficiary giving notice under Section 4.2 upon the
release of the deposit materials held by DSI.
5.5 Right to Use Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Beneficiary shall have the right to use the deposit materials for
the sole purpose of continuing the benefits afforded to Preferred Beneficiary by
the license agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 6 -- TERM AND TERMINATION
6.1 Term of Agreement. The initial term of this Agreement is for a period of
one year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing
that the Agreement is terminated; or (b) the Agreement is terminated by DSI for
nonpayment in accordance with Section 5.2. If the Acceptance Form has been
signed at a date later than this Agreement, the initial term of the Acceptance
Form will be for one year with subsequent terms to be adjusted to match the
anniversary date of this Agreement. If the deposit materials are subject to
another escrow agreement with DSI, DSI reserves the right, after the initial one
year term, to adjust the anniversary date of this Agreement to match the then
prevailing anniversary date of such other escrow arrangements.
6.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI or DSI's authorized representative, DSI shall provide written notice of
delinquency to the parties to this Agreement affected by such delinquency. Any
such party shall have the right to make the payment to DSI or DSI's authorized
representative to cure the default. If the past due payment is
<PAGE>
-6-
not received in full by DSI or DSI's authorized representative within one month
of the date of such notice, then at anytime thereafter DSI shall have the right
to terminate this Agreement to the extent it relates to the delinquent party by
sending written notice of termination to such affected parties. DSI shall have
no obligation to take any action under this Agreement so long as any payment due
to DSI or DSI's authorized representative remains unpaid.
6.3 Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement by joint instruction of Depositor and each Preferred Beneficiary,
DSI shall return the deposit materials to the Depositor. Upon termination for
nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall
have no obligation to return or destroy the deposit materials if the deposit
materials are subject to another escrow agreement with DSI.
6.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
(1) Depositor's Representations (Section 1.5);
(2) The obligations of confidentiality with respect to the deposit
materials;
(3) The rights granted in the sections entitled Right to Transfer Upon
Release (Section 3.3) and Right to Use Following Release (Section
4.5), if a release of the deposit materials has occurred prior to
termination;
(4) The obligation to pay DSI or DSI's authorized representative any fees
and expenses due;
(5) The provisions of Article 7; and
(6) Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
6.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred
Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by
mutual agreement. If Depositor and Preferred Beneficiary cannot agree,
Preferred Beneficiary shall appoint a trust company or other company
specializing in the escrow business as the agent provided that such company has
appropriate storage facilities located in or around Toronto and agrees to store
the deposited materials there in accordance with the terms of this Agreement.
The new agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named hereunder, without any
further assurance, conveyance, act or deed.
ARTICLE 7 -- DSI'S FEES
<PAGE>
-7-
7.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be
paid its standard fees and expenses applicable to the services provided. DSI or
DSI's authorized representative shall notify the party responsible for payment
of DSI's fees at least 90 days prior to any increase in fees. For any service
not listed on DSI's standard fee schedule, DSI or DSI's authorized
representative will provide a quote prior to rendering the service.
7.2 Payment Terms. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI or DSI's
authorized representative are paid in full. All other fees are due upon
receipt of invoice. If invoiced fees are not paid, DSI may terminate this
Agreement in accordance with Section 5.2. Late fees on past due amounts shall
accrue at the rate of one and one-half percent per month (18% per annum) from
the date of the invoice.
ARTICLE 8 -- LIABILITY AND DISPUTES
8.1 Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI, subject to Section 2.1.
8.2 Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the
preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions, damages,
arbitration fees and expenses, costs, attorney's fees and other liabilities
incurred by DSI relating in any way to this escrow arrangement.
8.3 Dispute Resolution. Any dispute, difference or question arising among any
of the parties concerning the construction, meaning, effect or implementation of
this Agreement or any part hereof will be settled by a single arbitrator
mutually agreed upon by the parties, or failing agreement, an arbitrator
appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The
decision of such arbitrator appointed pursuant to this Agreement or such Act
will be final and binding on the parties and no appeal will lie therefrom.
8.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the Province of Ontario except any laws which would
refer any matter to the laws of another jurisdiction. All parties irrevocably
attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the
subject matter hereof.
8.5 Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or refrain from taking any action, that party shall:
<PAGE>
-8-
(1) Give DSI at least two business days' prior notice of the hearing;
(2) Include in any such order that, as a precondition to DSI's obligation,
DSI or DSI's authorized representative be paid in full for any past
due fees and be paid for the reasonable value of the services to be
rendered pursuant to such order; and
(3) Ensure that DSI not be required to deliver the original (as opposed to
a copy) of the deposit materials if DSI may need to retain the
original in its possession to fulfill any of its other escrow duties.
ARTICLE 9 -- GENERAL PROVISIONS
9.1 Entire Agreement. This Agreement, which includes the Acceptance Form and
the Exhibits described herein, embodies the entire understanding between all of
the parties with respect to its subject matter and supersedes all previous
communications, representations or understandings, either oral or written. No
amendment or modification of this Agreement shall be valid or binding unless
signed by all the parties hereto, except that Exhibit A need not be signed by
DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance
Form need only be signed by the parties identified therein.
9.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C and Acceptance Form. It shall be the responsibility of the
parties to notify each other as provided in this Section in the event of a
change of address. The parties shall have the right to rely on the last known
address of the other parties. Unless otherwise provided in this Agreement, all
documents and communications may be delivered by First Class mail.
9.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
9.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have
no obligation in performing this Agreement to recognize any successor or assign
of Depositor or Preferred Beneficiary unless DSI receives clear, authoritative
and conclusive written evidence of the change of parties.
<PAGE>
<TABLE>
<CAPTION>
Data Securities International, Inc. Internet Liquidators International Inc.
<S> <C>
By: By:
---------------------------------------- ---------------------------------------
Name: Name:
---------------------------------------- ---------------------------------------
Title: Title:
---------------------------------------- ---------------------------------------
Date: Date:
---------------------------------------- ---------------------------------------
</TABLE>
<PAGE>
ACCEPTANCE FORM
Account Number
----------------------
Toronto Star Newspapers Limited, hereby (i) acknowledges that it is a Preferred
Beneficiary referred to in the Master Preferred Escrow Agreement effective
February 12, 1997 with Data Securities International, Inc. as the escrow agent
and Internet Liquidators International, Inc. as the Depositor, (ii) agrees to be
bound by all provisions of such Agreement, and (iii) agrees that in addition to
the Release Conditions set forth in section 4.1 of this Agreement, a further
Release Condition shall exist if the Depositor is in material default of its
obligations to operate or maintain its E-Commerce Services as contained in the
licence agreement attached hereto as Schedule "A" and such default is not cured
as provided therein.
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
Date:
------------------------------
Notices and communications
should be addressed to: Invoices should be addressed to:
Company Name:
-------------------------- --------------------------------
Address:
-------------------------- --------------------------------
-------------------------- --------------------------------
-------------------------- --------------------------------
-------------------------- --------------------------------
Designated
Contact: Contact:
-------------------------- --------------------------------
Telephone:
-------------------------- --------------------------------
Facsimile:
-------------------------- --------------------------------
Depositor hereby enrolls Preferred Beneficiary to the following account(s):
<PAGE>
Account Name Account Number
- ------------ --------------
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
- ------------------------------- Data Securities International, Inc.
Depositor
<PAGE>
SCHEDULE "A"
LICENSE AGREEMENT
<PAGE>
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number
----------------------
Depositor represents to Preferred Beneficiary that deposit materials delivered
to DSI shall consist of the following:
Internet Liquidators Inc. - Code Module Listing
- -----------------------------------------------
[Confidential Information filed separately with the SEC]
- -------------------------------- ----------------------------------
Depositor Preferred Beneficiary
By: By:
-------------------------- ----------------------------
Name: Name:
-------------------------- ----------------------------
Title: Title:
-------------------------- ----------------------------
Date: Date:
-------------------------- ----------------------------
<PAGE>
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name
-------------------------------------------------------
Account Number
-------------------------------------------------------
PRODUCT DESCRIPTION:
Product Name [Confidential Information filed separately with the SEC]
Version[Confidential Information filed separately with the SEC]
-------------
- ----------------------------------------------------------------------------
Operating System: [Confidential Information filed separately with the SEC]
--
- ----------------------------------------------------------------------------
Hardware Platform: [Confidential Information filed separately with the SEC]
-
- ----------------------------------------------------------------------------
DEPOSIT COPYING INFORMATION:
Hardware required: [Confidential Information filed separately with the SEC]
-
- ----------------------------------------------------------------------------
Software required: [Confidential Information filed separately with the SEC]
-
- ----------------------------------------------------------------------------
DEPOSIT MATERIAL DESCRIPTION:
<PAGE>
Qty Media Type& Size Label Description of Each Separate Item
(Excluding documentation)
Disk 3.5" or _________
1 X DAT tape 4 mm No Documentation
-
CD-ROM
Data Cartridge Tape__
TK 70 or _______ tape
Magnetic tape________
Documentation
Other:_______________
No
Documentation
I certify for Depositor that the above DSI has inspected and accepted the above
described deposit materials have been materials (any exceptions are noted
transmitted to DSI: above)
Signature: Signature:
------------------------- ----------------------------
Print Name: Print Name:
------------------------- ----------------------------
Date: Date Accepted:
------------------------------- -------------------------
Exhibit B#
Send materials to: DSI, 9555 Chesapeake Drive,#200, San Diego, CA 92123
<PAGE>
EXHIBIT C
DESIGNATED CONTACT
Master Number
----------------------
Notices and communications should be
addressed to: Invoices should be addressed to:
Company Name:
Address:
Designated
Contact: Contact:
Telephone:
Facsimile:
Requests to change the designated contact should be given in writing by the
designated contact or an authorized employee.
Contracts, deposit materials and Invoice inquiries and fee remittances
notices to DSI should be addressed to: to DSI or DSI's authorized
representative should be addressed
to:
DSI Technology Asset Management Inc.
Contract Administration Accounts Receivable
Suite 200 Building 8, Suite 300
9555 Chesapeake Drive 5045 Orbitor Drive
San Diego, CA 92123 Mississauga, Ontario L4W 4Y4
Telephone: (619) 694-1900 Telephone: (905) 602-9292
Facsimile: (619) 694-1919 Facsimile: (905) 602-6631
Date:
<PAGE>
ADDITIONAL ESCROW ACCOUNT AMENDMENT
TO MASTER PREFERRED ESCROW AGREEMENT
Master Number
----------------------
New Account Number
----------------------
("Depositor") has entered
- -------------------------------------------
into a Master Preferred Escrow Agreement with Data Securities International,
Inc. ("DSI"). Pursuant to that Agreement, Depositor may deposit certain deposit
materials with DSI.
Depositor desires that new deposit materials be held in a separate account and
be maintained separately from the existing account. By execution of this
Amendment, DSI will establish a separate account for the new deposit materials.
The new account will be referenced by the following name:
---------------------.
Depositor hereby agrees that all terms and conditions of the existing Master
Preferred Escrow Agreement previously entered into by Depositor and DSI will
govern this account. The termination or expiration of any other account of
Depositor will not affect this account.
_____________________________________ Data Securities International, Inc.
Depositor
By: By:
------------------------------- ------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------- ------------------------------
Date: Date:
------------------------------- ------------------------------
CP Doc #: 31392-1
February 12, 1997
<PAGE>
Exhibit 3.3
IP RIGHTS AND NON-COMPETITION AGREEMENT
THIS AGREEMENT is made the 12th day of February, 1997.
AMONG:
TORONTO STAR NEWSPAPERS LIMITED, a corporation incorporated under the
laws of Ontario,
("Torstar")
- and -
PAUL GODIN, executive, of the Town of Kettleby in the Province of
Ontario
("Godin")
- and -
1184041 ONTARIO INC., a corporation incorporated under the laws of
Ontario
("GodinCo")
- and -
JEFF LYMBURNER, executive, of the City of Etobicoke in the Province of
Ontario
("Lymburner")
- and -
SMYTHE GROUP COMPANY, a corporation incorporated under the laws of
Nova Scotia
("LymburnerCo")
- and -
INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation amalgamated
under the laws of Ontario
(the "Corporation")
BACKGROUND:
<PAGE>
-2-
1. Pursuant to a subscription agreement between Torstar and the Corporation
dated the date hereof, Torstar is acquiring an interest in Internet
Liquidators International Inc.
2. It is a condition of closing the subscription with Torstar that each of the
Principals enter into this intellectual property rights and non-compete
agreement with the Corporation and Torstar.
3. The Principals and the Corporation have agreed that entering into this
Agreement is in their respective best interests in order (i) to clarify
that the intellectual property rights in Developments made by the
Principals will be owned by the Corporation and (ii) to specify the extent
to which the Principals may compete with the Corporation in certain
circumstances.
IN CONSIDERATION of the premises and the mutual covenants contained herein
and other good and valuable consideration (the receipt and sufficiency of which
are hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE ONE
INTERPRETATION
1.1 Definitions: In this Agreement:
------------
"Agreement" means the IP Rights and Non-Competition Agreement and all schedules
annexed hereto as the same may be amended from time to time in accordance with
the provisions hereof; "hereof", "hereto" and "hereunder" and similar
expressions refer to this Agreement and not to any particular article or
section; except where the context specifically requires, "Article" or "Section"
refers to the specified article or section of this Agreement;
"Business" has the meaning attributed thereto in Section 2.1;
"Business Day" means any day other than a Saturday, Sunday, statutory holiday or
civic holiday in Toronto, Ontario or Virginia;
"Confidential Information" includes any of the following:
(i) any and all versions of the products, software and related
documentation owned or marketed by the Corporation, as well as the
software and documentation owned by the Corporation's suppliers and
used internally by the Corporation, including all related algorithms,
concepts, data, designs, flowcharts, ideas, programming techniques,
specifications and source code listings;
(ii) all Developments (as defined below);
(iii)information regarding the Corporation's business operations, methods
and practices, including marketing strategies, product pricing,
margins and hourly rates for staff and information regarding the
financial affairs of the Corporation;
<PAGE>
-3-
(iv) the names of the Corporation's clients and the names of the suppliers
of computer services and software to the Corporation, and the nature
of the Corporation's relationships with these clients and suppliers;
(v) technical and business information of or regarding the clients of the
Corporation obtained in order for the Corporation to provide such
clients with products and services; and
(vi) any other trade secret or confidential or proprietary information in
the possession or control of the Corporation,
but Confidential Information does not include information which is or becomes
generally available to the public without fault of the Party.
"Developments" include all the following which are related to the Business:
(i) copyright works, software, documentation, data, designs, scripts,
photographs, music, reports, flowcharts, trade-marks, specifications
and source code listings, and any related works, including any
enhancements, modifications, or additions to the products owned,
marketed or used by the Corporation; and
(ii) inventions, devices, discoveries, concepts, ideas, algorithms,
formulae, know-how, processes, techniques, systems and improvements,
whether patentable or not, developed, created, generated or reduced to
practice by any Principal, alone or jointly with others, during the
Principal's employment with the Corporation or which result from tasks
assigned to any Principal by the Corporation or which result from the
use of the premises or property (including equipment, supplies or
Confidential Information) owned, leased or licensed by the
Corporation.
"employee" refers to any individual who is an employee or who has any other form
of working relationship with the Corporation whereby services are provided to
the Corporation for compensation whether as an independent contractor,
consultant, advisor or otherwise and whether such services are provided
personally or through a corporation controlled by such individual and
"employment" is to be given a corresponding, broad meaning;
"Party" means one of the Principals, Torstar or the Corporation and "Parties"
means all of them collectively;
"Person" includes an individual, corporation, partnership, joint venture, trust,
unincorporated organization, government or any agency or instrumentality thereof
or any other juridical entity;
"Principal" has the meaning attributed thereto in Section 2.1.
1.2 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of Ontario and the federal laws of Canada applicable
therein (excluding any
<PAGE>
-4-
provisions that would result in the application of the
law of another jurisdiction) and shall be treated, in all respects, as an
Ontario contract.
1.3 Entire Agreement. This Agreement, including all schedules hereto, together
-----------------
with the agreements and other documents referred to herein, constitute the
entire agreement between the Parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties and there are no warranties,
representations or other agreements between the Parties in connection with the
subject matter hereof except as specifically set forth herein and therein. No
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the Party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision (whether or not similar) nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
1.4 Gender and Number. In this Agreement words in the singular include the
------------------
plural and vice-versa; words in one gender include all genders.
1.5 Headings. Article and Section headings contained herein are included
---------
solely for convenience, are not intended to be full or accurate descriptions of
the content thereof and shall not be considered part of this Agreement.
ARTICLE TWO
PROPRIETARY RIGHTS PROTECTION
2.1 Importance of Proprietary Rights Protection. Each Party acknowledges that
--------------------------------------------
the Corporation is engaged in a continuous program of research and development,
marketing and exploitation of on-line auction software products and related
services (the "Business"). Each Party also recognizes the importance of
protecting the Corporation's trade secrets, confidential information and other
proprietary information and related rights acquired through the Corporation's
expenditure of time, effort and money. Therefore, in the case of Godin and
Lymburner or any other Party that is an employee of the Corporation
(collectively, the "Principals" and individually a "Principal"), in
consideration of the desire of the Principals to be employed or continue to be
employed by the Corporation in a capacity in which they will receive and/or
contribute to the Corporation's confidential information and in consideration of
the salary, wages or other compensation the Principals will receive from the
Corporation and for their employment by the Corporation, each agrees to be bound
by the following terms and conditions in this Article.
2.2 Non-Disclosure of Confidential Information. At all times each Principal
-------------------------------------------
shall keep the Confidential Information in confidence, taking all necessary
precautions against unauthorized disclosure of the Confidential Information, and
shall not directly or indirectly disclose, allow access to, transmit or transfer
the Confidential Information to a third party, nor shall any Principal copy or
reproduce the Confidential Information except as may be reasonably required to
perform his duties for the Corporation.
<PAGE>
-5-
2.3 Restricted Use of Confidential Information.
-------------------------------------------
(a) At all times each Principal shall not use the Confidential Information
in any manner except as reasonably required for each Principal to
perform his duties for the Corporation.
(b) Without limiting his obligations under subsection (a), each Principal
shall neither use nor take advantage of the Confidential Information
for any purpose other than the Business.
(c) Upon the request of the Corporation, each Principal shall immediately
return to the Corporation all materials, including all copies in
whatever form, containing the Confidential Information which are in
the Principal's possession or under the Principal's control.
2.4 Ownership of Confidential Information.
--------------------------------------
(a) Each Principal acknowledges and agrees that he had not and shall not
acquire any right, title or interest in or to the Confidential
Information.
(b) Each Principal agrees to make full disclosure to the Corporation of
each Development promptly after its creation. Each Principal hereby
assigns and transfers to the Corporation, and agrees that the
Corporation shall be the exclusive owner of, all of the Principal's
right, title and interest to each Development throughout the world,
including all trade secrets, patent rights, copyrights and all other
intellectual property rights therein. Each Principal further agrees
to cooperate fully at all times with respect to signing further
documents and doing such acts and other things reasonably requested by
the Corporation to confirm such transfer of ownership of rights,
including intellectual property rights, effective at or after the time
the Development is created and to obtain patents or copyrights or the
like covering the Developments. Each Principal agrees that the
obligations in this clause (b) shall continue beyond the termination
of the Principal's employment with the Corporation with respect to
Developments created during his employment with the Corporation.
(c) Each Principal agrees that the Corporation, its assignees and their
licensees are not required to designate the Principal as the author of
any Developments. The foregoing sentence speaks to ownership and
shall not detract from the entitlement of the Principals to personal
recognition of their efforts in creating Developments. Each Principal
hereby waives in whole all moral rights which the Principal may have
in the Developments, including the right to the integrity of the
Developments, the right to be associated with the Developments, the
right to restrain or claim damages for any distortion, mutilation or
other modification of the Developments, and the right to restrain use
or reproduction of the Developments in any context and in connection
with any product, service, cause or institution.
<PAGE>
-6-
2.5 Non-Competition. Each Principal agrees that during the time that he is an
---------------
employee of the Corporation and for a period of 24 months thereafter the
Principal will not become engaged, directly or indirectly as an employee,
consultant, partner, principal, agent, proprietor, shareholder (other than a
holding of shares listed on a stock exchange that does not exceed 5% of the
outstanding shares so listed) or advisor, in a business which:
(i) develops or markets products or services competitive with the products
or services marketed by the Corporation, or
(ii) provides consulting, maintenance, support or training services that
are competitive with the consulting, maintenance, support or training
services provided by the Corporation,
in any country where the Corporation has shipped material amounts of product in
the preceding twelve months, provided that after the Principal ceases to be an
employee of the Corporation the relevant time for judging such matters as where
the Corporation is conducting the Business shall be the time that the Principal
ceases to be an employee of the Corporation.
2.6 Non-Solicitation of Clients. Each Principal agrees that during the time
----------------------------
that he is an employee of the Corporation and for a period of 18 months
thereafter, the Principal shall not, directly or indirectly, contact or solicit
any Clients of the Corporation for the purpose of selling or supplying to these
Clients of the Corporation any products or services which are competitive with
the products or services sold or supplied by the Corporation at the time that
the Principal ceases to be an employee of the Corporation. The term "Client of
the Corporation" in the preceding sentence means any business or organization
that:
(a) was a customer of the Corporation at the time that the Principal
ceases to be an employee of the Corporation; or
(b) became a customer of the Corporation within six months after the
Principal ceased to be an employee of the Corporation if the Principal
was significantly involved with the marketing effort in respect of
such customer prior to the date of the Principal ceased to be an
employee of the Corporation.
The foregoing is not intended to include Persons purchasing goods or services
through the Corporation's on-line auction service but does include those Persons
who sell goods or services through that auction service.
2.7 Non-Solicitation of Employees. Each Principal agrees that during the time
------------------------------
that he is an employee of the Corporation and for a period of 12 months
thereafter, the principal shall not directly or indirectly solicit or induce or
attempt to induce any persons who were employees of or consultants to the
Corporation at the time the Principal ceased to be an employee of the
Corporation, to terminate their employment with the Corporation.
<PAGE>
-7-
2.8 Reasonableness of Non-Competition and Non-Solicitation Obligations. Each
------------------------------------------------------------------
Principal confirms that the obligations in Section 2.5, 2.6 and 2.7 are fair and
reasonable given that, among other reasons,
(i) the sustained contact the Principal will have with the clients of the
Corporation will expose the Principal to Confidential Information
regarding the particular requirements of these clients and the
Corporation's unique methods of satisfying the needs of these clients,
all of which the Principal agrees not to act upon the detriment of the
Corporation; and/or
(ii) the Principal will be performing important development work on the
products and services marketed by the Corporation,
and the Principal agrees that the obligations in Sections 2.5, 2.6 and 2.7,
together with he Principal's other obligations under this Agreement, are
reasonably necessary for the protection of the Corporation's proprietary
interests. Each Principal further confirms that the geographic scope of the
obligation in Section 2.5, 2.6 and 2.7 are in addition to the non-disclosure and
other obligations provided elsewhere in this agreement. Each Principal also
acknowledges that his obligations contained in this Agreement will not preclude
him from becoming gainfully directly employed in the computer products industry
following the date he ceases to be an employee of the Corporation given the
Principal's general knowledge and experience in the computer industry.
2.9 No Conflicting Obligations.
--------------------------
(a) Each Principal acknowledges and represents to the Corporation that his
performance as an employee of the Corporation shall not breach any
agreement or other obligation to keep confidential the proprietary
information of any prior employer of such principal or any other third
party. Each Principal further acknowledges and represents that he is
not bound by any agreement or obligation with any third party which
conflicts with any of his obligations under this Agreement.
(b) Each Principal represents and agrees that he will not bring to the
Corporation, and shall not use in the performance of his work with the
Corporation, any trade secrets, confidential information and other
proprietary information of any prior employer of the Principal or any
other third party. Each Principal represents and agrees that in his
work creating Developments he will not knowingly infringe the
intellectual property rights, including copyright, of any third party.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
<PAGE>
-8-
3.1 Representations and Warranties re Ownership. Each Principal hereby,
-------------------------------------------
jointly and severally, represents and warrants to the Corporation and Torstar
(and acknowledges that the Corporation and Torstar are relying upon such
representations and Warranties) that except as set forth in Schedule "O" of the
Subscription Agreement between Torstar and the Corporation dated February 12,
1997, to the best of his or its knowledge, information and belief, the
Corporation is the exclusive owner of the Technology (as defined in such
Subscription Agreement) and all right, title and interest in and to the
technology, free and clear of all encumbrances except as set out therein and
neither Principal has any knowledge of any claim of adverse ownership in any
Technology.
ARTICLE FOUR
MISCELLANEOUS
4.1 Notice. Any notice or other communication (in this Section a "Notice")
-------
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to Subscriber addressed to it at:
Toronto Star Newspapers Limited
1 Yonge Street
Toronto, Ontario
M4E 1E6
Attention: Vice President Strategic Planning & New Media
Fax No.: (416) 869-4762
and in the case of a Notice to Issuer addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
<PAGE>
-9-
Attention: Paul Godin
Fax No.: (905) 672-5705
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 4.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 4.1.
4.2 Further Assurances. Each Party will execute any documents and give such
-------------------
further assurances as may be necessary or appropriate in connection with
performing its obligations under this Agreement and which shall be deemed to
include any assurances reasonably requested by the Corporation to protect its
trade secrets and any other confidential information in its possession or
control.
4.3 Amendments. This Agreement may only be amended by an instrument in writing
-----------
signed by all Parties.
4.4 Counterparts. This Agreement may be executed in several counterparts (by
-------------
Principal Shareholders at the date hereof and by those who are by the terms
hereof obligated to execute a counterpart hereof), each of which shall be deemed
to be an original, but all such counterparts
<PAGE>
-10-
together shall constitute one and the same instrument. Any such counterpart or
other Agreement to be bound hereby shall be effectively delivered to each Party
by delivery of an executed copy thereof to the secretary of the Corporation.
4.5 Severability. If any of the provisions contained in this Agreement is
-------------
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not be in any way affected impaired
thereby and the rights and obligations of the Parties shall be construed as if
the Agreement did not contain the particular invalid or unenforceable provision
unless such invalid or unenforceable provision is material to any of the
Parties, in which event the Parties shall immediately negotiate a replacement
therefor to preserve their respective interests as contemplated herein, to the
extent permitted under applicable law.
4.6 Time of Essence. Time is of the essence hereof.
----------------
IN WITNESS WHEREOF the parties have duly executed this Agreement.
TORONTO STAR NEWSPAPERS LIMITED
By:
----------------------------
1184041 ONTARIO INC.
By:
----------------------------
Paul Godin
l/s
----------------------------
Paul Godin
SMYTHE GROUP COMPANY
By:
----------------------------
Jeff Lymburner
-------------------------------
Jeff Lymburner
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By:
----------------------------
<PAGE>
-11-
By:
----------------------------
CP Doc #: 30595-3
February 12, 1997
<PAGE>
Exhibit 3.4
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made the 18th day of February, 1997 (the "Effective Date") by
and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a
principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario
L4V 1T1 ("Issuer") and AMERICA ONLINE, INC., a corporation having a principal
place of business at 22000 AOL Way, Dulles, Virginia 20166 ("AOL").
BACKGROUND:
1. As more particularly described herein, AOL wishes to acquire, and Issuer
wishes to provide, an interest in Issuer by AOL subscribing for previously
unissued common shares in the capital of Issuer and by obtaining a warrant
to acquire further common shares of Issuer. Issuer is a public company.
2. In conjunction with the subscription, AOL and Issuer will enter into
certain agreements which will allow AOL and certain related entities
including Digital City, Inc. ("DCI") to use and exploit certain technology
of Issuer to interface and/or provide a link for certain of their on-line
interactive users to an auction service provided by Issuer on the Internet.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
ARTICLE ONE
INTERPRETATION
--------------
1.1 Definitions. In this Agreement, unless the context otherwise requires,
------------
each capitalized term shall have the meaning attributed thereto in Schedule "A".
1.2 Schedules. The following are the schedules attached to and forming part of
----------
this Agreement:
Schedule A Definitions
Schedule B Financial Statements
Schedule C Subsidiaries
Schedule D Options
Schedule E Litigation
Schedule F Licences
Schedule G Opinions of Counsel
Schedule H Form of Certificate of Originality
Schedule I Auction Services Agreement
Schedule J DCI Term Sheet
Schedule K Shareholders' Agreement
Schedule L Registration Rights Agreement
Schedule M Material Contracts
Schedule N Form of Warrant
Schedule O Intellectual Property Rights
Schedule P Major Shareholder Interests
<PAGE>
-2-
Schedule Q Encumbrances
Schedule R Yankee Auction Functional Specifications
1.3 Headings. The headings in this Agreement are for convenience of reference
---------
only and shall not affect the construction or interpretation hereof.
1.4 Extended Meanings. Words in the singular include the plural and vice-
------------------
versa and words in one gender include all genders.
1.5 Entire Agreement. This Agreement and Schedules hereto constitute the
-----------------
entire agreement between the Parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
oral or written, between the Parties. The execution of this Agreement has not
been induced by, nor do either of the Parties rely upon or regard as material,
any representations, warranties, conditions, other agreements or
acknowledgements not expressly made in this Agreement or in the agreements and
other documents to be delivered pursuant hereto.
1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in
---------
this Agreement are in U.S. funds.
1.7 Invalidity. If any of the provisions contained in this Agreement is found
-----------
by a court of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby.
1.8 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of Ontario and the federal laws of Canada applicable
therein (excluding any provisions that would result in the application of the
law of another jurisdiction) and shall be treated, in all respects, as an
Ontario contract. Issuer submits to the non-exclusive jurisdiction of the
Courts of Virginia and the U.S. Federal Court and AOL submits to the non-
exclusive jurisdiction of the Courts of Ontario.
1.9 Tender. Unless otherwise indicated, any tender of documents or money
-------
hereunder may be made upon the Parties or their respective counsel and money
shall be tendered by wire transfer in U.S. or Canadian funds, as applicable,
from a U.S. or Canadian bank or by negotiable cheque or draft and certified by a
U.S. or Canadian bank.
1.10 Performance on Holidays. If anything is required to be done or any action
------------------------
is required to be taken pursuant to this Agreement on or by a specified date
which is not a Business Day, then such action shall be valid if taken on or by
the next succeeding Business Day.
1.11 Calculation of Time. In this Agreement, a period of days shall be deemed
--------------------
to begin on the first day after the event which began the period and to end at
midnight (Toronto time) on the last day of the period, except that if the last
day of the period does not fall on a Business Day, the period
<PAGE>
-3-
shall terminate at midnight (Toronto time) on the next Business Day.
ARTICLE TWO
PURCHASE OF SHARES AND WARRANT
------------------------------
2.1 Purchase of Shares and Warrant. Subject to the terms of this Agreement,
-------------------------------
AOL agrees to subscribe for and purchase, and Issuer agrees to issue and sell to
AOL, the Shares and the Warrant, in two stages as follows:
(a) At the First Closing, 500,000 Shares ("Stage One Shares") and the
Warrant;
(b) On July 1, 1997, an additional 500,000 Shares ("Stage Two Shares")(the
"Second Closing").
AOL is only required to purchase the Stage Two Shares if the Stage Two
Conditions are fulfilled.
2.2 Subscription Price and Payment. The purchase price for the Shares and for
-------------------------------
the Warrant shall be an aggregate purchase price of $1,000,000 Cdn. (the
"Subscription Price") which shall be paid in cash and Advertising Credits as
follows:
(a) For Stage One Shares and Warrant, $500,000 Cdn in Advertising Credits;
(b) For Stage Two Shares, at AOL's option:
(i) $500,000 Cdn.; or
(ii) $500,000 Cdn in Advertising Credits expiring on the first
anniversary of the First Closing.
AOL agrees that if Issuer has (i) satisfied the Yankee Auction Condition; (ii)
Cleared Title, (iii) completed the Loan Repayment and (iv) raised an additional
$425,000.00 CDN in equity all within 60 days of the First Closing they may on
request require AOL to pay Issuer $250,000 Cdn in return for the cancellation of
$250,000 Cdn of unused Advertising Credits granted to the Issuer on the First
Closing and AOL agrees to do so within 10 Business Days. Issuer covenants and
agrees to purchase, in aggregate, advertising on AOL's online service at rate
card rates ($60 CPM), the rate typically charged to comparable advertisers for a
comparable volume of advertising, equal to the aggregate amount of all cash
contributed by AOL for the Shares before (a) June 30, 1997 with respect to any
cash paid for the Stage One Shares and (b) February 21, 1998 with respect to any
cash paid for Stage Two Shares.
2.3 Share and Warrant Certificate. Issuer shall deliver to AOL at each of the
------------------------------
Closings, one share certificate representing the Shares and, if applicable one
warrant certificate representing the
<PAGE>
-4-
Warrant, bearing appropriate legends to indicate the applicable hold period and
to reference the restrictions in the Shareholders' Agreement, registered in the
name of AOL. On each Closing, Issuer shall cause AOL or such nominee to be
entered on the books of Issuer as the holder of the applicable Shares and
Warrant, if any.
2.4 Place of Closings. The Closings shall take place at the Closing Time at
------------------
the offices of Fasken Campbell Godfrey, Suite 3700, Toronto-Dominion Bank Tower,
Toronto-Dominion Centre, Toronto, Ontario, or at such other place as may be
agreed upon by Issuer and AOL.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 Representations and Warranties of Issuer. Issuer represents and warrants
-----------------------------------------
to AOL as follows and acknowledges that AOL is relying upon such representations
and warranties in entering into this Agreement and completing the transactions
contemplated hereby.
3.1.1 Corporate Matters.
------------------
(a) Issuer and each of the Subsidiaries is a corporation duly incorporated,
organized and validly existing in good standing under the laws of its
jurisdiction of incorporation. No proceedings have been taken or
authorized by any of Issuer, any Subsidiary or, to the best of Issuer's
knowledge, by any other Person with respect to the bankruptcy, insolvency,
liquidation, dissolution or winding up of Issuer or any of the
Subsidiaries.
(b) Issuer has all necessary power and capacity to execute and deliver, and to
observe and perform their covenants and obligations under, this Agreement
and the Closing Documents to which each is a party. Issuer has taken all
corporate action and caused all necessary shareholder action to authorize
the execution and delivery of, and the observance and performance of their
covenants and obligations under, this Agreement and the Closing Documents
to which each is a party including, without limitation, the issuance and
delivery of the Shares and Warrant.
(c) Issuer and the Subsidiaries have all necessary power and authority to own
or lease the Assets and to carry on the Business as at present carried on.
Issuer and the Subsidiaries possess all Licences material to the conduct of
the Business. Neither the nature of the Business nor the location or
character of any of the Assets requires any of Issuer or the Subsidiaries
to be registered, licensed or otherwise qualified as an extra-provincial or
foreign corporation or to be in good standing in any jurisdiction other
than jurisdictions where it is duly registered, licensed or otherwise
qualified and in good standing for such purpose.
(d) This Agreement has been, and each Closing Document to which Issuer is a
party will on
<PAGE>
-5-
Closing be, duly executed and delivered by Issuer, and this Agreement
constitutes, and each Closing Document to which Issuer is a party will on
Closing constitute, a valid and binding obligation of Issuer enforceable against
Issuer in accordance with its terms.
(e) A true copy of the Articles and all by-laws of the Issuer each as amended
to date and currently in effect have been delivered to AOL by Issuer. The
Articles and such by-laws of the Issuer constitute all of the constating
documents and by-laws of the Company, are complete and correct and are in
full force and effect, subject to confirmation of Issuer's general by-laws
by their shareholders.
3.1.2 Authorized and Issued Capital of Issuer. The authorized capital of
----------------------------------------
Issuer consists of an unlimited number of common shares and an unlimited number
of preference shares issuable in series. No more than 10,700,000 common shares
are outstanding and such shares are fully paid and non-assessable shares.
Except as listed in Schedule D, no other Voting Securities, Convertible
Securities or Rights of Issuer have been issued or are outstanding.
3.1.3 Options.
--------
(a) Except as listed in Schedule "D", no Person other than AOL, has any oral
or written agreement, option, warrant, right, privilege or any other
right capable of becoming any of the foregoing (whether legal, equitable,
contractual or otherwise), for the purchase, subscription or issuance of
any Voting Securities, Convertible Securities or Rights of Issuer. Issuer
has no agreement or obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital
stock of the Issuer have been offered, issued and sold by the Issuer in
compliance with Applicable Laws. Except as set forth in Schedule "D",
there are no preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the
issuance, sale or redemption of the Issuer's capital stock, other than
rights to which AOL is entitled as set forth in this Agreement.
3.1.4 Subsidiaries. Issuer owns all of the issued shares and Voting
-------------
Securities, Convertible Securities and Rights of each Subsidiary and the
Subsidiaries are all of the bodies corporate of which any of Issuer or the
Subsidiaries holds or has agreed to acquire any shares, Voting Securities,
Convertible Securities or Rights. None of Issuer or the Subsidiaries is or has
agreed to become a partner, member, owner, proprietor or equity investor of or
in any partnership, joint venture or other management or business association or
to acquire or lease any other business operation.
3.1.5 Insurance. Issuer and the Subsidiaries maintain valid policies of
----------
insurance with respect to its properties and business of the kinds and in the
amounts not less than is customarily obtained by corporations of established
reputation engaged in the same or similar business and similarly situated.
There is no default under any such policy, nor, to the knowledge of Issuer or
the Subsidiaries, has any event occurred which with notice, lapse of time or
both would constitute a
<PAGE>
-6-
material default thereunder.
3.1.6 Financial Statements. The Financial Statements:
---------------------
(a) have been prepared from and in accordance with the books and records of
Issuer and its Subsidiaries in accordance with Generally Accepted
Accounting Principles (except as disclosed in the notes thereto) applied
on a basis consistent with that of the preceding periods;
(b) present fairly the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of Issuer and the
Subsidiaries and the results of the operations of Issuer and the
Subsidiaries as at the date thereof and for the periods covered thereby;
and
(c) contain or reflect adequate reserves for all known or reasonably
anticipated liabilities and obligations of Issuer and the Subsidiaries of
any nature, whether absolute, contingent or otherwise, as at the date
thereof.
No information has come to the attention of Issuer or any Subsidiary that would
render the Financial Statements incomplete or inaccurate in any material
respect.
3.1.7 Undisclosed Liabilities. None of Issuer or the Subsidiaries has any
------------------------
known or reasonably anticipated liabilities (whether accrued, absolute,
contingent or otherwise) of any kind and whether due or to become due, except:
(a) liabilities disclosed or provided for in the Financial Statements; and
(b) liabilities incurred in the ordinary course of business from and after
the Financial Disclosure Date which are consistent with past practice,
are not, in the aggregate, material and adverse to the Business, Assets,
financial condition or results of operations of Issuer and the
Subsidiaries, and do not violate any covenant or obligation contained in
this Agreement or constitute a breach of any representation or warranty
made in or pursuant to this Agreement.
3.1.8 Absence of Changes. Since the Financial Disclosure Date:
-------------------
(a) Issuer and each of the Subsidiaries has conducted the Business in the
ordinary course, has not incurred any debt, obligation or liability out
of the ordinary course of business or of an unusual or extraordinary
nature and has used its best efforts to preserve the Business and the
Assets;
(b) there has not been any change in the condition of the Business or the
Assets or the financial condition or results of operations of any of
Issuer, the Subsidiaries or the Business other than changes in the
ordinary course of business, and such changes have not, either
individually or in the aggregate, been materially adverse or have had or
may be reasonably
<PAGE>
-7-
expected to have, either before or after the Closing Time, a material adverse
effect on the Business, the Assets or the future prospects of any of Issuer, any
of the Subsidiaries or the Business; and
(c) to the best of Issuer's knowledge, there has not been any change in, or
creation of, any Applicable Law, any revocation of any Licence or any
damage, destruction, loss, labour dispute or other event, development or
condition of any character (whether or not covered by insurance)
materially and adversely affecting any of Issuer, any Subsidiary, the
Business or the Assets or the future prospects of any of Issuer, the
Subsidiaries or the Business.
3.1.9 Tax Matters. Issuer and each of the Subsidiaries has filed all Tax
------------
Returns within the times and in the manner prescribed by law. Issuer and each
Subsidiary has paid all Taxes due and payable and has paid all installments and
made all other remittances required to be made on account of Taxes payable by
them. No Tax Return has been reassessed nor has there been any notice of
reassessment by any taxing authority and there are no actions, audits,
assessments, reassessments, suits, appeals, proceedings, investigations or
claims now pending or, to the best of Issuer's knowledge, threatened against
Issuer or any Subsidiary in respect of Taxes or governmental charges by any
Governmental Agency relating to claims for additional Taxes or assessments with
reference to any of Issuer, the Subsidiaries, the Assets or the Business. There
is in effect no waiver of applicable limitation of liability statutes with
respect to any Taxes owed by Issuer or any Subsidiary. The provision for Taxes
reflected in the Financial Statements is adequate for all Tax liabilities,
whether or not yet due and payable and whether or not disputed or under appeal,
for the periods covered by the Financial Statements and for all prior periods
and none of Issuer or the Subsidiaries has any liability for any Tax in respect
thereof of any nature other than those described in the Financial Statements and
those arising in the ordinary course of its business since the Financial
Disclosure Date.
3.1.10 Absence of Conflicting Agreements. None of the execution and delivery
----------------------------------
of, or the observance and performance by Issuer of any covenant or obligation
under this Agreement or any Closing Document to which it is a party including
the issuance of Shares pursuant to the exercise of the Warrant, or the Closing,
contravenes or results in, or will contravene or result in, a material violation
of or a material default under (with or without the giving of notice or lapse of
time, or both), or in the acceleration of any material obligation under:
(a) any Applicable Law;
(b) any Licence held by or for Issuer, a Subsidiary or the Business;
(c) the articles, by-laws, directors' or shareholders' resolutions of Issuer or
any Subsidiary; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which Issuer or any Subsidiary is a party, or by which it or
its Assets are bound.
<PAGE>
-8-
The representation and warranty in Section 3.1.10(b) shall not apply to Generic
Software.
3.1.11 Consents, Approvals, Etc. Subject to those certain filings with
-------------------------
Canadian securities authorities identified in Section 3.1.19, no consent,
approval, Licence, Order or authorization, registration, declaration or filing
with any Governmental Agency or other Person is required by Issuer or any
Subsidiary, or with respect to the Business, in connection with (a) the Closing
or (b) the execution and delivery by Issuer of, and the observance and
performance by Issuer of their obligations under, this Agreement and the Closing
Documents to which either is a party.
3.1.12 Restrictions on Business. Other than statutory provisions and
-------------------------
restrictions of general application to the Business or to corporations governed
by the Act, none of Issuer or any Subsidiary is a party to any agreement, lease,
mortgage, security document, obligation or instrument, or subject to any
restriction in its articles or by-laws or directors' or shareholders'
resolutions or subject to any restriction imposed by any Governmental Agency or
subject to any Applicable Law which could materially restrict or interfere with
the conduct of the Business or which could materially limit or restrict or
otherwise adversely affect the Assets or the financial condition of Issuer on a
consolidated basis.
3.1.13 Compliance with Applicable Law. Each of Issuer and the Subsidiaries has
-------------------------------
conducted and is conducting the Business in compliance with all Applicable Laws,
and is not in breach of any Applicable Laws except for breaches which in the
aggregate are not material to Issuer and the Subsidiaries. For the purposes of
this Section Applicable Laws means the laws of Canada and the Provinces therein
and the laws of the United States of America and the States therein.
3.1.14 Litigation. Except as disclosed in Schedule E, there is no claim,
-----------
demand, suit, action, cause of action, dispute, proceeding, litigation,
investigation, grievance, arbitration, governmental proceeding or other
proceeding including appeals and applications for review, in progress against or
relating to Issuer or any Subsidiary or affecting the Shares, the Warrant, the
Assets or the Business which, if determined adversely, might materially and
adversely affect any of Issuer, any Subsidiary, the Shares, the Warrant, the
Business or the Assets or the validity of the Agreement or any of the Closing
Documents, nor are any of the same pending or to the best of the knowledge of
Issuer threatened. To the knowledge of Issuer and the Subsidiaries, no event
has occurred and no condition exists or the basis for which any of the foregoing
might properly be instituted or commenced. There is not at present outstanding
against any of Issuer or any Subsidiary any Order that materially and adversely
affects Issuer, any Subsidiary, the Business or the Assets in any way or that in
any way relates to this Agreement or the transactions contemplated hereby.
3.1.15 Title to Properties. Except as disclosed in the Financial Statements
--------------------
and Schedule Q, Issuer and the Subsidiaries have good and marketable title to
all of the Assets, free and clear of all Encumbrances except for Permitted
Encumbrances.
3.1.16 Title to Shares and Warrant. The Shares and the Warrant shall be duly
----------------------------
authorized and created and upon the applicable Closing shall be validly issued
and outstanding and the Shares shall
<PAGE>
-9-
be fully paid and non-assessable shares in the capital of Issuer, free and clear
of all rights, liens or other Encumbrances except Permitted Encumbrances. Upon
payment of the exercise price, the shares issuable upon exercise of the Warrant
will be fully paid and non-assessable, free and clear of all rights, liens and
Encumbrances other than Permitted Encumbrances.
3.1.17 No Expropriation. None of Issuer or any Subsidiary has received any
-----------------
notice of expropriation of any of the Assets. None of Issuer or any Subsidiary
is aware of any expropriation proceeding, pending or threatened against or
affecting any of the Assets.
3.1.18 Licences. The only Licences necessary or desirable for the operation of
---------
the Business and the ownership of the Assets are listed in Schedule F and are in
full force and effect unamended. Issuer or each Subsidiary, as the case may be,
is in compliance in all material respects with all the terms and conditions
relating to such Licences and there are no proceedings in progress, or to the
best of the knowledge of Issuer, pending or threatened, which may result in
revocation, cancellation, suspension or any adverse modification of any of such
Licences. No Licence is void or voidable as a result of the completion of the
transactions contemplated hereby or by the Closing Documents or by the exercise
of the Warrant nor is any consent or approval of any Person required to assure
the continued validity and effectiveness of any Licence in connection with the
purchase of the Shares, this Agreement, any Closing Document or by the exercise
of the Warrant or the transactions contemplated hereby or thereby.
3.1.19 Securities Legislation. Issuer is a "reporting issuer" in Ontario and
-----------------------
is not in default under applicable securities legislation in such province. In
particular, without limiting the foregoing, Issuer is in compliance with its
obligations to make timely disclosure of all material changes relating to it and
since the end of the Issuer's last completed fiscal year (other than in respect
of material change reports filed on a confidential basis and thereafter made
public or material change reports filed on a confidential basis and in respect
of which the material change never came to fruition) no such disclosure has been
made on a confidential basis and there is no material change relating to Issuer
which has occurred and with respect to which the requisite material change
statement has not been filed, except to the extent that this Agreement
constitutes a material change. Issuer is not in default of any requirements of
such securities legislation, and the issuance of the Shares and the Warrant to
AOL will be made in compliance with all applicable Canadian securities
legislation. Subject to the filing of a Form 27, Material Change Report and a
press release following the execution hereof and the Closing, the issuance of
the Shares and Warrant to AOL, and any subsequent exercise of rights under the
Warrant, will not result in any contravention of any applicable Canadian
securities legislation or the regulations thereunder (subject to filings
required on Warrant exercise).
The issuance of the Shares and the Warrant is exempt from the registration and
prospectus requirements of securities legislation of the Province of Ontario and
no prospectus will be required and no other document must be filed, proceeding
taken or approval obtained in Ontario to permit the offering, issue, sale and
delivery of the Shares and the Warrant to AOL or for the exercise of the Warrant
other than the filing of those private placement reports, undertakings and
questionnaires
<PAGE>
-10-
referred to above.
The Issuer's Shares are not listed or quoted for trading on any stock exchange
or other public market other than the Canadian Dealing Network.
3.1.20 Environmental Matters. To the best of Issuer's knowledge:
----------------------
(a) Issuer, each Subsidiary, the Business and the Assets are in full
compliance with all Applicable Laws in respect of environmental matters
and are not the subject of any remedial or control action or Order, or
any investigation or evaluation as to whether any remedial or control
action or Order is needed to respond to an actual or threatened release,
discharge, deposit, emission or spill of any hazardous substance,
pollutant or contaminant into the environment or any facility or
structure;
(b) none of Issuer or the Subsidiaries is or may be liable to any Person as
a result of an actual or alleged release, discharge, deposit, emission
or spill of any hazardous substance, contaminant or pollutant into the
environment or any facility or structure, nor has there been any
release, discharge, deposit, emission or spill of any hazardous
substance, contaminant or pollutant into the environment or into any
facility or structure, which is the subject of or, after the giving of
notice or the lapse of time would give rise to, any claim, demand, suit,
action, cause of action, dispute, proceeding or Order relating to the
violation of Applicable Laws in respect of environmental matters, nor is
there any basis for any thereof being commenced; and
(c) Issuer and each Subsidiary has complied in all material respects with
all environmental reporting and inspection requirements of all
Governmental Agencies having jurisdiction over it. All pollution control
equipment operated as part of the Business is effective in meeting
applicable emissions limits and effluent pre-treatment standards.
3.1.21 Significant Shareholders. Except as set forth in Schedule "P" there
-------------------------
are no loans, leases, licences, guarantees, contracts, transactions,
understandings or other arrangements or any nature between the Issuer or any
Subsidiary and any officer, director or ten percent (10%) stockholder of the
Issuer or any family member or affiliate of the foregoing persons. All persons
owning ten percent (10%) or more of the presently outstanding common shares, are
listed on Schedule "P".
3.1.22 Material Contracts. Except as set forth in Schedule "M" and except as
-------------------
contemplated by this Agreement, neither Issuer nor any Subsidiary is a party or
subject to or bound by:
(a) any contract, lease or agreement creating any obligation of the
Issuer or any Subsidiary to pay to any third party $50,000 or more
with respect to any single such contract or agreement, except for
purchase orders entered into in the ordinary course of business;
<PAGE>
-11-
(b) any contract or agreement for the sale, license, lease or disposition
of products in excess of $50,000;
(c) any contract containing covenants directly or explicitly limiting the
freedom of the Issuer or any Subsidiary to compete in any line of
business or with any person or entity;
(d) any license agreement (as licensor or licensee) other than licenses to
Generic Software;
(e) any contract or agreement for the purchase of any leasehold
improvements, equipment or fixed assets for a price in excess of
$50,000;
(f) any indenture, mortgage, promissory note, loan agreement, guaranty or
other agreement or commitment for borrowing in excess of $50,000 or
any pledge or security arrangement except as disclosed in Schedule Q;
(g) any material joint venture, partnership, manufacturing, development or
supply agreement;
(h) any employment contracts, or agreements with officers, directors,
employees or stockholders of the Issuer or any Subsidiary or persons
or organizations related to or affiliated with any such persons;
(i) any stock redemption or purchase agreements or other agreements
affecting or relating to the capital stock of the Issuer or any
Subsidiary, including without limitation any agreement relating to the
capital stock of the Issuer or any Subsidiary, including without
limitation any agreement relating to anti-dilution rights,
registration rights, voting arrangements, operating covenants or
similar provisions;
(j) any pension, profit sharing, retirement or stock option plans;
(k) any royalty, dividend or similar arrangement based on the sales volume
of the Issuer or any Subsidiary
(l) any acquisition, merger or similar agreement; or
(m) any other contract not executed in the ordinary course of business.
All of such agreements and contracts are valid, binding on the Issuer or
Subsidiary and in full force and effect, subject to (i) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting the rights of creditors generally, and (ii) statutory or decisional
law concerning recourse by creditors to security in the absence of notice of
hearing.
<PAGE>
-12-
Neither Issuer nor any Subsidiary, nor, to the knowledge of the Issuer
or any Subsidiary, any other party is in material default under any of such
agreements or contracts (nor, to the knowledge of the Issuer or any Subsidiary,
has any event occurred which with notice, lapse of time or both would constitute
a material default thereunder), except to the extent that any such default would
not have a material effect on the assets, liabilities, properties, business or
proposals of the Issuer or any Subsidiary, and the Issuer or any Subsidiary has
not received notice of any alleged default under any such contract, or
agreement.
3.1.23 Intellectual Property Rights.
-----------------------------
(a) Rights
Schedule "O" contains a true and complete list of all
Intellectual Property Rights which have been registered, or for
which applications for registration have been filed in any
jurisdiction.
(b) Ownership
Except for Permitted Encumbrances, the Issuer is the exclusive
owner of the Technology and all right, title and interest in and
to the Technology, free and clear of all Encumbrances and the
Issuer has no knowledge of any claim of adverse ownership in any
Technology. Except as set forth in Schedule "O", Issuer has not:
(i) granted any third party licence or other right to any of the
Intellectual Property Rights; or
(ii) made any contract or arrangement whereby it may be liable
for any royalty or other compensation for the use of the
Intellectual Property Rights.
(c) Validity
The Intellectual Property Rights are in good standing and to the
best of the Issuer's knowledge have not been used or enforced or
failed to be used or enforced in a manner that would result in
the abandonment, cancellation or unenforceability of any of the
Intellectual Property Rights. All registrations and filings
necessary to preserve the rights of the Issuer in and to the
Intellectual Property Rights have been made.
(d) Complete
The Technology is sufficient and complete to enable the Issuer to
carry on the Business as currently carried on and to perform its
obligations under this Agreement and any related Closing
Documents including the Auction Services Agreement.
<PAGE>
13
(e) Infringements by Issuer
Except as set forth in Schedule "O", there is no:
(i) (1) claim of adverse ownership or invalidity or
other opposition to or conflict with Issuer's
ownership of the copyright, trade marks or
trade secrets forming part of the Technology
or the manner it is used in respect of the
Business nor to the best of the knowledge of
Issuer are there any such claims with respect
to any other intellectual property forming
part of the Technology; or
(2) pending or threatened suit, proceeding,
claim, demand, action or investigation of any
nature or kind, to the best of the knowledge
of Issuer, against Issuer relating to the
Technology or the manner it is used in
respect of the Business; or
(ii) claim of which the Issuer has received notice
(formal or informal) or is otherwise aware that
any products, software or services manufactured,
produced, used or sold by the Issuer or any
process, method, packaging, advertising, or
material that the Issuer employs in the
manufacture, marketing, licensing or sale of any
such product, software or service, or the use of
any of the Technology breaches, violates,
infringes or interferes with any rights of any
Person or requires payment for the use of any
copyright, trade mark or trade secret, know-how or
technology of another Person or, to the best of
Issuer's knowledge any other intellectual property
of any Person.
(f) Licenses and Covenants Not to Sue
Schedule "O" sets forth a complete and correct list and brief
description of all judgments, covenants of Issuer not to sue, permits,
grants, franchises, licenses and other agreements and arrangements
relating to any of the Technology owned by Issuer which bind, obligate
or otherwise restrict either of them.
(g) Third Party Infringements
There are no infringements of, passing-off related to, or other
interference with the Technology by third parties of which the Issuer
has received notice (formal or informal) or is otherwise aware.
<PAGE>
-14-
(h) Protection of Confidentiality
Issuer has taken commercially reasonable precautions and made
commercially reasonable efforts to protect their trade secrets and
secure the confidentiality of their customer lists, and other
proprietary information.
3.1.24 Major Suppliers and Customers. To the knowledge of the Issuer, no
------------------------------
major supplier or customer has any intention to change its relationship or any
material terms upon which it will conduct business with Issuer or the
Subsidiaries. There has been no interruption to or discontinuity in any
customer or supplier arrangements or relationships referred to in this Section
and Issuer and the Subsidiaries have not entered into any fixed price
commitments (whether written or oral) which extend beyond the Closing Date of
the First Closing.
3.1.25 Material Change Reports. Since the Financial Disclosure Date,
-----------------------
other than in respect of material change reports filed on a confidential basis
and in respect of which the material change so reported did not come to fruition
and other than this Agreement and in respect of the Torstar transaction:
(a) there has not been any material change in the assets, liabilities
or obligations (absolute, accrued, contingent or otherwise) of the
Issuer or its Subsidiaries which requires disclosure under
applicable securities legislation and that has not been publicly
disclosed;
(b) there has not been any material change in the capital stock or
long-term debt of the Issuer or its Subsidiaries which requires
disclosure under applicable securities legislation and that has not
been publicly disclosed; and
(c) there has not been any material change in the business, business
prospects, condition (financial or otherwise) or results of the
operations of the Issuer or its Subsidiaries which requires
disclosure under applicable securities legislation and that has not
been publicly disclosed.
3.1.26 Information Record. No portion of the Issuer's Information Record
-------------------
contained a misrepresentation as at its date of public dissemination.
3.1.27 Reportable Disagreement. During the last five (5) completed fiscal
------------------------
years there has never been any reportable disagreement (within the meaning of
National Policy Statement No. 31 of the Canadian Securities Administrators) with
the present or any former auditor of the Issuer.
3.1.28 Canadian Dealing Network. The Issuer shall use its best efforts
-------------------------
exercised in a commercially reasonable manner to ensure that the Shares will
continue to be quoted on the Canadian Dealing Network upon their issue.
<PAGE>
-15-
3.1.29 Employees. None of the employees of the Issuer or any Subsidiary is
----------
represented by any labour union, and, to the best of Issuer's knowledge, there
is no labour strike or other labour trouble pending or threatened with respect
to the Issuer or any Subsidiary (including, without limitation, any
organizational drive).
3.1.30 Disclosure. No representation or warranty of the Issuer in this
-----------
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary to make any such representation or warranty not
misleading to a prospective buyer of the Shares or Warrant seeking full
information as to the Business and the Assets. Without limiting the scope of
the foregoing, none of Issuer or any Subsidiary is aware of any change, event or
occurrence related to the Business that has taken place or is pending that has,
or in the future would have, a material adverse effect on the value of the
Shares, the Warrant, the Assets or the Business which is not the result of
general industry trends. The copies of documents concerning Issuer, the
Subsidiaries, the Business and the Assets delivered to AOL on or prior to the
date hereof are true and complete in all material respects.
3.2 Representations and Warranties of AOL. AOL represents and warrants to
--------------------------------------
Issuer as follows and acknowledges that Issuer is relying upon such
representations and warranties in connection with entering into this Agreement
and completing the transactions contemplated hereby.
3.2.1 Incorporation. AOL is a company duly incorporated, organized and
-------------
validly existing in good standing under the laws of Delaware.
3.2.2 Power, Capacity and Authority. AOL has all necessary power and capacity
------------------------------
to execute and deliver, and to observe and perform its covenants and obligations
under, this Agreement and the Closing Documents to which it is a party. AOL has
taken all corporate action necessary to authorize the execution and delivery of,
and the observance and performance of its covenants and obligations under, this
Agreement and the Closing Documents to which it is a party.
3.2.3 Enforceability of Obligations. This Agreement has been, and the Closing
------------------------------
Documents to which AOL is a party will on Closing be, duly executed and
delivered by AOL and this Agreement constitutes, and each of the Closing
Documents to which AOL is a party will on Closing constitute, a valid and
binding obligation of AOL enforceable against AOL in accordance with its terms.
3.2.4 Absence of Conflicting Agreements. None of the execution and delivery
----------------------------------
of, or the observance and performance of, by AOL of, any covenant or obligation
under, this Agreement or any Closing Document to which it is a party or the
Closing contravenes or results in (with or without the giving of notice or lapse
of time, or both) or will contravene or violate in any material respect or
result in any material breach or default of, or acceleration of any obligation
under:
(a) any Applicable Law to AOL;
(b) any Licence held by AOL;
<PAGE>
-16-
(c) the articles, by-laws, directors' or shareholders' resolutions of AOL; or
(d) any other agreement, lease, mortgage, security document, obligation or
instrument to which AOL is a party, or by which it or its assets are
bound.
3.2.5 Consents, Approvals, Etc. No consent, approval, Licence, Order or
-------------------------
authorization, registration, declaration or filing with any Governmental Agency
is required by AOL in connection with (a) the Closing or (b) the execution and
delivery by it of, or the observance and performance of its obligations under,
this Agreement or the Closing Documents to which it is a party.
3.3 Commission. Each Party represents and warrants to the other Party that
----------
the other Party will not be liable for any brokerage commission, finder's fee or
other like payment in connection with the transactions contemplated hereby
because of any action taken by, or agreement or understanding reached by, the
first mentioned Party.
3.4 Qualification of Representations and Warranties. The representations or
------------------------------------------------
warranties made by a Party under Sections 3.1.1(d), 3.1.18, 3.1.22 and 3.2.3 as
to the enforceability of this Agreement or the Closing Documents against such
Party is subject to the following qualifications:
(a) specific performance, injunctive relief and other equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy; and
(b) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally affecting
enforceability of creditors' rights.
3.5 Non-Waiver. No investigations made by or on behalf of AOL at any time
-----------
shall waive, diminish the scope of or otherwise affect any representation or
warranty made by Issuer in this Agreement or any Closing Document or any
document delivered pursuant to any of them.
3.6 Survival of Issuer Representations, Warranties, Covenants and Agreements.
-------------------------------------------------------------------------
All representations, warranties, covenants and agreements made by Issuer in or
pursuant to this Agreement shall survive the Closings as follows:
(a) the representations and warranties set forth in Sections 3.1.1 to 3.1.4
inclusive, 3.1.9, 3.1.16, 3.1.21, 3.1.23, 3.1.28 and Section 3.3 shall
survive beyond the Closings and continue without time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall unless expressly stated
otherwise survive only for a period of 2 years from the First Closing.
After such period, Issuer shall not have any further liability hereunder
with respect to such representations and warranties except with respect to
claims properly made within such period; and
<PAGE>
-17-
(c) the covenants and agreements of Issuer contained in this Agreement shall
survive the Closings and continue in accordance with Applicable Law.
3.7 Survival of AOL Representations, Warranties, Covenants and Agreements.
---------------------------------------------------------------------
All representations warranties, covenants and agreements made by AOL in or
pursuant to this Agreement shall survive the Closings as follows:
(a) the representations and warranties set forth in Sections 3.2.1 to 3.2.3
inclusive and Sections 3.3 and 4.4 shall survive beyond the Closings and
continue without time limit;
(b) all of the other representations and warranties contained in this
Agreement or in any Closing Document shall unless expressly stated
otherwise survive only for a period of 2 years from the First Closing.
After such period, AOL shall have no further liability hereunder with
respect to such representations and warranties except with respect to
claims properly made within such period; and
(c) the covenants and agreements of AOL contained in this Agreement shall
survive the Closings and continue in accordance with Applicable Law.
3.8 Knowledge of Issuer. Where any representation or warranty contained in
--------------------
this Agreement is expressly qualified by reference to the "knowledge" of Issuer,
it shall be deemed to refer to the knowledge of each of Issuer and any of the
Subsidiaries and Issuer confirms that it has made due and diligent inquiry of
such Persons (including without limitation appropriate officers of Issuer and
the Subsidiaries) as it considers necessary as to the matters that are the
subject of such representations and warranties.
ARTICLE FOUR
OTHER COVENANTS OF THE PARTIES
------------------------------
4.1 Obligation of Issuer. From the date hereof to the First Closing, Issuer
---------------------
shall act, and shall cause the Subsidiaries to act, as set forth in this Article
4.1.
4.1.1 Conduct Business in Ordinary Course. Except as otherwise contemplated or
------------------------------------
permitted by this Agreement, Issuer and the Subsidiaries shall conduct the
Business in the ordinary course and shall not, without the prior written consent
of AOL, enter into any transaction outside the ordinary course of business
which, if entered into before the date hereof, could cause any representation or
warranty of Issuer contained herein to be incorrect or constitute a breach of
any covenant or agreement of Issuer contained herein.
4.1.2 Action by Issuer and Subsidiaries. Each of Issuer and the Subsidiaries
----------------------------------
shall at their sole cost take all action which may be necessary to ensure that
the representations and warranties contained herein shall be true and correct in
all material respects at the First Closing.
<PAGE>
-18-
4.1.3 Access for Investigation. Each of Issuer and the Subsidiaries shall
-------------------------
permit AOL and its employees, agents, counsel and accountants or other
representatives, without interference to the ordinary conduct of the Business,
to have free and unrestricted access during business hours to the properties of
Issuer and the Subsidiaries and to all the books, accounts and records relating
to each of Issuer, the Subsidiaries, the Business, the Assets and to the
employees of the Business. Issuer and each of the Subsidiaries shall furnish to
AOL such financial and operating data and other information with respect to the
Business and the Assets as AOL shall from time to time reasonably request.
Issuer agrees that AOL may conduct such environmental investigations and tests
on the properties of Issuer and the Subsidiaries as AOL considers necessary.
4.1.4 Disclosure. Issuer shall forthwith disclose in writing to AOL in
-----------
supplemental schedules any matter arising other than in the ordinary course of
business which has become known to it prior to the First Closing which is
inconsistent in any material respect with any of the representations and
warranties contained herein. Except as otherwise expressly agreed by AOL, no
such disclosure shall cure any misrepresentation or breach of warranty for the
purposes of Section 6.1.1 hereof.
4.1.5 Reporting Issuer Status. Issuer shall use its best efforts exercised in
-------------------------
a commercially reasonable manner to maintain its status as a reporting issuer
not in default of any requirements of the Securities Act (Ontario) and the
regulations thereunder and shall use its best efforts not to be in default of
any requirement of any securities laws or regulations to which Issuer is
subject.
4.2 Actions to Satisfy Closing Conditions. Each of the Parties shall take
-------------------------------------
all such action as is within its power to control, and shall use reasonable
efforts to cause other actions to be taken which are not within its power to
control, so as to ensure compliance with and satisfaction of all conditions set
forth in Article 6 which are for the benefit of any Party. The Parties will
cooperate in exchanging such information and providing such assistance as may be
reasonably required in connection with the foregoing.
4.3 Injunctions. If any court having jurisdiction over either Party or any of
------------
the Subsidiaries issues any injunction, decree or similar order prior to the
Closing Time which would prohibit or materially restrict or hinder the Closing,
the Parties shall use their respective reasonable efforts to have such
injunction, decree or order dissolved or otherwise eliminated as promptly as
possible and, in any event, prior to the Closing Time.
4.4 Subscriber Representations AOL represents and warrants to Issuer as
---------------------------
follows and acknowledges that Issuer is relying upon such representations and
warranties in connection with entering into this Agreement and completing the
transactions contemplated hereby.
4.4.1 Accredited Investor AOL is an accredited investor ("Accredited
-------------------
investor") as defined in Rule 501(a) under the United States Securities Act
of 1933 (the "1933 Act"), and is acquiring the Shares (the "Subject
Securities") for its own account or for the account of an Accredited
Investor as to which it exercises sole investment discretion, and not with
a view to any resale,
<PAGE>
-19-
distribution or other disposition of the Subject Securities in violation of the
United States securities laws or applicable state securities laws;
4.4.2 Exempt Sale AOL is aware that the Subject Securities have not been and
-----------
will not be registered under the 1933 Act and that the sale to it of such
securities is being made in reliance on a private placement exemption
from such registration, and the Subscriber certifies that: (a) it is and
will be acquiring the Subject Securities for its own account or for the
account of another accredited investor; and (b) it has received all
information, financial and otherwise, with respect to the Issuer which it
has requested and has had access to such additional information, if any,
concerning the Issuer as it has considered necessary in connection with
its investment decision to acquire the Subject Securities;
4.4.3 Sophisticated Investor AOL has such knowledge and experience in
-----------------------
financial and business matters as to be capable of evaluating the merits
and risks of its investment in the Subject Securities and is able to bear
the economic risks of such investment;
4.4.4 U.S. Resident AOL and any account for which it is purchasing Subject
-------------
Securities are resident in the United States;
4.4.5 Restricted Securities AOL acknowledges that the Subject Securities will
---------------------
be "restricted securities" for the purposes of the 1933 Act and agrees
that if it shall decide to offer, sell or otherwise transfer, pledge or
hypothecate any of such securities, the same may be offered, sold or
otherwise transferred, pledged or hypothecated only (a) to the Issuer,
(b) outside the United States in accordance with Rule 904 of Regulation S
under the 1933 Act, (c) inside the United States in accordance with Rule
144 under the 1933 Act, if available, and in compliance with any
applicable state securities laws; or (d) pursuant to another exemption
from registration under the 1933 Act and any applicable state securities
laws;
4.4.6. Legend AOL understands that all certificates representing the Subject
------
Securities purchased by it as well as all certificates issued in exchange
therefor, or in substitution thereof will bear a legend to the following
effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), AND
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 1933 ACT, (C) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE 1933 ACT PROVIDED BY RULE 144 THEREUNDER, IF
AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS,
OR (D) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
<PAGE>
-20-
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE GOOD DELIVERY IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW CERTIFICATE
BEARING NO LEGEND MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER AGENT
UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A
FORM SATISFACTORY TO THE REGISTRAR AND TRANSFER AGENT AND THE CORPORATION,
TO THE EFFECT THAT SUCH SALE IS BEING MADE IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE 1933 ACT.";
provided that if Subject Securities are being sold outside the United
--------
States in compliance with the requirements of Rule 904 of Regulation S,
any such legend may be removed by providing a declaration to the registrar
and transfer agent to the following effect or as the Issuer may prescribe
from time to time:
"The undersigned (a) acknowledges that the sale of the securities of
Internet Liquidators International Inc. (the "Corporation") to which this
declaration relates is being made in reliance on Rule 904 of Regulation S
under the United States Securities Act of 1933, as amended (the "1933
Act") and (b) certifies that (1) the undersigned is not an affiliate of
the Corporation as that term is defined in the 1933 Act, (2) the offer of
such securities was not made to a person in the United States and either
(A) 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 (B)
the transaction was executed on or through the facilities of The Toronto
Stock Exchange, The Montreal Exchange, The Alberta Stock Exchange or the
Vancouver 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 and (4) the transaction is not, although
in technical compliance with Rule 904 of Regulation S, part of a plan or
scheme to evade the registration requirements of the 1933 Act. Terms used
herein have the meanings given to them by Regulation S."; and
4.4.7 Transfer Restriction AOL understands and acknowledges that the Issuer
--------------------
has the right to instruct its transfer agent and registrar not to record a
transfer by any person in the United States without first being notified
by the Issuer that it is satisfied that such transfer is exempt from or
not subject to registration under the 1933 Act and any applicable state
securities laws.
ARTICLE FIVE
INDEMNIFICATION
---------------
5.1 Definitions. As used in this Article 5:
------------
"Affiliate" has the meaning attributed thereto in the Act;
<PAGE>
-21-
"Claim" means any act, omission or state of facts and any demand, action, suit
or proceeding which may constitute or give rise to a right to indemnification
under Sections 5.2 or 5.3 hereof;
"Direct Claim" means any Claim by an Indemnified Party against an Indemnifier
which does not result from a Third Party Claim;
"Indemnified Loss" means any loss, liability, damage, cost or expense relating
to, resulting from or arising out of any Claim (including, without limitation,
the costs and expenses of any action, suit, proceeding, demand, assessment,
judgment, settlement or compromise relating thereto and all interest, punitive
damages, fines and penalties and reasonable legal fees and expenses incurred in
connection therewith but excluding loss profits and consequential damages) which
is suffered or incurred by an Indemnified Party and for which such Indemnified
Party is entitled to indemnification under the provisions hereof;
"Indemnifier" means any Party obligated to provide indemnification under this
Agreement;
"Indemnified Party" means any Person entitled to indemnification under this
Agreement;
"Indemnity Payment" means any amount of Indemnified Loss required to be paid
pursuant to Sections 5.2 or 5.3 hereof; and
"Third Party Claim" means any Claim asserted against the Indemnified Party by
any Person who is not a Party or an Affiliate of such a Party.
5.2 Indemnification by Issuer. Subject to the limits set forth in Section
--------------------------
5.11, each of Issuer shall indemnify, defend and save harmless AOL and each of
its directors, officers, employees, agents and representatives from and against
any and all Indemnified Losses suffered or incurred by them, as a direct or
indirect result of:
(a) subject to Section 3.6 hereof, any misrepresentation or breach of warranty
made or given by Issuer in this Agreement, any Closing Document or in any
document delivered pursuant to any of them; or
(b) any failure by Issuer to observe or perform any covenant or obligation
contained in this Agreement, any Closing Document or in any document
delivered pursuant to any of them to be observed or performed by it.
5.3 Indemnification by AOL. Subject to the limits set forth in Section 5.11,
-----------------------
AOL shall indemnify, defend and save harmless Issuer and its subsidiaries and
each of its directors, officers, employees, agents and representatives from and
against any and all Indemnified Losses suffered or incurred by them, as a direct
or indirect result of:
(a) subject to Section 3.7, any misrepresentation or breach of any warranty
made or given by AOL in this Agreement, any Closing Document or in any
document delivered pursuant to any or them; or
<PAGE>
-22-
(b) any failure by AOL to observe or perform any covenant or obligation
contained in this Agreement, any Closing Document or in any document
delivered pursuant to any of them to be observed or performed by it.
5.4 Notice of and the Defense of Third Party Claims. If an Indemnified Party
------------------------------------------------
receives notice of the commencement or assertion of any Third Party Claim, the
Indemnified Party shall give the Indemnifier reasonably prompt written notice
thereof, but in any event no later than 30 calendar days after receipt of such
notice of such Third Party Claim. Such notice to the Indemnifier shall describe
the Third Party Claim in reasonable detail and shall indicate, if reasonably
practicable, the estimated amount of the Indemnified Loss that has been or may
be sustained by the Indemnified Party. The Indemnifier shall have the right to
participate in or, by giving notice to that effect to the Indemnified Party not
later than 30 calendar days after receipt of such notice of such Third Party
Claim and subject to the rights of any insurer or other third party having
potential liability therefor, to elect to assume the defense of any Third Party
Claim at the Indemnifier's own expense and by such Indemnifier's own counsel,
and the Indemnified Party shall co-operate in good faith in such defense. The
Indemnified Party shall have the right to participate in the defense of any
Third Party Claim assisted by counsel of its own choosing. If the Indemnified
Party has not received notice within such 30 calendar day period that the
Indemnifier has elected to assume the defence of such Third Party Claim, the
Indemnified Party may, at its option, elect to settle or compromise the Third
Party Claim or assume such defence, assisted by counsel of its own choosing and
the Indemnifier shall be liable for all costs and expenses paid or incurred in
connection therewith.
5.5 Assistance for Third Party Claims. In the event of any Third Party Claim,
----------------------------------
the Indemnifier and the Indemnified Party will use all reasonable efforts to
make available to the Party which is undertaking and controlling the defense of
such Third Party Claim,
(a) those employees whose assistance, testimony or presence is necessary to
assist such Party in evaluating and in defending any Third Party Claim; and
(b) all documents, records and other materials in the possession of such Party
reasonably required by such Party for its use in defending any Third Party
Claim,
and shall otherwise cooperate with the Party defending such Third Party Claim.
The Indemnifier shall be responsible for all expenses associated with making
such documents, records and materials available and for all expenses of any
employees made available by the Indemnified Party to the Indemnifier hereunder,
which expense shall be equal to an amount to be mutually agreed upon per person
per hour or per day for each day or portion thereof that such employees are
assisting the Indemnifier but such expenses shall not exceed the actual cost to
the Indemnified Party associated with such employees.
5.6 Settlement of Third Party Claims. If an Indemnifier elects to assume the
--------------------------------
defence of any Third Party Claim as provided in Section 5.4 hereof, the
Indemnifier shall not be liable for any legal expenses subsequently incurred by
the Indemnified Party in connection with the defence thereof. However, if the
Indemnifier fails to take reasonable steps necessary to defend diligently such
Third Party Claim within 30 calendar days after receiving notice from the
Indemnified Party that the
<PAGE>
-23-
Indemnified Party bona fide believes on reasonable grounds that the Indemnifier
has failed to take such steps, the Indemnified Party may, at its option, elect
to assume the defence of and to compromise or settle the Third Party Claim
assisted by counsel of its own choosing and the Indemnifier shall be liable for
all costs and expenses paid or incurred in connection therewith. Without the
prior written consent of the Indemnified Party, the Indemnifier shall not enter
into any compromise or settlement of any Third Party Claim which would lead to
liability or create any financial or other material obligation on the part of
the Indemnified Party for which the Indemnified Party is not entitled to
indemnification hereunder. If a firm offer is made to settle a Third Party Claim
without leading to liability or the creation of a financial or other obligation
on the part of the Indemnified Party for which the Indemnified Party is not
entitled to indemnification hereunder and the Indemnifier desires to accept such
offer, the Indemnifier shall give written notice to the Indemnified Party to
that effect. If the Indemnified Party fails to consent to such firm offer within
30 calendar days after its receipt of such notice, the Indemnified Party may
continue to contest or defend such Third Party Claim and, in such event, the
maximum liability of the Indemnifier with respect to such Third Party Claim
shall be (a) the amount of the offer of settlement which the Indemnified Party
refused to accept plus the costs and expenses of the Indemnified Party prior to
the date the Indemnifier notifies the Indemnified Party of the offer of
settlement and (b) the actual out-of-pocket amount the Indemnified Party is
obligated to pay as a result of continuing to pursue such matter, whichever is
the lesser. An Indemnifier shall be entitled to recover from the Indemnified
Party any additional expenses incurred by such Indemnifier as a result of the
decision of the Indemnified Party to contest or defend such Third Party Claim.
5.7 Direct Claims. Any Direct Claim shall be asserted by giving the
--------------
Indemnifier reasonably prompt written notice thereof, but in any event not later
than 30 calendar days after the Indemnified Party becomes aware of such Direct
Claim, and the Indemnifier shall have a period of 30 calendar days within which
to respond in writing to such Direct Claim. If the Indemnifier does not so
respond within such 30 calendar day period, the Indemnifier shall be deemed to
have rejected such Claim, in which event the Indemnified Party shall be free to
pursue such remedies as may be available to the Indemnified Party.
5.8 Failure to Give Timely Notice. A failure to give timely notice as provided
------------------------------
in this Article 5 shall not affect the rights or obligations of either Party
except and only to the extent that, as a result of such failure, any Party which
was entitled to receive such notice was deprived of its right to recover any
payment under its applicable insurance coverage or was otherwise directly and
materially damaged as a result of such failure.
5.9 Reductions and Subrogation. If the amount of any Indemnified Loss, at any
---------------------------
time subsequent to the making of an Indemnity Payment, is reduced by (a) any net
tax benefit or (b) any recovery, settlement or otherwise under or pursuant to
any insurance coverage, or pursuant to any claim, recovery, settlement or
payment by or against any other Person, the amount of such reduction (less any
costs, expenses (including taxes) or premiums incurred in connection therewith),
together with interest thereon from the date of payment thereof at the Prime
Rate, shall promptly be repaid by the Indemnified Party to the Indemnifier.
Upon making any Indemnity Payment, the Indemnifier shall, to the extent of such
Indemnity Payment, be subrogated to all rights of the Indemnified Party against
any third party that is
<PAGE>
-24-
not an affiliate (as defined in the Act) of the Indemnified Party in respect of
the Indemnified Loss to which the Indemnity Payment relates but only if the
Indemnifier shall then be in compliance with its obligations under this
Agreement in respect of such Indemnified Loss. Until the Indemnified Party
recovers full payment of its Indemnified Loss, any and all claims of the
Indemnifier against any such third party on account of such Indemnity Payment
shall be postponed and subordinated in right of payment to the Indemnified
Party's rights against such third party. Without limiting the generality or
effect of any other provision hereof, the Indemnified Party and Indemnifier
shall duly execute upon request all instruments reasonably necessary to evidence
and perfect the above-described postponement and subordination rights.
5.10 Interest on Indemnified Losses. All Indemnified Losses shall bear
-------------------------------
interest at a rate per annum equal to the Prime Rate, calculated and payable
monthly, both before and after judgment, with interest on overdue interest at
the same rate, from the date that the Indemnified Party disbursed funds,
suffered damages or losses or incurred a loss, liability or expense in respect
of an Indemnified Loss, to the date of payment by the Indemnifier to the
Indemnified Party.
5.11 Limitation.
-----------
(a) With the exception of any claims arising in connection with title to the
IL Technology, no claims for indemnification may be made hereunder by AOL
against Issuer in respect of any Indemnified Losses arising in connection
with any misrepresentation or breach of warranty made or given by Issuer
in this Agreement, any Closing Document or in any document delivered
pursuant to any of them, unless and until the Indemnified Losses suffered
or incurred by AOL and by all of its directors, officers, employees,
agents or representatives collectively, in respect of all such
misrepresentations or breaches of warranty, exceed twenty-five Thousand
Dollars ($25,000) in the aggregate (excluding claims each of which is less
than $1,000), in which event the amount of all such Indemnified Losses
including such twenty-five Thousand Dollars ($25,000) amount may be
recovered by AOL.
(b) No claims for indemnification may be made hereunder by Issuer against AOL
in respect of any Indemnified Losses arising in connection with any
misrepresentation or breach of warranty made or given by AOL in this
Agreement, any Closing Document or in any document delivered pursuant to
any of them, unless and until the Indemnified Losses suffered or incurred
by Issuer and by all of its directors, officers, employees, agents or
representatives collectively, in respect of all such misrepresentations or
breaches of warranty, exceed twenty-five Thousand Dollars ($25,000) in the
aggregate (excluding claims each of which is less than $1,000), in which
event the amount of all such Indemnified Losses including such twenty-five
Thousand Dollars ($25,000) amount may be recovered by Issuer.
5.12 Rights in Addition. The rights of indemnity set forth in this Article 5
-------------------
are in addition and supplemental to any other rights, actions, claims or causes
of action which may arise in respect of this Agreement, the Closing Documents
and the transactions contemplated hereby.
<PAGE>
-25-
5.13 Determination of Indemnified Loss. In determining the amount of any
----------------------------------
Indemnified Loss hereunder the market price of any securities of Issuer held by
the Indemnified Party shall be only one factor to be taken into account.
ARTICLE SIX
CONDITIONS PRECEDENT
--------------------
6.1 AOL's Conditions. The obligation of AOL to complete the purchase of the
-----------------
Shares and Warrant shall be subject to the prior satisfaction of, or compliance
with, at or before the Closing Time, each of the conditions precedent set out in
this Section 6.1, each of which is acknowledged to be for the exclusive benefit
of AOL and may be waived by AOL in whole or in part in writing and upon such
terms and conditions, if any, as AOL may require.
6.1.1 Accuracy of Representations and Performance of Covenants. All of the
---------------------------------------------------------
representations and warranties of Issuer made in or pursuant to this Agreement
shall be true and correct in all respects as at the First Closing and with the
same effect as if made at and as of the Closing Time of the First Closing and as
if any time at which such representation or warranty were accurate read the
"Closing Time" (except as such representations and warranties may be affected by
the occurrence of events or transactions expressly contemplated and permitted
hereby) and AOL shall have received immediately prior to the Closing Time a
certificate from the chief executive officer or the chief financial officer of
Issuer confirming the foregoing to the best of their knowledge, information and
belief, after due enquiry. With the exception of a certificate respecting
Section 3.1.16, the foregoing conditions only apply to the First Closing. As at
the Closing Time, Issuer shall have observed or performed in all respects, all
of its covenants and obligations hereunder to be observed or performed by it at
or before the applicable Closing Time.
6.1.2 No Material Adverse Change. No material adverse change shall have
---------------------------
occurred since the Financial Disclosure Date with respect to any of Issuer, the
Subsidiaries, the Business or the Assets or the future prospects for any of
Issuer, the Subsidiaries or the Business other than as a result of general
industry trends and AOL shall have received immediately prior to Closing a
certificate from the chief executive officer or the chief financial officer of
Issuer confirming that no such material adverse change has occurred. This
condition only applies to the First Closing.
6.1.3 Litigation. No court order shall have been entered that enjoins,
-----------
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, or any of either Party's directors, officers,
advisors, employees or agents, shall be a defendant or third party to or
threatened with, any litigation or proceedings before any court or Governmental
Agency which, in the opinion of AOL, acting reasonably, could prevent or
restrict AOL or Issuer from observing and performing any of their respective
covenants and obligations pursuant to this Agreement or the Closing Documents.
6.1.4 Receipt of Closing Documentation. All actions and proceedings taken on
---------------------------------
or prior to the Closing in connection with the performance by Issuer of its
covenants and obligations under this Agreement shall be satisfactory to AOL
acting reasonably and AOL shall have received copies of the
<PAGE>
-26-
Closing Documents and all such documentation or other evidence as it may
reasonably request in connection with the Closing in form (as to certification
and otherwise) and substance satisfactory to AOL.
6.1.5 Opinion of Counsel for Issuer. AOL shall have received an opinion dated
------------------------------
the Closing Date from counsel for Issuer in the form of the opinion attached
hereto as Schedule G. In giving such opinion, counsel to Issuer may rely on
certificates of senior officers of Issuer as to factual matters provided such
certificates are attached to the opinion. Such opinion shall also cover such
other matters as AOL or its counsel may reasonably request. This condition only
applies to the First Closing.
6.1.6 Closing Documents. Each of the following documents shall have been
------------------
executed and delivered by the parties thereto other than AOL:
(a) the Auction Services Agreement in the form of Schedule I;
(b) the Shareholders' Agreement in the form of Schedule K;
(c) the Registration Rights Agreement in the form of Schedule L;
(d) the IP Rights and Non-Competition Agreement in the form of Schedule O; and
(e) DCI Term Sheet in the form of Schedule J.
6.1.7 Cease Trade Orders. There shall be no cease trade orders in force by any
-------------------
securities regulatory authorities or any other impediments (other than "control
block" and "hold period" restrictions) to the general free trading of the Shares
and the shares underlying the Warrant.
6.1.8 Equity Injection. Issuer shall have received net proceeds of no less than
-----------------
$850,000 Cdn cash from the issuance of common shares from treasury of Issuer at
an issue price of no less than $0.85 Cdn per common share (the "Condition
Precedent Financing").
6.2 Issuer's Conditions. The obligation of Issuer to complete the issuance
-------------------
of the Shares shall be subject to the satisfaction of or compliance with, at or
before the Closing Time, each of the conditions precedent set out in this
Section 6.2, each of which is hereby acknowledged to be for the exclusive
benefit of Issuer and may be waived by Issuer in whole or in part in writing
upon such terms and conditions, if any, as Issuer may require.
6.2.1 Accuracy of Representations and Performance of Covenants. All of the
---------------------------------------------------------
representations and warranties of AOL made in or pursuant to this Agreement
shall be true and correct in all respects as at the First Closing and with the
same effect as if made at and as of the Closing Time of the First Closing and as
if any time at which such representation or warranty were accurate read the
"Closing Time" (except as such representations and warranties may be affected by
the occurrence of events or transactions expressly contemplated and permitted
hereby) and Issuer shall have received immediately
<PAGE>
-27-
prior to the Closing Time a certificate from the chief executive officer and the
chief financial officer of AOL confirming the foregoing to the best of its
knowledge, information and belief, after due enquiry. The foregoing condition
only applies to the First Closing. As at the Closing Time, AOL shall have
observed or performed in all respects, all of its covenants and obligations
hereunder to be observed or performed by it at or before the applicable Closing
Time.
6.2.2 Litigation. No court order shall have been entered that enjoins,
-----------
restrains, changes or prohibits the consummation of any of the transactions
contemplated hereby, and no Party, nor any of either Party's directors,
officers, advisors, employees or agents, shall be a defendant or third party to
or threatened with any litigation or proceedings before any court or
Governmental Agency which, in the opinion of Issuer, acting reasonably, could
prevent or restrict Issuer or AOL from observing and performing any of their
respective obligations and covenants pursuant to this Agreement or the Closing
Documents.
6.2.3 Receipt of Closing Documentation. All Closing Documents and all actions
---------------------------------
and proceedings taken on or prior to the Closing in connection with the
performance by AOL of its covenants and obligations under this Agreement shall
be satisfactory to Issuer, and Issuer shall have received copies of the Closing
Documents and all such documentation or other evidence as they may reasonably
request for the Closing in form (as to certification and otherwise) and
substance satisfactory to them.
6.2.4 Opinion of Counsel for AOL. IL shall have received an opinion dated the
---------------------------
Closing Date from counsel for AOL in the form of the opinion attached hereto as
Schedule G. In giving such opinion, counsel to AOL may rely on certificates of
senior officers of AOL as to factual matters provided such certificates are
attached to the opinion. Such opinion shall also cover such other matters as IL
or its counsel may reasonably request. This condition only applies to the First
Closing.
6.2.5 Closing Documents. Each of the following documents shall have been
------------------
executed and delivered by the parties thereto other than IL:
(a) the Auction Services Agreement in the form of Schedule I; and
(b) the Shareholders' Agreement in the form of Schedule K.
6.3 Waiver. Any Party may waive, by notice to the other Party, any condition
-------
set forth in this Article 6 which is for its exclusive benefit. No waiver by a
Party of any condition, in whole or in part, shall operate as a waiver of any
other condition.
6.4 Failure to Satisfy Conditions. If any condition set forth in Sections
-----------------------------
6.1 or 6.2 is not satisfied on or before the Closing Time, the Party entitled to
the benefit of such condition may send notice in writing to the other Party that
this Agreement is to be terminated.
6.5 Destruction or Expropriation. If, prior to the Closing Time, there
----------------------------
occurs any material destruction or damage by fire or other cause or hazard to
any material part of the Assets, or if the Assets
<PAGE>
-28-
or any material part of them are expropriated or forcefully taken by any
Governmental Agency or if notice of intention to expropriate a material part of
the Assets has been filed in accordance with Applicable Law, then AOL may, at
its option, terminate this Agreement by notice to Issuer.
<PAGE>
- -29-0
ARTICLE 7
GENERAL
-------
7.1 Expenses. Each Party shall pay all expenses it incurs in authorizing,
---------
preparing, executing and performing this Agreement and the transactions
contemplated hereunder, whether or not the Closing occurs, including all fees
and expenses of its legal counsel, bankers, investment bankers, brokers,
accountants or other representatives or consultants.
7.2 Time. Time is of the essence of this Agreement and each of its
----
provisions.
7.3 Notice. Any notice or other communication (in this Section a "Notice")
-------
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to AOL addressed to it at:
America Online, Inc. with a copy to:
22000 AOL Way America Online, Inc.
Dulles, Virginia 20166 22000 AOL Way
Dulles, Virginia 20166
Attention: Fred Singer, Vice-President Attention: General Counsel
Fax No.: (703) 265-2409 Fax No.: (703) 265-2208
and in the case of a Notice to Corporation addressed to it at:
Internet Liquidators International Inc. with a copy to:
5915 Airport Rd., Gowling, Strathy & Henderson
Suite 330 Commerce Court West
Mississauga, Ontario Suite 4900
L4V 1T Toronto, Ontario M5L 1J3
Attention: Paul Godin Attention: David Pamenter
Fax No.: (905) 672-5705 Fax No.: (416) 862-7661
<PAGE>
-30-
Any Notice given or made in accordance with this Section 7.3 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 7.3.
7.4 Public Announcements. Before the First Closing, no Party shall make any
---------------------
public statement or issue any press release concerning the transactions
contemplated by this Agreement except as may be necessary, in the opinion of
counsel to the Party making such disclosure, to comply with the requirements of
all Applicable Law and except for press releases with respect to the execution
hereof. If any such public statement or release is so required, the Party
making such disclosure shall consult with the other Parties prior to making such
statement or release, and the Parties shall use all reasonable efforts, acting
in good faith, to agree upon a text for such statement or release which is
satisfactory to all Parties.
7.5 Assignment. None of this Agreement nor any right or obligation hereunder
-----------
is assignable in whole or in part by either Party without the prior written
consent of the other Party. Notwithstanding the foregoing, AOL may, without the
consent of Issuer, assign this Agreement and its rights hereunder to any wholly-
owned subsidiary on condition that AOL remains liable to observe and perform all
of its covenants and obligations hereunder. Subject thereto, this Agreement
shall enure to the benefit of and be binding upon the Parties and their
respective successors (including any successor by reason of amalgamation or
statutory arrangement of either Party) and permitted assigns.
7.6 Further Assurances. Each Party shall do such acts and shall execute and
-------------------
deliver such further agreements, documents, conveyances, deeds, assignments,
transfers and the like, and shall cause the doing of such acts and the execution
and delivery of such further items as are within its power and as the other
Party may in
<PAGE>
-31-
writing at any time and from time to time reasonably request, in order to give
full effect to the provisions of this Agreement and the Closing Documents.
IN WITNESS WHEREOF the Parties have duly executed this Agreement.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By: c/s
Name:
Title:
AMERICA ONLINE, INC.
By: c/s
Name:
Title:
<PAGE>
SCHEDULE "A"
DEFINITIONS
In this Agreement, unless the subject matter or context is inconsistent
therewith:
"Act" means the Business Corporations Act (Ontario) as amended or restated and
any successor legislation of comparable effect;
"Advertising Credits" means a credit to purchase advertising (to be used in
accordance with AOL's then current advertising guidelines) on AOL's online
service at rate card rates ($60 CPM).
"Agreement" means this Subscription Agreement and all schedules annexed to this
Agreement as the same may be amended from time to time in accordance with the
provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar
expressions mean and refer to this Agreement and not to any particular article
or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement;
"Articles" means the articles of amalgamation of Issuer dated January 9, 1997;
"Applicable Law" means any domestic or foreign statute, law, ordinance, rule,
regulation, regulatory policy or guideline, by-law (zoning or otherwise) or
Order that applies to Issuer, the Subsidiaries, the Business, the way the
Business is carried on or to the Shares or Warrant;
"Assets" means all of the assets and undertaking of Issuer and the Subsidiaries,
both tangible and intangible, including goodwill;
"Business" means collectively the businesses carried on by Issuer and the
Subsidiaries including the operation of an internet website which offers
consumer products for sale via credit card transactions through an auction and
storefront mall format for both retail and wholesale supplies;
"Business Day" means any day of the week other than a Saturday, Sunday or
statutory or civic holiday observed in Toronto, Ontario or Dulles, Virginia;
"Cleared Title" means the execution and delivery to IL of assignments of
Intellectual Property Rights and waivers of moral rights in a form acceptable to
AOL's counsel, acting reasonably, by all consultants who provided development
services to IL that gave rise to such rights in connection with the IL Auction
Service;
"Closings" means the First Closing and the Second Closing and "Closing" means
either one of them;
"Closing Date" means, in respect of any Closing such Business Day as the Parties
agree in writing as the date on which such Closing is to take place;
<PAGE>
-2-
"Closing Document" means any document delivered at or subsequent to the Closing
Time as provided in or pursuant to, this Agreement;
"Closing Time" means 11:00 a.m. (Toronto time) on the Closing Date or such other
time on that date as the Parties agree that the Closing shall take place;
"Condition Precedent Financing" has the meaning attributed thereto in Section
6.1.9;
"Convertible Security" means a security of Issuer convertible into or
exchangeable for one or more Voting Securities of Issuer;
"Encumbrance" means any encumbrance of any kind whatever and includes a security
interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge,
trust or deemed trust (whether contractual, statutory or otherwise arising),
adverse claim, or any other option, right or claim of others of any kind
whatever affecting the Assets, Shares or Warrant, as applicable and any
restrictive covenant or other agreement, restriction or limitation (registered
or unregistered) on the Assets, Shares or Warrant, as applicable;
"Financial Disclosure Date" means final day reviewed by any of the Financial
Statements and being December 31, 1996;
"Financial Statements" means the unaudited consolidated balance sheet of Issuer
as at December 31, 1996 and the unaudited consolidated statement of loss and
deficit of Issuer for the 12 month period ending December 31, 1996, copies of
which are attached as Schedule B, together with the notes thereto;
"First Closing" means the issuance of the Stage One Shares and Warrant by Issuer
to AOL and the completion of all other transactions contemplated in connection
with the purchase of the Stage One Shares and Warrant;
"fully diluted basis" refers to the percentage interest that AOL would have in
the common shares of the Issuer if all Rights and Convertible Securities or
other privileges issued or granted by Issuer (whether or not currently
exercisable or exercisable on conditions but not including the Warrant) to
purchase common shares had been exercised;
"Generally Accepted Accounting Principles" means generally accepted accounting
principles from time to time approved by the Canadian Institute of Chartered
Accountants, or any successor institute, applicable as at the date on which any
calculation or determination is required to be made in accordance with generally
accepted accounting principles, and where the Canadian Institute of Chartered
Accountants includes a recommendation in its Handbook concerning the treatment
of any accounting matter, such recommendation shall be regarded as the only
generally accepted accounting principle applicable to the circumstances that it
covers;
<PAGE>
-3-
"Generic Software" means off the shelf or mass-market software which is readily
substitutable by the Business with minimum cost or interruption to the Business;
"Governmental Agency" means any domestic or foreign government whether federal,
provincial, state or municipal and any governmental agency, authority, tribunal,
commission or instrumentality of any kind whatever;
"Information Record" means any statement contained in any press release,
material change report, financial statement or other document of Issuer or any
Subsidiary which has been or is publicly disseminated pursuant to any applicable
securities laws prior to the Closing Time;
"Intellectual Property Rights" includes: (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv)
design patent or industrial design law, (v) semi-conductor chip or mask work
law, or (vi) any other statutory provision or common law principle, applicable
to the Issuer, the Subsidiaries,the Business or Assets which may provide a right
in either (a) ideas, formulae, algorithms, concepts, inventions or know-how
generally, including trade secret law, or (b) the expression or use of such
ideas, formulae, algorithms, concepts, inventions or know-how; and (B) any and
all applications, registrations, licenses, sub-licenses, franchises, agreements
or any other evidence of a right in any of the foregoing;
"Licence" means any licence, permit, approval, right, privilege, concession or
franchise;
"Loan Repayment" means the repayment of the $250,000.00 bridge financing with
Standard Mercantile Bancorp LP dated the 18th of October, 1996 and the release
of all security given in connection therewith;
"ordinary course" when used in relation to the conduct by Issuer and the
Subsidiaries of the Business means any transaction which constitutes an
ordinary day-to-day business activity of Issuer and the Subsidiaries
conducted in a commercially reasonable and businesslike manner consistent
with the past practices of Issuer and the Subsidiaries;
"Order" means any order (draft or otherwise), judgment, injunction, decree,
award or writ of any court, tribunal, arbitrator, Governmental Agency or other
Person;
"Parties" means Issuer and AOL collectively, and "Party" means either of them;
"Permitted Encumbrances" means:
(i) any lien for taxes or other government levies not yet due or which is
being contested in good faith if a reasonable reserve with respect thereto is
maintained by Issuer;
(ii) any construction or repair or storage lien arising in the ordinary
course of the Issuer's business which is not overdue or which is being contested
in good faith, if a reasonable reserve or holdback with respect thereto is
maintained by the Issuer;
(iii) any statutory liens incurred or deposit made in the ordinary course of
the
<PAGE>
-4-
Issuer's business which is not overdue in connection with Worker's
Compensation, Unemployment Insurance and similar legislation;
(iv) any encumbrance not in excess of the acquisition price of property
acquired by Issuer, granted by Issuer to the seller of such property (but no to
a party who gives value to Issuer to acquire such property) solely to secure its
indebtedness for the acquisition price of such property, or any extension or
renewal or replacement of such indebtedness provided that neither the principal
amount of such indebtedness nor the rate of interest accruing thereon is
increased and the encumbrance is not extended to apply to any other property of
Issuer or any Subsidiary;
(v) any encumbrance consented to in writing by AOL;
(vi) any encumbrance in favour of AOL; or
(vii) any encumbrance disclosed in Schedule Q.
"Person" shall be broadly interpreted and includes an individual, body
corporate, partnership, joint venture, trust, association, unincorporated
organization, the Crown, any Governmental Agency or any other entity recognized
by law;
"Prime Rate" for any day means the rate of interest expressed as a rate per
annum that The Royal Bank of Canada establishes at its head office in Toronto as
the reference rate of interest that it will charge on that day for Canadian
dollar demand loans to its customers in Canada and which it at present refers to
as its prime rate;
"Regulatory Filings" means all material and reports filed, or required to be
filed, with applicable securities regulatory authorities and any stock exchange
on which the securities of the relevant body corporate are listed;
"Rights" means any options, rights, warrants or subscription privileges issued
or granted by Issuer (whether or not currently exercisable or exercisable on
conditions) to purchase Voting Securities or Convertible Securities of Issuer;
"Second Closing" has the meaning attributed thereto in Section 2.1(b);
"Shares" means the 1,000,000 common shares in the capital stock of Issuer to be
subscribed hereunder by AOL from Issuer;
"Stage Two Conditions" means those conditions precedent which must be fulfilled
by Issuer if AOL is to be required to acquire the Stage Two Shares and being
each of: (i) fulfilling the Yankee Auction Condition, (ii) completing the Loan
Repayment (iii) raising an additional $425,000.00 CDN in equity, (iv) Issuer
meeting the standards under the AOL Merchant Certification Program, (v) Issuer
making its auction website available and fully functional, with the exception of
functionality reasonably contemplated by the Parties to be implemented at a
future date in accordance with the Auction Services Agreement annexed hereto as
Schedule "I", for AOL's end users 97% of the time between 8:00 a.m. and 2:00
a.m. from the date of First Closing to the date of the Second Closing except for
routine maintenance, (vi) Issuer making available a quantity, quality
<PAGE>
-5-
and variety of merchandise at least comparable to its competitors and in any
event appropriate for maintaining and confirming the reputation of AOL as a
provider of quality goods and services, (vii) Issuer continuing to update the
Yankee Auction Technology to ensure that it contains at least substantially the
same functionality as its competitors; and (viii) Issuer having Cleared Title.
"Stage Two Shares" has the meaning attributed thereto in Section 2.1(b);
"Subscription Price" has the meaning ascribed to that term in Section 2.2;
"Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary"
means any one of them;
"Taxes" means all federal, provincial, local, foreign or other taxes, imposts,
rates, levies, assessments and government fees or dues lawfully levied, assessed
or imposed against Issuer and the Subsidiaries or in respect of the Business,
including income, premium, sales, excise, use, property, capital, goods and
services, business transfer and value added taxes and custom and import duties
and includes all interest, fines and penalties with respect thereto;
"Tax Returns" means all reports and returns filed or required to be filed by
Issuer and the Subsidiaries in respect of Taxes;
"Technical Information" means all right, title and interest in and to all know-
how of Issuer including
(i) all information of a scientific, technical or business nature whether in
oral, written, graphic, machine readable, electronic or physical form; and
(ii) all patterns, plans, designs, research data, research plans, trade secrets
and other proprietary know-how, processes, formulas, drawings, technology,
computer software and related manuals, unpatented blue prints, flow sheets,
equipment and parts lists, instructions, manuals, records and procedures;
"Technology" means the Intellectual Property Rights and the Technical
Information;
"Voting Securities" means the common shares of Issuer and all other securities
of Issuer of any kind or class having power to vote for the election of
directors either under all circumstances or in certain circumstances or in
certain events (whether such circumstances or events exist or have occurred);
"Warrant" means the warrant for the purchase of common shares in the capital of
the Issuer to be issued to AOL hereunder in the form set out in Schedule "N";
"Yankee Auction Condition" means Issuer causing its Yankee Auction Technology to
have, by no later than sixty (60) days from the First Closing, the functionality
required to be generally
<PAGE>
-6-
competitive with other Yankee Auction Technologies
available on the WWW and as well having that level of functionality set out in
Schedule R; and
"Yankee Auction Technology" has the meaning attributed thereto in AOL Auction
Services Agreement.
<PAGE>
SCHEDULE "B"
FINANCIAL STATEMENTS
Incorporated by Reference. See Registration Statement (File No. 001-14835) on
Form 20-F.
<PAGE>
SCHEDULE "C"
SUBSIDIARIES
Internet Liquidators USA, Inc.
a. Articles
Articles of Incorporation dated May 6, 1996
b. By-laws
By-laws dated May 6, 1996
CP-29729-1
January 31, 1997
<PAGE>
INTERNET LIQUIDATORS USA, INC.
- ARTICLES -
<PAGE>
STATE OF FLORIDA
Department of State
I certify the attached is a true and correct copy of the Articles of
Incorporation of INTERNET LIQUIDATORS USA, INC., a Florida corporation, filed on
May 6, 1996, as shown by the records of this office.
I further certify the document was electronically received under FAX audit
number H96000006359. This certificate is issued in accordance with section 15.
16, Florida Statutes, and authenticated by the code noted below.
The document number of this corporation is P96000038926.
Given under my hand and the
Great Seal of the State of Florida,
at Tallahassee, the Capital, this the
Sixth day of May, 1996
Authentication Code: 196AO0021979-050696-P96000038926-1/1
___________________________
Sandra B. Mortham
Secretary of State
<PAGE>
ARTICLES OF INCORPORATION
OF
INTERNET LIQUIDATORS USA, INC.
I, the undersigned, hereby make, subscribe, acknowledge and file with the
Secretary of State of the State of Florida these Articles of Incorporation for
the purpose of forming a corporation for profit in accordance with the laws of
the State of Florida.
ARTICLE I
Name
----
The name of this corporation shall be:
Internet Liquidators USA, Inc.
The principal business and mailing address of this corporation shall be 550
North Reo Street, Suite 300, Tampa, Florida 33609-1013.
ARTICLE II
Existence of Corporation
------------------------
This corporation shall, have perpetual existence.
ARTICLE III
Purposes
--------
The corporation may engage in the transaction of any or all lawful business
for which corporations may be incorporated under the laws of the State of
Florida.
ARTICLE IV
General Powers
--------------
The corporation shall have power:
(a) To sue and be sued, complain, and defend in its corporate name.
(b) To have a corporate seal, which may be altered at will and to use it
or a facsimile of it, by impressing or affixing it or in any other manner
reproducing it.
(c) To purchase, receive, lease. or otherwise acquire, own, hold, improve,
use, and otherwise deal with real or personal property or any legal or equitable
interest in property wherever located.
(d) To sell, convey, mortgage, pledge, create a security interest in,
lease, exchange, and otherwise dispose of all or any part of its property.
<PAGE>
(e) To lend money to', and use its credit to assist, its officers and
employees in accordance with Section 607.0833, Florida Statutes.
(f) To purchase, receive, subscribe for, or otherwise acquire; own, hold,
vote, use, sell, mortgage, lend, pledge, or otherwise dispose of; and deal in
and with shares or other interests in, or obligations of, any other entity.
(g) To make contracts and guarantees, incur liabilities, borrow money,
issue its notes, bonds, and other obligations (which may be convertible into or
include the option to purchase other securities of the corporation), and secure
any of its obligations by mortgage or pledge of any of its property, franchises,
and income and make contracts of guaranty and suretyship which are necessary or
convenient to the conduct, promotion, or attainment of the business of a
corporation the majority of the outstanding stock of which is owned, directly or
indirectly, by the contracting corporation; a corporation which owns, directly
or indirectly, a majority of the outstanding stock of the contracting
corporation; or a corporation the majority of the outstanding stock of which is
owned, directly or indirectly, by a corporation which owns, directly or
indirectly, the majority of th6 outstanding stock of the contracting
corporation, which contracts of guaranty and suretyship shall be deemed to be
necessary or convenient to the conduct, promotion, or attainment of the business
of the contracting corporation, and make other contracts of guaranty and
suretyship which are necessary or convenient to the conduct, promotion, or
attainment of the business of the contracting corporation.
(h) To lend money, invest and reinvest its funds, and receive and hold
real and personal property as security for repayment.
(i) To conduct its business, locate offices, and exercise the powers
granted by law within or without this state.
(j) To elect directors and appoint officers, employees, and agents of the
corporation and define their duties, fix their compensation, and lend them money
and credit.
(k) To make and amend bylaws, not inconsistent with its Articles of
Incorporation or with the laws of the State of Florida, for managing the
business and regulating the affairs of the corporation.
(l) To make donations f6y the public welfare or for charitable,
scientific, or educational purposes.
(m) To transact any lawful business that will aid governmental policy.
(n) To make payments or donations or do any other act not inconsistent
with law that furthers the business and affairs of the corporation.
(o) To pay pensions and establish pension plans, pension trusts, profit-
sharing plans, share bonus plans, share option plans, and benefit or incentive
plans for any or all of its current
2
<PAGE>
or former directors, officers, employees, and agents and for any or all of the
current or former directors, officers, employees, and agents of its
subsidiaries.
(p) To provide insurance for its benefit on the life of any of its
directors, officers, or employees, or on the life of any shareholder for the
purpose of acquiring at his or her death shares of its stock owned by the
shareholder or by the spouse or children of the shareholder.
(q) To be a promoter, incorporator, partner, member, associate, or manager
of any corporation, partnership, joint venture, trust, or other entity.
ARTICLE V
Capital Stock
-------------
(a) The total number of shams of capital stock authorized to be issued by
the corporation shall be 10,000 shams having a par value of $1.00 per share.
Each of said shares of stock shall entitle the holder thereof to one (1) vote at
any meeting of the stockholders. The Board of Directors may authorize shams to
be issued for consideration consisting of any tangible or intangible property or
benefit to the corporation, including cash, promissory notes, services
performed, promises to perform services evidenced by a written contract, or
other securities of the corporation. Before the corporation _____ shares, the
Board of Directors shall determine that the consideration received or to be
received for shares to be issued is adequate. All stock when issued shall be
paid for and shall be nonassessable.
(b) In the election of directors of this corporation there shall be no
cumulative voting of the stock entitled to vote at such election.
ARTICLE VI
Indemnification By Court Order
------------------------------
No director, officer, employee, or agent of the corporation who is or was a
party to a proceeding may apply to the court conducting the proceeding, the
circuit court, or to another court of competent jurisdiction, seeking
indemnification or advancement of expenses, or both, pursuant to Section
607.0850(9), Florida Statutes, without the permission, by a majority vote of the
disinterested directors, of the Board of Directors.
ARTICLE VII
Affiliated Transactions
-----------------------
The corporation expressly elects, pursuant to Section 607.0901(5)(a) of the
Florida Statutes, not to be governed by the rules pertaining to affiliated
transactions contained in Section 607.0901, Florida Statutes.
3
<PAGE>
ARTICLE VIII
Control-Share Acquisitions
--------------------------
The corporation exercises its right, pursuant to Section 607.0902(5) of the
Florida Statutes, to avoid the provisions pertaining to control-share
acquisitions contained ill Sections 607.0902, 607.1302(c) and 607.1320, Florida
Statutes.
ARTICLE IX
Registered Office and Registered Agent
--------------------------------------
The street address of the corporation's initial registered office is 501
East Kennedy Boulevard, Suite 1700, Tampa, Florida 33602, Attn: R. Alan Higbee,
Esq., and the name of the corporation's initial registered agent at such address
is Fowler, White, Gillen, Boggs, Villareal and Banker, P.A. The corporation may
change its registered office or its registered agent or body by filing with the
Department of State of the State of Florida a statement complying with Section
607.0502, Florida Statutes.
ARTICLE X
Initial Board of Directors
--------------------------
The number of directors constituting the initial Board of Directors shall
be two (2), and the name and address of each person who is to serve as a member
thereof is as follows:
Name Address
----- -------
Paul Godin 550 North Reo Street
Suite 300
Tampa, Florida 33609-1013
Jeff Lymburner 550 North Reo Street Suite 300 Tampa, Florida
33609-1013
ARTICLE XI
Incorporators
-------------
The name and address of the incorporator of this corporation is as follows:
Name Address
- ---- -------
R. Alan Higbee Post Office Box 1438
Tampa, Florida 33601
4
<PAGE>
ARTICLE XII
Amendment of Articles or Incorporation
--------------------------------------
The corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or.
hereafter prescribed by status (e, and all rights conferred upon the
stockholders herein are subject to this reservation.
IN WITNESS WHEREOF, I, the undersigned, have executed these Articles for
the uses and purposes therein stated.
_______________________________
R. Alan Higbee, Incorporator
5
<PAGE>
CERTIFICATE DESIGNATING PLACE OF BUSINESS OR DOMICILE
FOR THE SERVICE OF PROCESS WITHIN FLORIDA,
NAMING AGENT UPON WHOM PROCESS MAY BE SERVED
In compliance with Section 48.091, Florida Statutes, the following is
submitted:
Internet liquidators USA, Inc. has named Fowler, White, Gillen, Boggs,
Villareal and Banker, P.A., located at 501 East Kennedy Boulevard. Suite 1700,
City of Tampa, County of Hillsborough, State of Florida, as its agent to accept
service of process within Florida.
___________________________________
R. Alan Higbee, Incorporator
Date:_______________________________
Having been named to accept service of process for the above-stated
corporation, at the place designated in this certificate, I hereby agree to act
in this capacity, and I further agree to comply with the provisions of all
statutes relative to the proper and complete performance of my duties.
FOWLER, WHITE, GILLEN, BOGGS,
VILLAREAL AND BANKER, P.A.,
Registered Agent
By:__________________________________
R. Alan Higbee, For the Firm
Date:_________________________________
6
<PAGE>
INTERNET LIQUIDATORS USA, INC.
- BY-LAWS -
<PAGE>
BYLAWS
OF
INTERNET LIQUIDATORS USA, INC.
_____________________________________________________________________________
ARTICLE I
Offices
-------
The principal office shall be in the City of Tampa, County of Hillsborough,
and State of Florida or at such other location, within or outside of Florida as
the Board of Directors may elect.
The corporation may also have offices at such other places both within and
without the State of Florida as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
Stockholders
------------
Section 1. Annual Meeting . The annual meeting of the stockholders shall
-------- --------------
be held within the three (3) month period beginning with the first day of the
last month of tile fiscal year of the corporation for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting; the actual day thereof to be set forth in the Notice of Meeting or in
the Call and Waiver of Notice of Meeting. If the election of directors shall
not be held at any such annual meeting of the stockholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the stockholders as soon thereafter as may be
convenient.
Section 2. Special Meetings. Special meetings of the stockholders
--------- ----------------
for any purpose or purposes. unless otherwise prescribed by law or by the
Articles of Incorporation, may be called by the President or by the Board of
Directors, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors then in office, or at the
request in writing of stockholders owning not less than one-tenth (1/10th) of
the entire capitol stock of the corporation issued and outstanding and entitled
to vote thereat. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice thereof.
Section 3. Place of Meeting. The Board of Directors may designate any
--------- ----------------
place either within or without the State of Florida, unless otherwise prescribed
by law or by the Articles of Incorporation, as the place of meeting for any
annual meeting or for any special meeting of the stockholders. A waiver of
notice signed by all stockholders entitled to vote at a meeting may
<PAGE>
designate any place either within or without the State of Florida, unless
otherwise prescribed by law or by the Articles of Incorporation, as the place
for the holding of such meeting. If no designation is made or if a special
meeting be otherwise called, the place of meeting shall be the principal office
of the corporation in the State of Florida.
Section 4. Notice of Meeting. Written or printed notice stating the
--------- -----------------
place, day and flour of the meeting, and in the case of a special meeting, the
purpose or purposes for which tile meeting is called shall be delivered not less
than ten (10) nor more than sixty (60) days before the date of the meeting,
either by hand delivery, express or other delivery service, telecopier,
telegram, telex, mailgram, cablegram or other delivery method or by first-class
mail, by or at the direction of the President or the Secretary, or the officer
or persons calling the meeting, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the stockholder at his or her
business or home address or the stockholder's address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid.
Section 5. Waiver of Notice of Meeting. Whenever any notice to a
--------- ---------------------------
stockholder is required pursuant to the provisions of Section 4 hereinabove,
each stockholder may waive such notice in writing at any time before or after
the time for the delivery of such notice, and such written waiver of notice
shall be equivalent to the giving of such notice. Attendance at ally meeting by
any stockholder to whom notice of such meeting must be given pursuant to the
provisions of Section 4 hereinabove shall constitute a waiver of notice of such
meeting by such stockholder, except when the stockholder attends such meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business at the meetings because the meeting is not lawfully
called or convened.
Section 6. Voting List. The officer or agent having charge of the stock
--------- -----------
transfer books for shares of the corporation shall make, at least ten (10) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting or ally adjournment thereof arranged in
alphabetical order, with the address and the number and class and series of
shares held by each; which list, for a period of ten (10) days prior to such
meeting, shall be kept on file at the principal office of the corporation and
shall be subject to inspection by any stockholder during the whole time of tile
meeting. The original stock transfer book shall be prima facie evidence as to
who are the stockholders entitled to examine such list or transfer books or to
vote at any meeting of the stockholders.
Section 7. Quorum. A majority of tile outstanding shares of the
--------- ------
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, unless otherwise provided in
the Articles of Incorporation, but in no event shall a quorum consist of less
than one-third (1/3) of the shares entitled to vote at the meeting. If less than
a majority of the outstanding shares are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
2
<PAGE>
Section 8. Voting of Shares. Each stockholder entitled to vote shall at
--------- ----------------
every meeting of the stockholders be entitled to one (1) vote in person or by
proxy, signed by him, for each share of the voting stock held by him that has
been transferred on the books of the corporation prior to such meeting. Such
right to vote shall be subject to the right of the Board of Directors to close
the transfer books or to fix a record date for voting stockholders pursuant to
the provisions of Article VIII hereinafter.
Section 9. Proxies. At all meetings of stockholders, a stockholder may
--------- -------
vote by proxy, executed in writing by the stockholder or by his or her duly
authorized attorney-in-fact; but no proxy shall be valid after eleven (11)
months from its date, unless the proxy provides for a longer period. Such
proxies shall be riled with the Secretary of the corporation before or at tile
time of the meeting.
Section 10. Informal Action by Stockholders.
---------- --------------------------------
(a) Any action which may be taken or is required by law to be taken at any
annual or special meeting of the stockholders may be taken without a meeting and
without a vote, if a consent in writing, setting forth tile action so taken,
shall be signed by the holders of a majority of the outstanding stock of the
corporation. If ally class of stock is entitled to vote thereon as a class,
such written consent shall be required of the holders of a majority of the stock
of each class of stock entitled to vote as a class thereon and of tile total
stock entitled to vote thereon.
(b) Unless all of tile holders of tile outstanding stock of the corporation
have signed a written consent to an action in accordance with the provisions of
paragraph (a) hereinabove, then within ten (10) days after obtaining such
written consent notice must be given to those stockholders who have not so
consented in writing. The notice shall fairly summarize the material features
of the authorized action, and, if the action be a merger, consolidation. or sale
or exchange of assets for which dissenters' rights are provided by Florida law,
the notice shall contain a clear statement of the right of stockholders
dissenting therefrom to be paid the fair value of their shares upon compliance
with Florida law regarding the rights of dissenting stockholders.
ARTICLE III
Board of Directors
------------------
Section 1. General Powers. The business and affairs of the corporation
--------- --------------
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors of
--------- ---------------------------------
the corporation shall be not less than one (1), nor more than fifteen (15); the
number of the same to be fixed by the stockholders at any annual or special
meeting. Each director shall hold office until the next annual meeting of
stockholders or until his or her successor has been elected, unless sooner
removed by the stockholders at any general or special meeting. None of
directors need be residents of the State of Florida.
3
<PAGE>
Section 3. Annual Meeting. After each annual meeting of stockholders,
--------- --------------
the Board of Directors shall hold its annual meeting at the same place as and
immediately following such annual meeting of stockholders for the purpose of the
election of officers and the transaction of such other business as may come
before the meeting; and if a majority of the directors be present at such place
and time, no prior notice of such meeting shall be required to be given to tile
directors. The place and time of such meeting may also be fixed by written
consent of the directors.
Section 4. Regular Meetings. Regular meetings of the Board of Directors
--------- ----------------
may be held without notice at such time and at such place as shall be determined
from time to time by the Board of Directors.
Section 5. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by the Chairman of the Board, if there be one, or the President or
any two (2) directors. The person or persons authorized to call special
meetings of the Board of Directors may fix the place, time and date for holding
any special meetings of tile Board of Directors called by them.
Section 6. Notice of Meeting or Waiver Thereof. Notice of any special
--------- -----------------------------------
meeting shall be given at least two (2) days prior thereto by written notice
delivered personally or mailed to each director at his or her business or home
address. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail so addressed with postage thereon prepaid. If notice
be given by telegram, such notice shall be deemed to be delivered when the
telegram is delivered to tile telegraph company. If notice is given by
cablegram. such notice shall be deemed to be delivered when the cablegram is
dispatched. Any director may waive notice of such meeting either before, at or
after such meeting. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Notice need not specify the
purpose of any meeting.
Section 7. Quorum. A majority of the directors shall constitute a
--------- ------
quorum, but a smaller number may adjourn from time to time without further
notice until a quorum is secured.
Section 8. Manner of Acting. The act of a majority of the directors
--------- ----------------
voting for or against (disregarding any abstentions) at a meeting at which a
quorum is present shall be the act of file Board of Directors.
Section 9. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including any vacancy created by reason of an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of file Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his or her
predecessor in office.
Section 10. Compensation. By resolution of the Board of Directors, the
---------- ------------
directors may be paid their expenses, if any, for attendance at each meeting of
the Board of Directors, and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, or a stated salary as
4
<PAGE>
directors. No payment shall preclude any director from serving the corporation
in any other capacity and receiving compensation therefor.
Section 11. Presumption of Assent. A director who is present at a
---------- ---------------------
meeting at which action on any corporate matter is taken shall be presumed to
have assented to the action taken, unless lie votes against such action or
abstains from voting in respect thereto. A director may abstain from voting on
any matter in his or her sole discretion.
Section 12. Informal Action by Board. Any action required or permitted
----------- ------------------------
to be taken by any provisions of law, by the Articles of Incorporation or these
bylaws at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if, prior to such action, a written consent thereto
is signed by all members of the Board or of such committee, as the case may be,
setting forth the actions so to be taken and filed in the minutes of file
proceedings of the Board or of the committee.
Section 13. Telephonic Meetings. Members of file Board of Directors or an
---------- -------------------
executive committee shall be deemed present at a meeting of such Board or
committee if a conference telephone, or similar communications equipment, by
means of which all persons participating in the meeting can hear each other at
the same time, is used.
Section 14. Removal. Any director may be removed, with or without cause,
---------- -------
by the stockholders at any general or special meeting, of file stockholders
whenever, in the judgment of the stockholders, the best interest of file
corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person removed. This bylaw shall not be
subject to change by the Board of Directors.
ARTICLE IV
Officers
--------
Section 1. Number. The officers of the corporation shall be a
--------- ------
President, a Secretary and a Treasurer, each of whom shall be elected by the
Board of Directors. The Board of Directors may also elect a Chairman of the
Board, one or more Vice Presidents, one or more assistant secretaries and
assistant treasurers and such other officers as the Board of Directors shall
deem appropriate. Any two (2) or more offices may be held by the same person.
Section 2. Election and Term of Office. The officers of the corporation
--------- ---------------------------
shall be elected annually by the Board of Directors at its first meeting after
each annual meeting of stockholders. If the election of officers shall not be
held at such meeting, such election shall be held as soon thereafter as may be
convenient. Each officer shall hold office until his or her successor shall
have been duly elected and qualified or until his or her death or until he
resigns or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any officer elected or appointed by the Board of
--------- -------
Directors may be removed by the Board of Directors whenever, in its judgment,
the best interest of the corporation
5
<PAGE>
will be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------- ---------
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Duties of Officers. The Chairman of the Board of the
--------- ------------------
corporation, or the President if there shall not be a Chairman of the Board,
shall preside over all meetings of tile Board of Directors and of the
stockholders which he shall attend. The President shall be the chief executive
officer of the corporation. Subject to the foregoing, the officers of the
corporation shall have such powers and duties as usually pertain to their
respective offices and such additional powers and duties specifically conferred
by law, by the Articles of Incorporation. by these bylaws, or as may be assigned
to them from time to time by the Board of Directors
Section 6. Salaries. The salaries of the officers shall be fixed from
--------- --------
time to time by the Board of Directors, and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of tile
corporation.
Section 7. Delegation of Duties. In the absence of or disability of any
--------- --------------------
officer of tile corporation or for any other reason deemed sufficient by the
Board of Directors, the Board may delegate his or her powers or duties to any
other officer or to any other director for the time being.
ARTICLE V
Executive and Other Committees
------------------------------
Section 1. Creation of Committee. The Board of Directors may, by
--------- ---------------------
resolution passed by a majority of the Board, designate an Executive Committee
and one (1) or more other committees, each to consist of one (1) or more of the
directors of the corporation.
Section 2. Executive Committee. The Executive Committee, if there shall
--------- -------------------
be one, shall consult with and advise the officers of the corporation in the
management of its business all shall have and may exercise, to the extent
provided in the resolution of the Board of Directors creating such Executive
Committee, such powers of the Board of Directors as call be lawfully delegated
by the Board.
Section 3. Other Committees. Such other committees shall have such
--------- ----------------
functions and may exercise the powers of the Board of Directors, as can be
lawfully delegated, and to the extent provided in the resolution or resolutions
creating such committee or committees.
Section 4. Meetings of Committees. Regular meetings of the Executive
--------- ----------------------
Committee and other committees may be held without notice at such time and at
such place as shall from time to time be determined by the Executive Committee
or such other committees, and special meetings of the Executive Committee or
such other committees may be called by any member thereof
6
<PAGE>
upon two (2) days' notice to each of the other members of such committee; or on
such shorter notice as may be agreed to in writing by each of the other members
of such committee, given either personally or in the manner provided in Section
6 of Article III of these bylaws (pertaining to notice for directors' meetings).
Section 5. Vacancies on Committees. Vacancies on the Executive Committee
--------- -----------------------
or on such other committees shall be filled by the Board of Directors then in
office at any regular or special meeting.
Section 6. Quorum of Committees. At all meetings of the Executive
--------- --------------------
Committee or such other committees, a majority of the committee members then in
office shall constitute a quorum for the transaction of business.
Section 7. Manner of Acting of Committees. The acts of a majority of the
--------- ------------------------------
members of the Executive Committee or such other committees present at any time
at which there is a quorum shall be the act of such committee.
Section 8. Minutes of Committees. The Executive Committee, if there
--------- ---------------------
shall be one, and such other committees shall keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 9. Compensation. Members of the Executive Committee and such
--------- ------------
other committees may be paid compensation in accordance with the provisions of
Section 10 of Article III (pertaining to compensation of directors).
ARTICLE VI
Indemnification and Advancement of Expenses for
Directors, Officers, Employees and Agents
-----------------------------------------
The corporation shall indemnify and advance expenses to any person who was
or is a party to any proceeding or threatened proceeding by reason of tile fact
that he is or was a director, officer, employee, or agent of the corporation or
is or was serving at the request of the corporation; subject in each instance to
satisfaction of all applicable requirements under Chapter 607, Florida Statutes.
Additionally, the corporation may make any other or further indemnification
or advancement of expenses of any of its directors, officers, employees, or
agents, as it may desire; subject, however, to the restrictions contained in
Chapter 607, and in particular Section 607.0850(7), Florida Statutes.
7
<PAGE>
ARTICLE VII
Certificates or Stock
---------------------
Section 1. Certificates for Shares. Every holder or stock in the
--------- -----------------------
corporation shall be entitled to have a certificate, signed by the President or
a Vice President and the Secretary or an assistant secretary exhibiting the
holder's name and certifying the number of shares owned by him in the
corporation. The certificates shall be numbered and entered in the books of the
corporation as they are issued.
Section 2. Transfer of Shares. Transfers of shares of [lie corporation
--------- ------------------
shall be made upon its books by the holder of the shares in person or by his or
her lawfully constituted representative upon surrender of the certificate of
stock for cancellation. The person in whose name shares stand on the books of'
the corporation shall be deemed by the corporation to be the owner thereof for
all purposes, and tile corporation shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person
whether or not it shall have express or other notice thereof, save as expressly
provided by file laws of the State of Florida.
Section 3. Facsimile Signature. Where a certificate is manually signed
--------- -------------------
on behalf of a transfer agent or a registrar other than the corporation itself
or an employee of the corporation, the signature of any such President, Vice
President, Secretary or assistant secretary may be a facsimile. In case any
officer or officers who have signed or whose facsimile signature or signatures
shall cease to be such officer or officers of the corporation, such certificate
or certificates may, nevertheless, be adopted by the corporation and be issued
and delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
Section 4. Lost Certificates. The Board of Directors may direct that a
--------- -----------------
new certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the corporation and alleged to have been lost
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue
of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates or his or her legal
representative to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed.
8
<PAGE>
ARTICLE VIII
Record Date
-----------
The Board of Directors is authorized from time to time to fix in advance a
date, not more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders. or not more than sixty (60) days prior to the date
for the payment of any dividend or the date for the allotment of rights, or the
date when any change or conversion of or exchange of stock shall go into effect,
or a date in connection with the obtaining of the consent of stockholders for
any purpose, as a record date for the determination of the stockholders entitled
to notice of and to vote at any such meeting and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment, or
to exercise the rights in respect of any such change. conversion or exchange of
stock, or to give such consent, as the case may be; and, in such case, such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of and to vote at such
meeting and any adjournment thereof. or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation after any such record date fixed as aforesaid.
ARTICLE IX
Dividends
---------
The Board of Directors may from time to time declare and the corporation
may pay dividends on its outstanding shares of capital stock in the manner and
upon the terms and conditions provided by the Articles of Incorporation and by
law. Dividends may be paid in cash, in property or in shares of stock, subject
to the provisions of the Articles of Incorporation and to law.
ARTICLE X
Fiscal Year
-----------
The fiscal year of the corporation shall be the twelve (12) month period
selected by the Board of Directors as the taxable year of the corporation for
Federal income tax purposes.
ARTICLE XI
Seal
----
The corporate seat shall bear the name of the corporation, which shall be
between two concentric circles, and in the inside of the inner circle shall be
the calendar year of incorporation; an impression of said seal appearing on the
margin hereof.
9
<PAGE>
ARTICLE XII
Stock in Other Corporations
---------------------------
Shares of stock in other corporations held by this corporation shall be
voted by such officer or officers of this corporation as the Board of Directors
shall from time to time designate for the purpose, or by a proxy thereunto duly
authorized by said Board.
ARTICLE XIII
Amendments
----------
These bylaws may be altered, amended, or repealed in whole or in part, and
new bylaws may be adopted by the Board of Directors or by the vote of
stockholders owning a majority of the stock of the corporation entitled to vote
thereon.
10
<PAGE>
SCHEDULE "D"
WARRANT TRANSFER REGISTER
INTERNET LIQUIDATORS INTERNATIONAL INC.
---------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DATE Certificates Surrendered TRANSFEROR
Transfer ------------------ Class of ------------------------------------------------------------------
Number Mon. Day Yr. Shares No. Shares Transferred From
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
2 May 28 96 Comm 002 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
3 May 28 96 Comm 003 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
4 May 28 96 Comm 004 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
5 May 28 96 Comm 005 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
6 May 28 96 Comm 006 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
7 May 28 96 Comm 007 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
8 May 28 96 Comm 008 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
9 May 28 96 Comm 009 140,625 Treasury
- -------------------------------------------------------------------------------------------------------------------
10 May 28 96 Comm 010 140,625 Treasury
- -------------------------------------------------------------------------------------------------------------------
12 May 28 96 Comm 012 125,000 Treasury
- -------------------------------------------------------------------------------------------------------------------
13 May 28 96 Comm 013 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
15 May 28 96 Comm 015 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
16 May 28 96 Comm 016 56,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
17 May 28 96 Comm 017 34,375 Treasury
- -------------------------------------------------------------------------------------------------------------------
18 May 28 96 Comm 018 93,750 Treasury
- -------------------------------------------------------------------------------------------------------------------
19 May 28 96 Comm 019 109,375 Treasury
- -------------------------------------------------------------------------------------------------------------------
22 May 28 96 Comm. 022 15,625 Treasury
- -------------------------------------------------------------------------------------------------------------------
24 May 28 96 Comm 024 62,500 Treasury
- -------------------------------------------------------------------------------------------------------------------
25 May 28 96 Comm 025 31,250 Treasury
- -------------------------------------------------------------------------------------------------------------------
26 May 28 96 Comm 026 15,625 Treasury
- -------------------------------------------------------------------------------------------------------------------
29 May 28 96 Comm 001 31,250 Don & Mary Smythe
- -------------------------------------------------------------------------------------------------------------------
30 May 28 96 Comm 001 31,250 Don & Mary Smythe
- -------------------------------------------------------------------------------------------------------------------
31 July 18 96 Comm 020 46,875 Incorporated Investments Limited
- -------------------------------------------------------------------------------------------------------------------
32 July 18 96 Comm 020 46,875 Incorporated Investments Limited
- -------------------------------------------------------------------------------------------------------------------
33 July 18 96 Comm 020 46,875 Incorporated Investments Limited
- -------------------------------------------------------------------------------------------------------------------
34 July 18 96 Comm 020 46,875 Incorporated Investments Limited
- -------------------------------------------------------------------------------------------------------------------
35 July 18 96 Comm 014 132,500 Ellen Eisen
- -------------------------------------------------------------------------------------------------------------------
37 July 18 96 Comm 014 132,500 Ellen Eisen
- -------------------------------------------------------------------------------------------------------------------
38 July 18 96 Comm 011 250,000 Ennio D'Angela
- -------------------------------------------------------------------------------------------------------------------
39 July 18 96 Comm 011 250,000 Ennio D'Angela
- -------------------------------------------------------------------------------------------------------------------
40 July 18 96 Comm 011 250,000 Ennio D'Angela
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------
Transfer TRANSFEREE New Certificate Issued
- --------------------------------------------------------------------------------
Number Transferred To No. Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2 Donald & Joanne Harling
- --------------------------------------------------------------------------------
3 G.B. Stephens
- --------------------------------------------------------------------------------
4 Paul & Heather Sansom
- --------------------------------------------------------------------------------
5 William R. Dawson
- --------------------------------------------------------------------------------
6 Glen A. Mack
- --------------------------------------------------------------------------------
7 Robert C. Vogt
- --------------------------------------------------------------------------------
8 Heather Mamers
- --------------------------------------------------------------------------------
9 Wizard Holdings Inc.
- --------------------------------------------------------------------------------
10 G.L. Lozinski
- --------------------------------------------------------------------------------
12 Midland Walwyn in trust for
Joel Neumark
- --------------------------------------------------------------------------------
13 Ellen Babbin in trust
- --------------------------------------------------------------------------------
15 Stephen J. Stren
- --------------------------------------------------------------------------------
16 Baker Street Limited
- --------------------------------------------------------------------------------
17 Warren Manis
- --------------------------------------------------------------------------------
18 Bribak Holdings Inc.
- --------------------------------------------------------------------------------
19 Atlantic Research Services Inc.
- --------------------------------------------------------------------------------
22 Kaufman Limited
- --------------------------------------------------------------------------------
24 TRL Investments Limited
- --------------------------------------------------------------------------------
25 Jay De Genova
- --------------------------------------------------------------------------------
26 John Scheel
- --------------------------------------------------------------------------------
29 Smythe 029 15,625
- --------------------------------------------------------------------------------
30 Smythe 030 15,625
- --------------------------------------------------------------------------------
31 Enannuc Holdings Inc. 031 9,375
- --------------------------------------------------------------------------------
32 BET-MUR Investments Limited 032 11,719
- --------------------------------------------------------------------------------
33 Permanent Developments Limited 033 11,719
- --------------------------------------------------------------------------------
34 Incorporated Investments Limited 034 14,062
- --------------------------------------------------------------------------------
35 Ellen Eisen 035 12,500
- --------------------------------------------------------------------------------
37 Research Capital Corporation 037 107,500
- --------------------------------------------------------------------------------
38 Comex Investments Ltd. 038 166,250
- --------------------------------------------------------------------------------
39 James Canale Parola 039 25,000
- --------------------------------------------------------------------------------
40 Rick Paolone 040 31,250
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
41 July 18 96 Comm 011 250,000 Ennio D'Angela
- ----------------------------------------------------------------------------------------------------------
42 July 18 96 Comm 011 250,000 Ennio D'Angela
- ----------------------------------------------------------------------------------------------------------
44 July 18 96 Comm 021 78,k125 Donald Scott, in trust
- ----------------------------------------------------------------------------------------------------------
45 July 18 96 Comm 021 78,125 Donald Scott, in trust
- ----------------------------------------------------------------------------------------------------------
47 July 18 96 Comm 021 78,125 Donald Scott, in trust
- ----------------------------------------------------------------------------------------------------------
48 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited
- ----------------------------------------------------------------------------------------------------------
49 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited
- ----------------------------------------------------------------------------------------------------------
50 July 18 96 Comm 023 51,875 ES-LEA Holdings Limited
- ----------------------------------------------------------------------------------------------------------
51 96 Comm. 043 15,625 Edith Scott
- ----------------------------------------------------------------------------------------------------------
52 96 Comm. 046 15,625 Steve Cuddie
- ----------------------------------------------------------------------------------------------------------
53 96 Comm. 027 15,625 Joe Tersigni
- ----------------------------------------------------------------------------------------------------------
54 96 Comm. 027 15,625 Joe Tersigni
- ----------------------------------------------------------------------------------------------------------
55 96 Comm. 027 15,625 Joe Tersigni
- ----------------------------------------------------------------------------------------------------------
56 96 Comm. 027 15,625 Joe Tersigni
- ----------------------------------------------------------------------------------------------------------
57 96 Comm. 027 15,625 Joe Tersigni
- ----------------------------------------------------------------------------------------------------------
58 97 Comm. 036 12,500 Ellen Elsen
- ----------------------------------------------------------------------------------------------------------
59 97 Comm. 028 31,250 Peter Pristach
- ----------------------------------------------------------------------------------------------------------
60 97 Comm. 028 31,250 Peter Pristach
- ----------------------------------------------------------------------------------------------------------
61 97 Comm. 028 31,250 Peter Pristach
- ----------------------------------------------------------------------------------------------------------
62 97 Comm. 028 31,250 Peter Pristach
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
41 Jonathan Robinson 041 15,625
- -------------------------------------------------------------------------------
42 Laurie Campbell 042 11,875
- -------------------------------------------------------------------------------
44 Lois Smith 044 15,625
- -------------------------------------------------------------------------------
45 Barbara Nettleton 045 15,625
- -------------------------------------------------------------------------------
47 Catherine Moore 047 15,625
- -------------------------------------------------------------------------------
48 Investor Company/TD/ES-LEA 048 40,000
- -------------------------------------------------------------------------------
49 Investor Company/TD/ES-LEA 049 7,875
- -------------------------------------------------------------------------------
50 Investor Company/TD/ES-LEA 050 4,000
- -------------------------------------------------------------------------------
51 RBC Dominion Securities Inc. In Trust 051 15,625
for Scott
- -------------------------------------------------------------------------------
52 RBC Dominion Securities Inc. In Trust 052 15,625
for Cuddie
- -------------------------------------------------------------------------------
53 Roland Girard 053 3,125
- -------------------------------------------------------------------------------
54 Paul Plesman 054 3,125
- -------------------------------------------------------------------------------
55 George Soltys 055 3,125
- -------------------------------------------------------------------------------
56 Joe Tersigni 056 3,125
- -------------------------------------------------------------------------------
57 David Kanes 057 3,125
- -------------------------------------------------------------------------------
58 Heather Mintz 058 12,500
- -------------------------------------------------------------------------------
59 Copez Management Ltd. 059 3,125
- -------------------------------------------------------------------------------
60 Fred Dalley 060 6,250
- -------------------------------------------------------------------------------
61 Lawrence Eckert 061 18,750
- -------------------------------------------------------------------------------
62 Peter Pristach 062 3,125
- -------------------------------------------------------------------------------
NOTE: Additional Warrant issued to Toronto Star Newspapers Limited to acquire up
to 500,000 common shares. A copy of the Warrant is contained in Schedule
"M."
<PAGE>
SCHEDULE "E"
LITIGATION
As of the date hereof, there is currently no outstanding or contemplated
litigation involving or that may involve Internet Liquidates International Inc.
CP-29729-1
January 29. 1997
- --------------------------------------------------------------------------------
Thursday, 07, 1996
<PAGE>
SCHEDULE "F"
LICENSES
INTERNET LIQUIDATORS INTERNATIONAL INC.
THIRD PARTY SOFTWARE LICENCES PURCHASED
TO JANUARY 30,1997
[Confidential Information filed separately with the SEC]
2
See attached papers.
CP 29729-1 January 30. 1997
<PAGE>
Asset Tracking (FTN)
<TABLE>
<CAPTION>
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification
Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
IL100140 1 08/28/96 Focus Technologies Networks 56267 $ 972.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00139 1 08/29/96 Focus Technologies Networks 56267 $ 972.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00137 1 05/31/96 Focus Technologies Networks 52600 $ 693.36
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00135 1 08/28/96 Focus Technologies Networks 56046 $ 327.60 6419304
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00105 1 06/11/96 Focus Technologies Networks 51916 $ 3,385.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00096 1 05/31/96 Focus Technologies Networks 53250 $ 5,670.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00o92 1 05/23/96 Focus Technologies Networks 52863 $ 4,860.00 1F00305
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00081 1 04/19/96 Focus Technologies Networks 51916 $ 2,700.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00079 1 04/19/96 Focus Technologies Networks 51916 $ 430.92
- -----------------------------------------------------------------------------------------------------------------------------------
ILI00071 1 03/28/96 Focus Technologies Networks 51136 $ 2,316.60 S/N HLA2000601
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00070 1 03/28/96 Focus Technologies Networks 51136 $ 4,325.40 S/N 00029231
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 16,200.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI0062 1 03/18/96 Focus Technologies Networks 50827 $ 9,369.00 S/N 446F0677
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 1,323.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00062 1 03/18/96 Focus Technologies Networks 50827 $ 1,323.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00060 1 03/18/96 Focus Technologies Networks 50827 $ 37,335.60 S/N CX60202274,
75,78
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00059 1 03/18/96 Focus Technologies Networks 50827 $ 5,670.00 S/N NI549R8372
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
Thrusday, 07 November, 1996 Page 1 of 3
</TABLE>
* Confidential Information filed separately with the SEC
<PAGE>
<TABLE>
<CAPTION>
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification
Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ILI00039 1 12/14/95 Focus Technologies 48075 $ 4,860.00 S/N: 1F00286,1F00305
Networks
- ------------------------------------------------------------------------------------------------------------------------------------
1 04/19/96 Focus Technologies 51916 $ 405.00
Networks
- ------------------------------------------------------------------------------------------------------------------------------------
6 $ 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 $ 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Bell $ 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00094 1 05/29/96 Focus Technologies Networks 53089 $ 8,559.00 1 S/N N161601Z11
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00094 1 05/31/96 Focus Technologies Networks 53250 $ 5,526.36 1
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00094 1 09/06/96 Focus Technologies Networks 56476 $ 585.00 1
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00094 1 05/29/96 Focus Technologies Networks 53089 $ 0.00 1
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 18,630.00 2 S/N N161201LCA
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 7,776.00 2
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00083 1 02/27/96 Focus Technologies Networks 50066 $ 1,225.00 2 0000F80034A9
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00083 1 04/12/96 Focus Technologies Networks 51676 $ 0.00 2
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 03/28/96 Focus Technologies Networks 51136 $ 18,630.00 3 S/N N1602018G8
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 04/12/96 Focus Technologies Networks 51676 $ 7,776.00 3
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 02/27/96 Focus Technologies Networks 50066 $ 1.225.00 3 08002BE6F63C
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 03/2896 Focus Technologies Networks 51136 $ 0.00 3
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 $ 0.00 3
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00069 1 $ 0.00 3
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00095 1 05/29/96 Focus Technologies Networks 53089 $ 18,630.00 4 S/N N161201KJL
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Information filed separately with the SEC
2
<PAGE>
<TABLE>
<CAPTION>
Tag # Product Description* Qty Date Vendor Inv. # Cost PC Identification
Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ILI00095 1 05/29/96 Focus Technologies Networks 53089 $ 5,526.36 4
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00095 1 02/27/96 Focus Technologies Networks 50066 $ 1,225.00 4 08002BE5F3A4
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00095 1 $ 0.00 4
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00095 1 $ 0.00 4
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 32,880.60 5 S/N N1550R9894
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 01/31/96 Focus Technologies Networks 49219 $ 12,450.00 5
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 7,776.00 5
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 6,485.40 5 S/N 3D5370033
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 05/31/96 Focus Technologies Networks 53250 $ 5,250.00 5
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00061 1 03/18/96 Focus Technologies Networks 50827 $ 0.00 5
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00136 1 05/13/96 Focus Technologies Networks 52600 $ 2,399.00 6 6425318UN
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00138 1 03/28/96 Focus Technologies Networks 51136 $ 1,938.60 6
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00137 1 03/06/96 Focus Technologies Networks 50862 $ 2,619.00 7 3510A00872
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00137 1 04/16/96 Focus Technologies Networks 51786 $ 279.72 7
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00141 1 04/19/96 National Data Corporation $ 5,308.00 9
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00141 1 03/06/96 Focus Technologies Networks 50862 $ 2,619.00 9
- ------------------------------------------------------------------------------------------------------------------------------------
ILI00141 1 02/27/96 Focus Technologies Networks 50420 $ 189.00 9
TOTAL: $ 278,692.32
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Confidential Information filed separately with the SEC
3
<PAGE>
* Schedule "H" Form of Certificate of Originality
------------------------------------------------
CERTIFICATE OF ORIGINALITY
--------------------------
- --------------------------------------------------------------------------------
For each item of Software and Documentation (collectively, "Software Material"),
as defined in the Auction Services Agreement (the "Agreement"), you must
complete a copy of this questionnaire.
In addition you must provide any additional information needed for copyright
registration or enforcement of legal rights relating to the Software Material.
One questionnaire can cover one complete product, even if that product includes
multiple modules. A separate questionnaire must be completed for code and
another for its related documentation. Significant changes to the Software
Material will require completion of a new questionnaire.
Please do not leave any question blank. Write "not applicable" or "N/A" if a
question is not relevant to the Software Material. If you need additional space
to complete any question, please attach a separate sheet of paper that
identifies the question number.
1.0 QUESTIONNAIRE
1. Name of the Software Material (provide complete identification including
version, release and modification numbers for programs and documentation):
2. Was the Software Material or any portion thereof:
(a) Written by any persons(s) other than you or your employees working
within their job assignments?
YES _____ NO _______ (If NO, skip to #3)
(b) Did the person(s) write ALL or PART of the Software Material?
ALL _______ PART _____
If PART, state the percentage written by the person(s) _________%
(c) Was the Software Material provided to you by COMPANY(IES) or
INDIVIDUAL(S) or both?
COMPANY(IES) ______ INDIVIDUAL(S) _______ BOTH _______
(Complete (d) and (e) below)
<PAGE>
How did you acquire title to the Software Material or the right to grant
the licenses in the Agreement?
(d) For each COMPANY, provide the following information:
Name:
Address:
How did the COMPANY acquire title to the Software Material? (For
example, the Software Material was written by the COMPANY'S employees
as part of their job assignment):
Did the COMPANY have each non-US contributor to the Software Material
sign a waiver of their moral rights?
YES _______ NO _______
(e) For each INDIVIDUAL(S) in 2(c), provide the following:
Name:
Citizenship:
Address:
Did the INDIVIDUAL(S) create the Software Material while employed by,
or under a contractual relationship with, another party?
YES _______ NO _______
If YES, provide name and address of the other party:
Did the INDIVIDUAL(S) create or first publish the Software Material in
a country other than the US?
YES _______ NO _______
If YES, did the INDIVIDUAL(S) sign a waiver of moral rights?
YES _______ NO _______ (If YES, please attach a copy)
(f) Was any part of the Software Material registered at any copyright
office?
YES _______ NO _______
(If YES, provide the following registration information:)
1) Claimant Name:
2
<PAGE>
2) Registration Number:
3) Date of Registration:
4) Title of Work:
3. Was any part of the Software Material published?
YES _______ NO _______
When and where was it published?
Was there a copyright notice on the published material(s)?
YES _______ NO ______
(If YES, provide the copyright notice below.)
Was any part of the Software Material distributed by you to any third
parties other than those contemplated in the Agreement?
YES _________ NO _____
When and where was the Software Material distributed?
To whom was the Software Material distributed?
Why was the Software Material distributed?
Under what conditions was the Software Material distributed? (for example,
under a contract.)
3
<PAGE>
4. Was any part of the Software Material derived from preexisting material(s)?
YES _______ NO ________ (If YES, provide the following information for
each of the preexisting materials:)
(a) Name of the material:
(b) Author (if known):
(c) Owner (if known):
(d) Copyright notice appearing on the material (if any):
(e) Was any new function added to the preexisting software?
YES _______ NO _______
Briefly describe the new function(s) below:
___________% of preexisting material used
___________% of preexisting material modified
___________% of preexisting material consisting of or deriving
from preexisting materials
(f) Briefly describe below how the preexisting material has been used:
5. Were any part of the display screens, data formats, instruction or command
formats, operator messages interfaces, etc. (collectively called "External
Characteristics") of the Software Material copied or derived from the
External Characteristics of another program or product of yours or a third
party?
YES _______ NO _______ (If YES, provide the following information:)
1. Name of Developer's or third party's program or product:
2. Author (if known):
3. Owner (if known):
4
<PAGE>
4. Copyright notice relating to the preexisting External Characteristics
(if any):
5. Have the preexisting External Characteristics been modified?
YES _______ NO ________
(Describe how they have been modified below:)
6. Identify below any other circumstances that might effect the execution of
the terms of the Agreement:
(a) confidentiality or trade secrecy of preexisting materials:
(b) known or expected royalty obligations to others:
(c) preexisting materials developed for another party or customer
(including government) where you may not have retained full rights to
the materials:
(d) materials acquired from a person or company possibly having no title
to them:
7. Employee Identification. You recognize that for purposes of copyright
registration or enforcement of legal rights relating to the Software
Material, the names, addresses and citizenships of all persons who wrote or
contributed to the writing of the Software Materials is required. You
agree to keep accurate records of all such information according to the IDA
and to provide them as necessary to carry out the terms of the Agreement.
8. An "ICON" is generally defined as a symbol on a display screen that a user
can point to with a device such as a mouse in order to select a particular
operation or software application. For each ICON contained in the Software
Materials, you will have its creator complete an ICON IDENTIFICATION FORM
and submit them as appendices to this Certificate of Originality.
5
<PAGE>
2.0 CERTIFICATION
By signing below, you certify that all information contained in this Certificate
of Originality, including any attachments or appendices to it, are accurate and
complete.
Developer Name:
Signature: _______________________
Print name: _______________________
Title:______________________________
Date:_______________________________
6
<PAGE>
SCHEDULE "I"
AUCTION SERVICES AGREEMENT
THIS AGREEMENT is made the 21st day of February, 1997 (the "Effective Date")
between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a
principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario
L4V 1T1 ("IL") and AMERICA ONLINE, INC., a corporation having a place of
business at 22000 AOL Way, Dulles, Virginia ("AOL").
BACKGROUND:
1. IL has developed and owns all applicable rights in, certain electronic
auction software, technology and services.
2. IL uses a portion of the IL Technology in an auction service provided at
internetliquidators.com.
3. On the terms set out in this Agreement, IL wishes to allow AOL and certain
related entities who provide interactive services to, and AOL has agreed to
accept such rights to:
(i) use and commercially exploit the IL Auction Service; and
(ii) if AOL elects use the Software and the IL Technology to operate an AOL
Auction Service with an AOL end users' interface; and
4. In connection with the AOL Auction Service, AOL wishes to have IL provide
certain related services and other deliverables.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
ARTICLE ONE
INTERPRETATION
--------------
1.1 Definitions. In this Agreement, unless the context otherwise requires,
------------
each capitalized term shall have the meaning attributed thereto in Schedule "A".
1.2 Schedules. The following are the schedules attached to and forming part of
----------
this Agreement:
Schedule "A" - Definitions
Schedule "B" - Revenue Sharing
Schedule "C" - AOL Source Code Trust Agreement
Schedule "D" - Recognized Browsers
Schedule "E" - AOL Merchant Certification Program
Schedule "F" - AOL/IL Auction Service Overview
<PAGE>
1.3 Headings. The headings in this Agreement are for convenience of reference
---------
only and shall not affect the construction or interpretation hereof.
1.4 Extended Meanings. Words in the singular include the plural and vice-versa
------------------
and words in one gender include all genders.
1.5 Entire Agreement. This Agreement, and any agreements and other documents
-----------------
contemplated herein or to be delivered pursuant to it, constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
oral or written, between the Parties. The execution of this Agreement has not
been induced by, nor do either of the Parties rely upon or regard as material,
any representations, warranties, conditions, other agreements or
acknowledgements not expressly made in this Agreement or in the agreements and
other documents to be delivered pursuant hereto.
1.6 Currency. Unless otherwise indicated, all dollar amounts referred to in
---------
this Agreement are in U.S. funds.
1.7 Invalidity. If any of the provisions contained in this Agreement is found
-----------
by a court of competent jurisdiction to be invalid, illegal or unenforceable in
any respect, the validity, legality or enforceability of the remaining
provisions contained herein shall not be in any way affected or impaired
thereby.
1.8 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of Ontario and the federal laws of Canada applicable
therein (excluding any provisions that would result in the application of the
law of another jurisdiction) and shall be treated, in all respects, as an
Ontario contract. IL submits to the non-exclusive jurisdiction of the Courts of
Virginia and the U.S. Federal Court and AOL submits to the non-exclusive
jurisdiction of the Courts of Ontario. The Parties expressly exclude the
application of the United Nations Convention on Contracts for the International
Sale of Goods.
1.9 Provision of Services. For the purposes of this Agreement, references to
----------------------
the sale of products through the IL Auction Service or the AOL Auction Service
shall be deemed to include the provision of services as well.
ARTICLE TWO
USE OF IL AUCTION SERVICE
-------------------------
2.1 IL Auction Service. IL grants to AOL and AOL Affiliates, a non-exclusive
-------------------
right to direct AOL Users by way of an AOL Interactive Service or otherwise to
the IL Auction Service to purchase goods and services.
2.2 AOL Exclusive Auctions. AOL shall be allocated, on a non-consecutive and
-----------------------
non-cumulative basis, at least sixty minutes per day on the IL Auction Service
to sell products exclusively to AOL Users in the United States and Canada ("AOL
Exclusive Auctions"). AOL will have the right to determine at what times such
AOL Exclusive Auctions will occur, subject to IL's approval which shall not be
unreasonably withheld. During the times that AOL is conducting the AOL
Exclusive Auctions, IL will not conduct any other auctions through the IL
Auction Service or
2
<PAGE>
any other means nor will it authorize or allow any third party to do so, other
than the Local Auctions. The Parties agree to develop mutually acceptable
disclaimers, warnings and intellectual property notices to be displayed with
respect to the auction service being provided thereon.
2.3 Term of Exclusive Auction.
---------------------------
(a) The AOL Exclusive Auctions will continue for a period of
one year from the Effective Date; provided, that AOL will have the option
at any time to relinquish its rights to the AOL Exclusive Auctions. If AOL
elects to relinquish it's rights in the first year it will receive the
[Confidential Information filed separately with the SEC] during such period
when it has relinquished its right in accordance with Schedule "B".
(b) For each year after the first year beginning on the Effective Date, AOL
will have the option, to be exercised by notice in writing on or before the
commencement of each year, of extending the AOL Exclusive Auctions for
another year or receiving the [Confidential Information filed separately
with the SEC].
(c) For the first 18 months from the Effective Date, IL will not grant any
third party the right to operate an exclusive auction similar to the AOL
Exclusive Auctions if the effect is that any AOL User is prevented from
accessing and participating in all activity on the IL Auction Service at
any time.
2.4 Promotion and Avails.
---------------------
(a) Hyperlinks. IL will prominently promote the AOL Interactive Services by
-----------
(i) placing on the first page of the IL Auction Service website a permanent
(i.e., always on the screen) Above The Fold hyperlink to a World Wide Web
site selected by AOL and (ii) placing on each page of the IL Auction
Service website hyperlinks to a World Wide Web site selected by AOL. The
hyperlinks in the preceding sentence shall be at least as prominent and
favorably positioned as any other third party hyperlink on such page, but
in no event shall such hyperlink be less than 5,000 square pixels. AOL
will not select a hyperlink under this section which links to the World
Wide Web site of an entity which IL determines, acting reasonably, is a
direct and material competitor with the IL Auction Service in the on-line
auction business.
(b) Sales of Ad Avails. AOL will be entitled to sell up to [Confidential
-------------------
Information filed separately with the SEC] of IL's banner advertisements on
the first page of the IL Auction Service's website and any page of the IL
Auction Service's website that is directly linked to the first page,
provided that AOL sells at least half of this entitlement within the first
year of this Agreement. All revenue, net of any commercially reasonable,
third party commissions for fees, collected by AOL for sales of these
banner advertisements shall be allocated [Confidential Information filed
separately with the SEC] to IL and [Confidential Information filed
separately with the SEC] to AOL.
(c) Marketing and Advertising. IL will purchase advertising from AOL in
--------------------------
accordance with the Subscription Agreement. IL agrees that any such
advertising on AOL Interactive Services pursuant to this Section
[Confidential Information filed separately with the SEC] All
3
<PAGE>
other advertising by IL on AOL Interactive Services may point to any
entity, [Confidential Information filed separately with the SEC], except
with the prior written consent of AOL.
2.5 [Confidential Information filed separately with the SEC]
2.6 General Revenue Splits For Auction Services. All Gross Margin received in
---------------------------------------------
connection with the sale of products through the IL Auction Service and the AOL
Auction Service will be allocated as set out in Schedule "B".
2.7 Right to Source Own Products. AOL may source, fulfill and sell products on
-----------------------------
the IL Auction Service for no more than 25 Auctions during the first three
months of this Agreement and no more than 150 Auctions during the first six
months of this Agreement.
2.8 Improvements to the IL Auction Services. IL agrees immediately to use its
-----------------------------------------
best efforts to improve its IL Auction Services as follows:
a) create separate URL's for the IL Auction Services site for the
U.S. and for Canada;
b) modify the Software and the IL Technology to recognize the
browsers listed in Schedule "D" (for the purpose of this
covenant, "recognize" means that users of either browser shall
have full access to the functionality of the IL Auction
Services);
c) ensure that IL shall support 40, 56 and 128 bit encryption
technology;
d) have the Yankee auction operational within 60 days of
receiving the AOL approved specifications therefor as
contemplated by the Subscription Agreement; and
e) modify the Software and the IL Technology to initially handle
10,000 simultaneous users and thereafter within 90 days such
number as AOL specifies in its quarterly "architecture and
development plan" report.
2.9 User Interface Branding. Using the IL Technology and in co-ordination
------------------------
with AOL, IL will create AOL branded user interfaces for the IL Auction Service
for use on the AOL Interactive Services on which the IL brand is a sub-brand
(the "AOL Sub-Branded Interfaces") and will integrate the IL Technology and the
IL Auction Service into the AOL Interactive Services. The branding and look and
feel of the AOL Sub-Branded Interfaces shall be determined by AOL in its sole
discretion. AOL shall operate or otherwise test the AOL Sub-Branded Interfaces
in accordance with the acceptance testing provisions set out in Sections 3.7 to
3.10.
2.10 Reports. Once per month (or more frequently on reasonable request), IL
--------
shall provide AOL with a monthly usage report that tracks all elements necessary
to allocate revenues with respect to the IL Auction Service (including at a
minimum sales, average order size, merchant name and address, geographic
information, re: buyers, type of credit card, gross traffic) and how users of
the IL Auction Service are navigating through the IL Auction Service.
4
<PAGE>
2.11 Security. At all times during the term of this Agreement, IL will provide
---------
a secure data line between AOL and IL offices acceptable to AOL acting
reasonably for the transmission of credit card information at IL's expense.
IL's annual expense, other than one-time charges for such matters as
installation, shall not exceed the sum of $15,500 CDN and $38,200 US. IL shall
cooperate with AOL's Operation Security in the performance of an initial
security review of the IL Auction Service and such periodic security reviews as
AOL may reasonably require. At all times during the term of this Agreement, AOL
will retain ownership of all AOL's system administration tools. Access to any
of the Servers in the AOL Auction Service may be given and/or denied to ILI
staff at AOL's sole discretion.
2.12 International Markets. [Confidential Information filed separately with the
---------------------
SEC], IL may give AOL notice that IL wishes to reserve such country for 3 months
in order to permit IL to attempt to negotiate an exclusive license with a third
party for such country to exploit the IL Technology. [Confidential Information
filed separately with the SEC] IL shall have 3 months in which to negotiate a
term sheet with a third party and an additional 2 months to conclude the
exclusive transaction. [Confidential Information filed separately with the SEC].
2.13 Network Operations Center. IL agrees to permit the AOL Network Operations
--------------------------
Center to monitor the IL Auction Service and to designate a person for the
Network Operations Center to contact in the event of a performance malfunction
of the IL Auction Service. The AOL Network Operations Center will have full
system administrative access for emergency situations when the AOL Auction is
relocated to AOL Data Centers pursuant to section 3.1.
2.14 Software Service Levels. IL agrees to provide AOL with the following
Service Levels in response to software, access, and hardware problems as found
and assessed by AOL in its sole discretion:
Severity 1: Function broken: bug fix or work around required within
twenty-four (24) hours of first report to IL.
Severity 2: Function impaired: bug fix or work around required within
three (3) calendar days of first report to IL.
Severity 3: Function change or improvement: bug fix or work around
required within one (1) calendar week of first report to IL.
Severity 4: Non-functional change or improvement: fix or change required
within one (1) calendar month of first report to IL.
2.15 Specification of Deliverables and Implementation. IL and AOL agree that
-------------------------------------------------
the architecture design for the Auction Service shall be consistent with
Schedule "F" (as amended by mutual agreement from time to time). AOL shall
provide IL with a written request specifying any Deliverables to be performed in
connection with AOL's right to direct AOL Users by way of an AOL Interactive
Service. IL, acting in good faith, shall consider and shall provide AOL with a
reasonable business proposal with respect thereto. Once agreed upon, the
Parties shall set out a detailed statement of work, specifications and an
implementation schedule in an addendum hereto. The Parties will also agree on
an implementation schedule for the Deliverables. IL will provide AOL with
technical support and training in connection with AOL's use of the Software. IL
shall
5
<PAGE>
also provide all Services necessary or desirable to permit AOL to support
the Deliverables without recourse to IL.
ARTICLE THREE
OPTION TO HOST AOL AUCTION SERVICE
----------------------------------
3.1 AOL Auction Service. IL acknowledges and agrees that AOL may provide 90
--------------------
days notice that it wishes to establish, operate and maintain an auction service
on one or more AOL servers referred to herein as the AOL auction Service. In
such event, IL at its cost shall perform the modifications required to permit
such a transfer. IL and AOL shall share moving and setup costs including
hardware and offsite maintenance costs (other than modification costs) but IL's
share shall not exceed $100,000 (US). Within these limits, IL agrees that it is
responsible for taking the technical steps to permit such a transfer including
providing all necessary assistance, training, technical support, Software and
Documentation in connection with the AOL Auction Service and AOL's use of the IL
Technology as may be reasonably required by AOL, using reasonably qualified
software professionals, to achieve such objective. If AOL provides such notice,
AOL shall have primary operations responsibility for AOL Auction Service with
support from IL as provided for herein. IL shall grant AOL an non-exclusive,
royalty free license to use the Software and Documentation in connection with
the AOL Auction Service.
3.2 Specification of Deliverables. IL and AOL agree that the architecture
------------------------------
design for the Auction Service shall be consistent with Schedule "F" (as amended
by mutual agreement from time to time). AOL shall provide IL with a written
request specifying the Deliverables to be performed in connection with the
election in section 3.1 herein. IL, acting in good faith, shall consider and
shall provide AOL with a reasonable business proposal with respect thereto.
Once agreed upon, the Parties shall set out a detailed statement of work,
specifications and an implementation schedule in an addendum hereto.
3.3 Implementation. The Parties will agree on an implementation schedule for
---------------
the Deliverables. IL will provide AOL with technical support and training in
connection with AOL's use of the Software. IL shall also provide all Services
necessary or desirable to permit AOL to support the Deliverables without
recourse to IL.
3.4 Training. For a period of 2 months, IL shall provide suitably qualified
---------
staff and appropriate documentation and manuals to train, and shall train, AOL's
personnel in the proper use, operation and routine maintenance of the Software
and the IL Technology (the "Training").
3.5 Documentation. Without limiting the generality of Section 3.1, IL shall
--------------
provide to AOL three (3) sets, or such other number as agreed in writing, of the
Documentation in accordance with this Agreement. IL shall provide further
Documentation, and revisions to current Documentation, as developed in respect
of the Software from time to time for so long as AOL continues to receive
Maintenance Services (as defined in Section 3.10) for such Software and
covenants to AOL that for such period the Documentation furnished will be
reasonably complete so as to allow AOL to provide for routine maintenance of the
Software and for its operation and use as contemplated under this Agreement.
AOL may, at no additional cost, make such copies of the Documentation as it may
reasonably require for the contemplated uses of the Deliverables hereunder.
6
<PAGE>
3.6 Project Management. The Parties each agree to designate an individual from
------- -----------
their respective companies with adequate authority and full technical competence
to deal with matters relating to the implementation of the Deliverables (each,
being a "Project Manager"). Specifically, these individuals will, on behalf of
their respective Parties, in accordance with the spirit of this Agreement, use
reasonable efforts to co-ordinate the delivery, installation, acceptance and
maintenance and support of the Deliverables and for the provision of Services
generally as contemplated herein. Upon such designations, each of AOL and IL
shall concurrently provide the other with details with respect to its Project
Manager, including name, address and telephone number, and each of AOL and IL
may from time to time change its Project Manager with the consent of the other
which will not be unreasonably withheld.
3.7 Support. IL agrees to provide support in the form of bug fixes, assistance
--------
to AOL in integrating the Software with AOL's Service. IL further agrees to
provide such documentation of software, bug fixes, alterations, changes, and
upgrades to the Software as may be required by AOL during the development and
integration of the Software with AOL's Service.
3.8 Acceptance Testing.
-------------------
(a) Within a reasonable time after the completion of the installation of
Software and the provision of the basic training and related Documentation
provided for in this Agreement in respect of such Software, for an
appropriate test period, AOL in conjunction with IL, shall operate or
otherwise test the Software in accordance with agreed upon operating
practices (the "Acceptance Testing"). The Software will be deemed accepted
when all Severity Level 1 and 2 bugs (as set out in Section 2.14) are
fixed. AOL shall notify IL in writing of any instances in which the
Software has not performed in accordance to AOL's requirements.
(b) If IL receives such written notification, then it shall take all such
actions as are necessary to allow the Software to perform in accordance to
AOL's Requirements within the time frames defined for each Severity Levels
as set out in Section 2.14.
(c) Notwithstanding Sections 3.8(a) and (b) above, AOL acknowledges and agrees
that there may be minor deficiencies defined as Severity Level 3 and 4 bugs
that do not in the aggregate have a material impact upon performance of the
Software and provided that on notification thereof, IL promptly rectifies
deficiencies to the satisfaction of AOL, acting reasonably, the acceptance
of the Software will not be delayed thereby.
3.9 Reports. IL will provide AOL with a regular report on changes to the IL
--------
Auction Service.
3.10 Maintenance and Support.
------------------------
(a) Except as otherwise provided herein, IL will be responsible for maintaining
and updating the IL Technology used in the AOL Auction Service and will
make available those Software maintenance and support services agreed upon
by the Parties (the "Maintenance Services"), including meeting the Service
Levels set out in Section 2.14. IL will provide AOL with no less than the
most favorable support and maintenance terms (e.g., response times and
training classes) provided by IL to any third party.
(b) At least once per calendar quarter IL shall have the appropriate technical
support staff physically visit the AOL website to provide maintenance and
support.
7
<PAGE>
(c) If AOL requests the inclusion in the IL Technology, the IL Auction Service,
or the AOL Auction Service of functionality which IL reasonably believes to
be an AOL-specific requirement or one that is not required to keep pace
with IL's competition, IL will assist AOL, on terms to be mutually agreed
upon, in developing or obtaining such functionality in the IL Technology
and AOL Sub-Branded Interfaces.
3.11 Future Provision of Additional or Amended Deliverables. If AOL wishes
-------------------------------------------------------
to have IL provide deliverables in addition to those contemplated by section 3.1
herein, whether to develop improvements for the Software or to develop similar
software products, or otherwise, or to amend certain Services, AOL shall provide
IL with a written request specifying the additional or amended Deliverables to
be performed in connection therewith. IL, acting in good faith, shall consider
and, if appropriate, shall provide AOL with a proposal with respect thereto.
Once agreed upon, the Parties shall set out a detailed statement of work,
specifications, the basis, if any, upon which AOL may terminate such specific
additional or amended Deliverables prior to their completion, and an
implementation schedule in an addendum hereto. Upon entering into such an
addendum, such additional services or amended Deliverables, as applicable, shall
form part of the Services.
3.12 Capability of IL Technology.
----------------------------
(a) IL will ensure that the AOL Auction Service and the AOL Sub-Branded
Interfaces will have the right and capability to use all of the
functionality that is used in connection with the IL Auction Service at the
same time as such functionality is used on the IL Auction Service.
(b) Any updates and/or upgrades and corresponding instructional materials to
the IL Technology and IL Auction Service will be provided by IL to AOL at
the same time such updates and/or upgrades and corresponding instructional
materials are provided for the IL Auction Service or to any third party.
(c) IL will continue to update and/or upgrade the IL Technology and IL Auction
Service to ensure that it contains at least substantially the same
functionality as its competitors.
(d) IL will ensure that at all times both the IL Auction Service and the AOL
Auction Service are compatible with the browsers listed in Schedule "D" and
the then most popular three Internet browsers and that within a reasonable
period it shall modify the IL Technology, the Software and the AOL Sub-
branded Interfaces to be compatible with all AOL end users' interfaces then
in use by AOL customers with browsers defined in Schedule "D".
3.13 Reports. Once per month (or more frequently on reasonable request), AOL
--------
shall provide IL with a monthly usage report that tracks all elements necessary
to allocate revenues with respect to the AOL Auction Service (including at a
minimum sales, average order size, merchant name and address, geographic
information, re: buyers, type of credit card, gross traffic) and how users of
the AOL Auction Service are navigating through the AOL Auction Service.
ARTICLE FOUR
FEES AND REVENUE SHARING
------------------------
8
<PAGE>
4.1 Fees and Revenue Sharing. As consideration for all obligations, services
-------------------------
and licenses provided for herein the Parties agree to share all Gross Margin
received in connection with the sale of products through the IL Auction Service
and the AOL Auction Service in accordance with Schedule "B".
4.2 Additional Services. Upon the prior written consent of AOL, those
--------------------
additional Services rendered by IL contemplated hereunder in section 3.10(c) and
section 3.11 as being provided at an additional charge may be charged to AOL at
current market rates then in effect plus reasonable out-of-pocket expenses
approved in advance by AOL.
4.3 Taxes. AOL shall pay to IL those taxes, duties, and other such assessments
------
or charges now in force or enacted in the future that are payable in respect of
payments to be made hereunder and are required to be collected by IL under the
relevant legislation. Similarly, IL shall pay to AOL those taxes, duties, and
other such assessments or charges now in force or enacted in the future that are
payable in respect of payments to be made hereunder and are required to be
collected by AOL under the relevant legislation. This provision includes sales,
use, goods and services, and excise taxes, but does not include taxes based on
AOL's or IL's net income. For greater certainty, the parties hereto expressly
acknowledge that any income taxes which are the debt of IL under any national or
local law on any amounts to be paid to IL by AOL or under this Agreement shall
be withheld by AOL to the extent required by law, and AOL shall provide proof
to IL of its withholding and payment of any such taxes.
4.4 [Confidential Information filed separately with the SEC]
ARTICLE FIVE
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
-------------------------------------------
5.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights:
---------------------------------------------------------------------
(a) IL represents and warrants that they each have the right to grant the
licenses hereby granted and that there are not, nor will there be any lien,
encumbrance, security interest or other rights against the Software and
Documentation which would prohibit such license, and that IL has the right
to provide the IL Auction Service, and that title to media upon which the
Software and the Documentation will be provided, will be provided free and
clear of all encumbrances by IL to AOL or AOL Affiliates.
(b) IL agrees to indemnify AOL or AOL Affiliates and hold each harmless from
all losses, claims, damages or liabilities, including court costs and
attorney's fees, in connection with or arising out of any claim asserted
against AOL or AOL Affiliates based upon a contention that the IL Auction
Service or any of the Deliverables, or any portion thereof, in the form
accepted by AOL or AOL Affiliates and used within the scope of this
Agreement infringes the Intellectual Property Rights of any third party
provided that:
(i) AOL or AOL Affiliates promptly notifies IL in writing of the claim and
of all material developments in connection with such claim and
provides all assistance otherwise reasonably requested by IL;
(ii) IL has the right to control, at its own cost, the defense and all
related settlement negotiations (AOL has the right to participate at
its own expense); and
9
<PAGE>
(iii) AOL or AOL Affiliates does not pay or settle any such claim
without the express written consent of IL.
In addition, if the IL Auction Service, any of the Deliverables, or any
portion thereof is held to constitute an infringement of another Person's
rights, and use thereof is enjoined, IL shall, at its election and expense,
either:
(A) procure the right to use the infringing element thereof;
(B) procure the right to an element which performs the same function
without any material loss of performance or functionality; or
(C) replace or modify the element thereof so that the infringing portion
is no longer infringing and still performs the same function without
any material loss of functionality.
and shall make every reasonable effort to correct the situation with
minimal effect upon the operations of AOL or AOL Affiliates.
5.2 Disabling Device. IL warrants that any Software provided hereunder shall
-----------------
not contain any clock, timer, counter, or other limiting or disabling code,
design or routine that would cause the Software to be made inoperable or
otherwise rendered incapable of performing in accordance with AOL's Requirements
or otherwise limit or restrict AOL's or AOL Affiliate's ability to use same or
after the lapse or occurrence of any triggering prompt and to the best of IL's
knowledge, information and belief does not contain any virus.
5.3 Media. IL represents and warrants that the media on which any Software is
------
provided shall be compatible with the computer system on which it is to be
installed and that the media, as supplied by IL, shall be free from defects and
computer viruses.
5.4 Representations and Warranties re: Services. IL agrees that all services
---------------------------------------------
to be provided by it hereunder shall be provided in a timely fashion and in a
workmanlike manner by personnel appropriately trained in the performance of such
services in accordance with all applicable governmental regulations governing
such services. If IL does not meet the response time requirements for a
severity (1) or severity (2) event as outlined in section 2.14 herein and such
failure is not due to an event beyond the reasonable control of IL, AOL shall
have the right to insist that its own engineers and designers assist IL's
personnel at IL's premises and rectify the problem and IL shall cooperate fully
in this process.
5.5 Compliance with Applicable Laws. IL shall comply with all laws applicable
--------------------------------
to the provision of the IL Auction Service or any part thereof. Evidence of
compliance with such laws shall be furnished by IL to AOL's Project Manager at
such times as AOL's Project Manager may reasonably request. Without limiting
the generality of the foregoing, IL warrants and represents to AOL that the
operation of the IL Auction Service shall comply with all consumer protection
legislation and all other laws or regulations respecting the sale of goods to
consumers in all jurisdictions in which goods are sold through the IL Auction
Service. AOL shall comply with all laws applicable to the provision of the AOL
Auction Service or any part thereof. Evidence of compliance with such laws
shall be furnished by AOL to IL's Project Manager at such times as IL's
10
<PAGE>
Project Manager may reasonably request. Without limiting the generality of the
foregoing, AOL warrants and represents to IL that the operation of the AOL
Auction Service shall comply with all consumer protection legislation and all
other laws or regulations respecting the sale of goods to consumers in all
jurisdictions in which goods are sold through the AOL Auction Service.
5.6 Manufacturer's Warranty. Each of AOL and IL agree to be responsible for
------------------------
the goods it sources for sale through either the IL Auction Service or the AOL
Auction Service, including ensuring that such goods shall be sold with no less
than the manufacturer's or distributor's warranty except for goods for which
warranties are not generally available. The Party that sources goods for sale
on either the IL Auction Service or the AOL Auction Service agrees to indemnify,
defend and hold harmless the other Party for any liabilities arising from the
sale of such goods.
5.7 Provision of Source Code Materials. At the written request of AOL, IL
-----------------------------------
agrees to enter into a trust agreement with AOL and Data Securities
International, Inc. or other mutually agreed third party for the use of the
Source Code Materials. Such materials are to be released to AOL on the
following conditions:
(a) bankruptcy or insolvency of IL;
(b) discontinuation by IL of the auction services business; or
(c) failure of IL to fulfill its maintenance and support obligations.
IL represents and warrants to AOL that the Source Code Materials furnished
pursuant to such an agreement will be reasonably complete so as to allow AOL
using a competent computer programmer possessing ordinary skills and experience,
to further develop, maintain and operate the Software in the manner contemplated
hereunder without further recourse to IL. At AOL's request, IL agrees to enter
into, and fulfill its obligations under, the source code trust agreement
attached as Schedule "C".
5.8 Confidentiality. Each Party covenants to the other Party that it shall
----------------
keep confidential the Confidential Information of the other Party to which such
Party obtains access to as a consequence of entering into this Agreement and
that it will take all reasonable precautions to protect such Confidential
Information from any use, disclosure or copying except as expressly authorized
by this Agreement. Each Party shall implement such procedures as the other
Party may reasonably require from time to time to improve the security of the
Confidential Information in its possession. This Section shall survive the
termination of the Agreement. For greater certainty, IL acknowledges and agrees
that all information respecting AOL Users is the Confidential Information of AOL
including e-mail addresses and personal information obtained pursuant to this
Agreement. IL shall not use such information for any purpose not specifically
contemplated herein or of for marketing purposes without the prior written
consent of AOL. IL shall not provide such information to third parties for any
reason whatsoever without the prior written consent of AOL.
5.9 Acknowledgement of Title.
-------------------------
(a) AOL acknowledges that the Software constitutes commercially valuable trade
secrets and proprietary data of IL and that no term of this Agreement shall
be construed to convey title in the Software to AOL. Notwithstanding the
foregoing, all intellectual property rights in the
11
<PAGE>
AOL Sub-Branded Interfaces shall vest in AOL and the Parties shall execute
such documentation as may be reasonably required to confirm the foregoing.
(b) AOL shall ensure that to the extent that AOL Affiliates utilize the license
in Article Three they do so pursuant to this Agreement. Subject to the
terms of this Agreement, AOL shall indemnify, defend and hold harmless IL
for any breach of this Agreement by AOL or AOL Affiliates which are
authorized by this Agreement to have access to the IL Technology. Subject
to the terms of this Agreement, IL shall indemnify, defend and hold
harmless AOL or AOL Affiliates which are authorized by this Agreement to
have access to the IL Technology for any breach of this Agreement by IL.
(c) AOL shall take all reasonable precautions to prevent third parties from
using the IL Technology in its possession in any way that would constitute
a breach of this Agreement including, without limitation, such precautions
as it would otherwise take to protect its own proprietary technology.
5.10 AOL Merchant Certification Program. IL shall meet all standards required
----------------------------------
under the AOL Merchant Certification Program as set out in Schedule "E".
5.11 Limitation on Warranties. Except for those warranties otherwise provided
-------------------------
herein, neither Party makes any warranties or representations, and there are no
conditions, express or implied, in fact or in law, including without limitation,
the implied warranties or conditions of merchantable quality and fitness for a
particular purpose and those arising by statute or otherwise in law or from a
course of dealing or usage of trade.
ARTICLE SIX
DEFAULT AND TERMINATION
-----------------------
6.1 Term.
-----
(a) The term of this Agreement (the "Term") shall commence on the Effective
Date and shall continue, subject to early termination in accordance with
the terms hereof, for a period of three (3) years (the "Initial Term").
Thereafter, and subject to Section 6.1(b), the Agreement shall be
automatically extended for each of three (3) additional one (1) year terms
(each, being a "Subsequent Term") unless sixty (60) days' notice in writing
is given by AOL prior to the end of any of the Initial Term or the first
two (2) Subsequent Terms, as applicable, stating AOL's intention to
terminate the Agreement at the end of such term.
(b) The extension of the Term of the Agreement into any of the three Subsequent
Terms shall be subject to the Parties, using appropriate diligence and
acting in good faith, during the sixty days prior to the end of the Initial
Term and each Subsequent Term, renegotiating the allocation of revenues
described in Schedule "B" and advertising pursuant to Section 2.4(c) and
agreeing on reasonable gross profit allocations and license fees, if any,
for the upcoming Subsequent Term. If the Parties cannot reach such an
agreement, the Parties will submit the determination of such allocation and
fees to binding arbitration by a single arbitrator in New York in
accordance with AAA Rules, unless AOL elects to terminate. Pending
resolution of arbitration and subject to the payment or repayment of any
amount based upon the
12
<PAGE>
arbitrator's order, as applicable, AOL shall continue to pay the amounts
paid during the just completed term.
6.2 Termination for Cause. Subject to the time frames set out below, this
----------------------
Agreement may be terminated immediately by either Party on written notice upon
the occurrence of an event of default by the other Party. Each of the following
constitutes an event of default for the purposes of this Agreement:
(i) if a Party commits any material fraudulent act in the performance of
any of its obligations hereunder or any material misrepresentation
hereunder; or
(ii) if either Party fails to perform any material obligation set forth in
this Agreement (other than a failure to pay which is considered
separately in (iv)) and such default in the case of a default which
is remediable continues for a period of thirty (30) days after
written notice of such failure has been given by the non-defaulting
Party;
(iii) if there is repeated and ongoing failure by a Party to comply with
or perform any of the material terms, conditions, agreements and
obligations imposed on it by this Agreement;
(iv) if a Party should fail to pay a material amount to the other when
payable hereunder (other than an amount which such Party, in good
faith, disputes is owing) and such breach is not cured within sixty
(60) days after written notice stating that such amount is due and
owing and that non-payment shall result in termination; or
(v) if a Party declares bankruptcy, becomes insolvent or ceases the
operation of its business without a successor.
6.3 Survival. Upon termination of this Agreement, for a period of 12 months
---------
after the date this Agreement is terminated, all operative terms of this
Agreement will remain in full force and effect and AOL will be entitled to use
the AOL Sub-Branded Interfaces in the same manner it was entitled to use them as
of the date of termination and AOL and IL will continue to allocate revenue as
set forth above. After the 12-month period, AOL will not have any right to use
the AOL Sub-Branded Interfaces and IL will cooperate with AOL to assist AOL in
transitioning to a new technology. Except as otherwise provided herein, the
terms of Articles 5 and 6 shall survive any termination or expiry of this
Agreement and shall continue in force thereafter for the period contemplated by
the Agreement as shall any other provision of this Agreement which, by the
nature of the rights or obligations set out therein, might reasonably be
expected to be intended to so survive.
ARTICLE SEVEN
GENERAL
--------
7.1 Notice. Any notice or other communication (in this Section a "Notice")
-------
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
13
<PAGE>
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to AOL addressed to it at:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: Fred Singer, Vice-President
Fax No.: (703) 265-2409
with a copy to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Fax No.: (703) 265-2208
and in the case of a Notice to Corporation addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-5705
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 7.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
14
<PAGE>
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 7.1.
7.2 Assignment. The rights and obligations of IL under this Agreement shall
-----------
not be assigned, in whole or in part, by IL without the prior consent in writing
of AOL and any purported assignment made without that consent is void and of no
effect. No assignment of this Agreement shall relieve IL from any obligation
under this Agreement or impose any liability upon AOL , unless otherwise agreed
to in writing by AOL. AOL may assign its rights and obligations under this
Agreement to any AOL Affiliate or to a party purchasing the part of its business
by which the applicable Deliverables are primarily used, without IL's prior
written consent.
7.3 Binding on Successors. This Agreement shall inure to the benefit of and be
----------------------
binding upon the Parties and their respective successors and permitted assigns.
7.4 Further Assurances. Each Party agrees that upon the written request of
-------------------
the other Party, it will do all such acts and execute all such further
documents, conveyances, deeds, assignments, transfers and the like, and will
cause the doing of all such acts and will cause the execution of all such
further documents as are within its power to cause the doing or execution of, as
any other Party hereto may from time to time reasonably request be done and/or
executed as may be necessary or desirable to give effect to this Agreement.
7.5 Independent Contractors. It is understood and agreed that in giving effect
------------------------
to this Agreement, no Party shall be or be deemed a partner, agent or employee
of another Party for any purpose and that their relationship to each other shall
be that of independent contractors. Nothing in this Agreement shall constitute a
partnership or a joint venture between the Parties. No Party shall have the
right to enter into contracts or pledge the credit of or incur expenses of
liabilities on behalf of the other Party.
15
<PAGE>
7.6 Waiver. A waiver by any Party hereto of any of its rights hereunder or of
-------
the performance by another Party of any of its obligations hereunder shall be
without prejudice to all of the other rights hereunder of the Party so waiving
and shall not constitute a waiver of any such other rights or, in any other
instance, of the rights so waived, or a waiver of the performance by the other
Party of any of its other obligations hereunder or of the performance, in any
other instance, of the obligations so waived. No waiver by any Party of any of
its obligations hereunder shall be effective or binding upon such Party unless
the same shall be expressed in writing.
IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date
first written above.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By: _c/s
Name:
Title:
By: _c/s
Name:
Title:
AMERICA ONLINE, INC.
By: _c/s
Name:
Title:
16
<PAGE>
SCHEDULE "A"
DEFINITIONS
In this Agreement, unless the context otherwise requires, the following
expressions have the meanings indicated below:
"10% Share" means the payment to AOL by IL of 10% of the Gross Margin from the
products sold through the IL Auction Service which IL sources and fulfills to a
Person that is not an AOL User as described in Schedule "B";
"Above the Fold" means the portion of any AOL Sub-Branded Interface or a World
Wide Web page, as applicable, that is designed to be visible by users upon first
entering such AOL Sub-Branded Interface or World Wide Web page without requiring
a user with standard configurations (currently a 640 pixel by 480 pixel display)
to scroll lower through such AOL Sub-Branded Interface or World Wide Web page;
"Agreement" means this Auction Services Agreement and all schedules annexed to
this Agreement as the same may be amended from time to time in accordance with
the provisions hereof or thereof; "hereof", "hereto" and "hereunder" and similar
expressions mean and refer to this Agreement and not to any particular article
or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement;
"AOL Affiliate" means any corporation, limited liability company, joint venture,
partnership or other entity (collectively an "Entity") with a principal place of
business in the United States or Canada, of which AOL owns or has the
contractual right to acquire, whether directly or indirectly through one or more
Entities, 19.9% or more of the outstanding securities entitled to vote for the
election of directors (or in the case of a partnership or joint venture, 19.9%
or more of the equity interest entitled to vote for the election of the
equivalent governing body no matter how such equity interest is evidenced) of
such Entity;
"AOL Auction Service" means AOL's online interactive auction service to be
established and operated hereunder using the IL Technology (as updated,
improved, enhanced or otherwise modified, and as it evolves during the term of
this Agreement) accessible via America Online Service or the Internet;
"America Online Service" means the primary America Online brand computer
online, interactive, information, communication and transaction service offered
by AOL, as that service evolves during the term of this Agreement;
"AOL Interactive Services" means AOL's and any AOL Affiliates' content and
services accessed through a network such as the Internet or a proprietary
network, including, without limitation, the America Online Service, the AOL
Canada Service, and the Digital City Service.
"AOL Exclusive Auctions" has the meaning attributed thereto in Section 2.2;
<PAGE>
-2-
"AOL Sub-Branded Interface" has the meaning attributed thereto in Section 2.9;
"AOL User" means an end-user who pays or is obligated to pay to AOL for access
to the America Online Service;
"Auction" means the sale of the entire supply of single type of product on the
IL Auction Service or the AOL Auction Service provided that the sale period for
such product is not to extend beyond thirty (30) days;
"Business Day" means any day from Monday to Friday inclusive, except statutory
or civic holidays observed in Toronto, Ontario or Virginia;
"Confidential Information" means any information relating to or disclosed in the
course of discussing, negotiating, executing or implementing this Agreement,
which is, or should be reasonably understood to be, confidential or proprietary
to the disclosing party, including, but not limited to, the material terms of
this Agreement, information about AOL Users, technical processes and formulas,
source code, product designs, sales, cost and other unpublished financial
information, product, service, and business plans, projections, marketing data
and all other information that gives such party a competitive advantage but
shall not include any information which:
(i) is or becomes publicly available through no fault of the other Party;
(ii) is already in the rightful possession of the other Party prior to its
receipt from the other Party;
(iii) is independently developed by the other Party;
(iv) is rightfully obtained by the other Party from a third party not
subject to an obligation of confidentiality;
(v) is disclosed with the written consent of the Party whose information
it is; or
(vi) is disclosed pursuant to court order or other legal compulsion;
"Deliverable" means the whole of the activities, services, materials, equipment,
software, matters and things required to be done, delivered or performed by IL
herein, including any hardware, the software, documentation and services and
including all other rights and things, tangible or intangible, including
intellectual property rights to be provided hereunder by IL to AOL or AOL
Affiliates;
"Documentation" means user manuals for the Software which describe the design,
performance and functional specifications of the Software, and which facilitate
the use, operation and maintenance of the Software;
"Effective Date" has the meaning attributed thereto on the face page of this
Agreement;
<PAGE>
-3-
"Gross Margin" means the aggregate amount of revenue (including without
limitation shipping and handling) received by a Party in connection with the
purchase by end users of products offered through the IL Auction Service, less
cost of goods sold, credit card transaction fees, all sales and use taxes,
duties, the cost of shipping, credits for returned goods or services, reasonable
deductions for bad debt and commercially reasonable fees owed by IL to a
Internet service provider as a result of a purchase by a non AOL user;
"IL Auction Service" means IL's online interactive auction service (as may be
updated, improved, enhanced or otherwise modified, and as it evolves during the
term of this Agreement) accessible via the Internet or other publicly accessible
network which is carried on at internetliquidators.com and based on, among other
things, IL's proprietary database engine and the database repository;
"IL Technology" means the technology and know-how used by IL or its subsidiaries
to operate on-line auction services generally (and including all Intellectual
Property Rights therein), whether patented or registered, and whether domestic
or foreign including patent applications and copyrighted software and including
that technology and know-how used in respect of the operation of the IL Auction
Service and, if established as contemplated herein, the AOL Auction Service;
"internetliquidators.com" means any site or area accessible through the use of
standard protocols associated with the worldwide network of computers commonly
referred to as the Internet (or any successor thereto) or any site or area
within another publicly accessible network containing IL's branded version of
the IL Auction Service, specifically excluding any third party web site which
points or links, through a co-branded interface or otherwise, to IL's website;
"Intellectual Property Rights" includes: (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trademark law, (iv)
design patent or industrial design law, (v) semi-conductor chip or mask work
law, or (vi) any other statutory provision or common law principle applicable to
this Agreement or the Software which may provide a right in either (a) ideas,
formulae, algorithms, concepts, inventions or know-how generally, including
trade secret law, or (b) the expression or use of such ideas, formulae,
algorithms, concepts, inventions or know-how; and (B) any and all applications,
registrations, licenses, sub-licenses, franchises, agreements or any other
evidence of a right in any of the foregoing;
"Local Auction" means an online auction accessed through Torstar, Digital City,
Inc. or other entity, to sell products or services to consumers, provided
however that (i) the auction is aimed primarily at consumers inside the local
market and (ii) the auction is promoted exclusively in such local market (for
the purposes of this definition local market when used in reference to Torstar
means Ontario and when used in reference to a Digital City Affiliate means the
geographic area allocated to such Digital City Affiliate);
"Maintenance Services" has the meaning given it in Section 3.10;
"Parties" means IL and AOL collectively and "Party" means either of them;
"Person" includes an individual, company, corporation, partnership, government
or government agency, authority or entity howsoever designated or constituted;
"Services" means those services to be provided by IL to AOL or to the AOL
Affiliates hereunder;
<PAGE>
-4-
"Software" means all the computer software necessary or desirable to operate the
AOL Auction Service, which software is being provided to AOL by IL hereunder to
meet AOL's Requirements, including any modifications or improvements to the
Software (whether developed by IL, AOL or otherwise); and
"Source Code Materials" means:
(a) a complete copy of the source code version of all software required to
allow AOL to independently operate and maintain and support an auction
service in accordance with AOL's Requirements including the Software,
appropriately labeled to denote the version or release thereof, and the
currency date thereof, in each of:
(i) machine-readable form on machine-readable storage medium suitable for
long term storage and compatible with the Software as then being used
by AOL and which, when compiled, will produce the object code version
of the Software; and
(ii) human-readable form with annotations in the English language on bond
paper suitable for long term archival storage; and
(b) a complete copy, in English, printed on bond paper, suitable for long term
archival storage, and appropriately labeled to describe the contents
thereof, of all applicable documentation and other explanatory materials
including programmer's notes, technical or otherwise, for the Software as
may be required by AOL, using a competent computer programmer possessing
ordinary skills and experience, to further develop, maintain and operate
such software without further recourse to IL including, but not necessarily
limited to, general flow-charts, input and output layouts, field
descriptions, volumes and sort sequence, data dictionary, file layouts,
processing requirements and calculation formula and the details of all
algorithms;
"Torstar" means the Toronto Star Newspapers Limited.
<PAGE>
SCHEDULE "B"
REVENUE SHARING
1. During the term of this Agreement, Gross Margins from the operation of the
IL Auction Service or AOL Auction Service shall be divided among AOL and IL
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AOL IL
Revenue Description % %
------------------- --- --
1. IL sources and fulfills product purchased on IL Auction
Service by a non AOL User
(i) if AOL retains its rights to AOL Exclusive Auctions
or [XXX] [XXX]
(ii) if AOL has elected to relinquish its rights to AOL
Exclusive Auctions in exchange for its [Confidential
Information filed separately with the SEC] in accordance with [XXX] [XXX]
section 2.3
2. IL sources and fulfills product purchased on IL Auction [XXX] [XXX]
Service or AOL Auction Service by an AOL User
3. AOL sources and fulfills product purchased on IL Auction [XXX] [XXX]
Service by non AOL User
4. AOL sources product purchased on IL Auction Service or AOL [XXX] [XXX]
Auction Service by an AOL User - IL fulfills
5. AOL sources and fulfills product purchased on IL Auction [XXX] [XXX
Service or AOL Auction Service by an AOL User (IL handles
credit card transactions)
</TABLE>
Note: [XXX] denotes Confidential Information filed separately with the SEC
With respect to the last category, IL is additionally entitled for processing
and handling to the lesser of:
a) [Confidential Information filed separately with the SEC] of the price at
which a good or service is sold; and
b) [Confidential Information filed separately with the SEC] per product.
<PAGE>
SCHEDULE "C"
AOL SOURCE CODE TRUST AGREEMENT
<PAGE>
MASTER PREFERRED ESCROW AGREEMENT
Master Number __________
This Agreement is effective February 12, 1997 among Data Securities
International, Inc.("DSI"), Internet Liquidators International Inc.
("Depositor"), and any additional party signing the Acceptance Form attached to
this Agreement ("Preferred Beneficiary") who collectively may be referred to in
this Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement in the form attached to such Preferred Beneficiary's
Acceptance Form regarding certain proprietary technology of Depositor
(referred to in this Agreement as "the license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical
to Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under
certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with
DSI to provide for the retention, administration and controlled access
of certain proprietary technology materials of Depositor.
ARTICLE 1 - DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, including the signing of the Acceptance Form, Depositor shall deliver
to DSI the proprietary information and other materials identified on an Exhibit
A. DSI shall have no obligation with respect to the preparation, signing or
delivery of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of the
deposit materials to DS1, Depositor shall conspicuously label for identification
each document, magnetic tape, disk, or other tangible media upon which the
deposit materials are written or stored. Additionally, Depositor shall complete
Exhibit B to this Agreement by listing each such tangible media by the item
label description, the type of media and the quantity. The Exhibit B must be
signed by Depositor and delivered to DSI with the deposit materials. Unless and
until Depositor makes the initial deposit with DSI, DSI shall have no obligation
with respect to this Agreement, except the obligation to notify the parties
regarding the status of the deposit account as required in Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in
the form provided by the
<PAGE>
Depositor and conduct a deposit inspection by visually matching the labeling of
the tangible media containing the deposit materials to the item descriptions and
quantity listed on the Exhibit B. In addition to the deposit inspection,
Preferred Beneficiary may elect to cause a verification of the deposit materials
in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if
DSI determines that the labeling of the tangible media matches the item
descriptions and quantity on Exhibit B, DSI will date and sign the Exhibit B and
deliver a copy thereof to Depositor and Preferred Beneficiary. If DSI determines
that the labeling does not match the item descriptions or quantity on the
Exhibit B, DSI will (a) note the discrepancies in writing on the Exhibit B; (b)
date and sign the Exhibit B with the exceptions noted; and (c) provide a copy of
the Exhibit B to Depositor and Preferred Beneficiary. DSI's acceptance of the
deposit occurs upon the signing of the Exhibit B by DSI. Delivery of the signed
Exhibit B to Preferred Beneficiary is Preferred Beneficiary's notice that the
deposit materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
(a) Depositor lawfully possesses a of the deposit materials deposited
with DSI;
(b) With respect to all of the deposit materials, Depositor has the
right and authority to grant to DSI and Preferred Beneficiary the rights as
provided in this Agreement;
(c) The deposit materials are not subject to any lien or other
encumbrance other than encumbrances arising in the ordinary cause of Depositor's
business;
(d) The deposit materials consist of the proprietary information and
other materials identified in Exhibit A; and
(e) The deposit materials are readable and useable in their current
form or, if the deposit materials are encrypted, the decryption tools and
decryption keys have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right, at
Preferred Beneficiary's expense, to cause a verification of any deposit
materials. A verification determines, in different levels of detail, the
accuracy, completeness, sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.7 Removal of Deposit Materials. The deposit materials may be removed
and/or exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement
-3-
<PAGE>
ARTICLE 2 - CONF1DENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a
secure, environmentally safe, locked facility in the greater Toronto area which
is accessible only to authorized representatives of DSI. DSI shall have the
obligation to reasonably protect the confidentiality of the deposit materials.
Except as provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the deposit materials. DSI shall not disclose the content of
this Agreement to any third party. If DSI receives a subpoena or other order of
a court or other judicial tribunal pertaining to the disclosure or release of
the deposit materials, DSI will immediately notify the parties to this
Agreement. It shall be the responsibility of Depositor and/or Preferred
Beneficiary to challenge any such order, provided, however, that DSI does not
waive its rights to present its position with respect to any such order. DSI
will not be required to disobey any court or other judicial tribunal order. (See
Section 7.5 below for notices of requested orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary
a report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and
Preferred Beneficiary shall each have the right to inspect the written records
of DSI pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 - GRANT OF RIGHTS TO DSI
3.1 Title to Physical Copies of Deposited Materials.
(a) Depositor transfers to DSI in trust all legal title in and to the
physical copies of the deposit materials provided to DSI from time to time in
accordance with the terms of this Agreement It is acknowledged by the parties
hereto that such transfer by Depositor to DSI under this Section is not intended
to, nor does it, transfer any intellectual property or other intangible rights
in the deposit materials. DSI agrees to hold the deposit materials in trust for
Depositor and Preferred Beneficiary as provided in this Agreement.
(b) The expression "in trust" is intended to refer strictly to the
issue of ownership of the deposit materials and not to the level of care which
must be taken by DSI in performing its duties under this Agreement. The duties
of DSI are strictly contractual in nature and are as set out in this Agreement.
It is not intended that DSI is to have the fiduciary duty of a trustee.
3.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the deposit materials onto any copies made by DS1 * With all
deposit materials submitted to DSI, Depositor shall provide
-4-
<PAGE>
any and all instructions as may be necessary to duplicate the deposit materials
including but. not limited to the hardware and/or software needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the
right to transfer deposit materials to Preferred Beneficiary upon any release of
the deposit materials for use by Preferred Beneficiary in accordance with
Section 4.5. Except upon such a release or as otherwise provided in this
Agreement, DSI shall not transfer the deposit materials.
ARTICLE 4 - RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions"
shall mean the following:
(a) voluntary bankruptcy of Depositor;
(b) involuntary bankruptcy provided that the Depositor is not in good
faith diligently taking steps to contest or set aside such process;
(c) if Depositor becomes insolvent and ceases to continue to carry on
its business;
(d) if Depositor ceases the operation of its business and the business
is not continued by a successor acceptable to the Preferred Beneficiary, acting
reasonably; and
(e) any additional release conditions identified on the attached
Acceptance Form.
4.2 Filing For Release. If Preferred Beneficiary believes in good faith
that a Release Condition has occurred, Preferred Beneficiary may provide to DS1
written notice of the occurrence of the Release Condition and a request for the
release of the deposit materials. Upon receipt of such notice, DSI shall deliver
a copy of the notice to Depositor.
4.3 Contrary Instructions. From the date DSI delivers the notice
requesting release of the deposit materials, if the Release Condition is one
defined in 4. 1 (b), 4.1 (d) or 4. 1 (e) Depositor shall have ten business days
to deliver to DSI Contrary Instructions. If the Release Condition is one defined
in 4. 1 (a) or (c), DSI shall release the deposit materials pursuant to Section
4.4 within 48 hours of giving notice to the Depositor under Section 4.2.
"Contrary Instructions" shall mean the written representation by Depositor that
a Release Condition has not occurred or has been cured. Upon receipt of Contrary
Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally,
DSI shall notify both Depositor and Preferred Beneficiary that there is a
dispute to be resolved pursuant to the Dispute Resolution section of this
Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the
deposit materials without release pending (a) joint instructions from Depositor
and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution
provisions, or (c) order of a court.
-5-
<PAGE>
4.4 Release of Deposit. If DSI does not receive Contrary instructions
from the Depositor, DSI is authorized to release the deposit materials to the
Preferred Beneficiary or, if more than one beneficiary is registered to the
deposit materials, to release a copy of the deposit materials to the Preferred
Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized
representative is entitled to receive any fees due DSI or DSI's authorized
representative before making the release. This Agreement will terminate with
respect to the Preferred Beneficiary giving notice under Section 4.2 upon the
release of the deposit materials held by DSL
4.5 Right to Use Following Release. Unless otherwise provided in the
license agreement, upon release of the deposit materials in accordance with this
Article 4, Preferred Beneficiary shall have the right to use the deposit
materials for the sole purpose of continuing the benefits afforded to Preferred
Beneficiary by the license agreement. Preferred Beneficiary shall be obligated
to maintain the confidentiality of the released deposit materials.
ARTICLE 5 - TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period
of one Year. Thereafter, this Agreement shall automatically renew from year-to-
year unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in
writing that the Agreement is terminated; or (b) the Agreement is terminated by
DSI for nonpayment in accordance with Section 5.2. If the Acceptance Form has
been signed at a date later than this Agreement, the initial term of the
Acceptance Form will be for one year with subsequent terms to be adjusted to
match the anniversary date of this Agreement. If the deposit materials are
subject to another escrow agreement with DSI, DSI reserves the right, after the
initial one year term, to adjust the anniversary date of this Agreement to match
the then prevailing anniversary date of such other escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees
owed to DSI or DSI's authorized representative, DSI shall provide written notice
of delinquency to the parties to this Agreement affected by such delinquency.
Any such party shall have the right to make the payment to DSI or DSI's
authorized representative to cure the default. If the past due payment is not
received in full by DSI or DSI's authorized representative within one month of
the date of such notice, then at anytime thereafter DSI shall have the right to
terminate this Agreement to the extent it relates to the delinquent party by
sending written notice of termination to such affected parties. J)SI shall have
no obligation to take any action under this Agreement so long as any payment due
to DSI or DSI's authorized representative remains unpaid.
5.3 Disposition of Deposit Materials. Upon Termination. Upon termination
of this Agreement by joint instruction of Depositor and each Preferred
Beneficiary, DSI shall return the deposit materials to the Depositor. Upon
termination for nonpayment, DSI shall return the deposit materials to the
Depositor. DSI shall have no obligation to return or destroy the deposit
materials if the deposit materials are subject to another escrow agreement with
DSI.
-6-
<PAGE>
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
(a) Depositor's Representations (Section 1.5);
(b) The obligations of confidentiality with respect to the deposit
materials;
(c) The rights granted in the sections entitled Right to Transfer Upon
Release (Section 3.3) and Right to Use Following Release (Section 4.5), if a
release of the deposit materials has occurred prior to termination;
(d) The obligation to pay DSI or DSI's authorized representative any
fees and expenses due;
(e) The provisions of Article 7; and
(f) Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
5.5 Alternative to DSI. If this Agreement terminates, Depositor and
Preferred Beneficiary agree, at Preferred Beneficiary's request, to appoint a
new agent by mutual agreement. if Depositor and Preferred Beneficiary cannot
agree, Preferred Beneficiary shall appoint a trust company or other company
specializing in the escrow business as the agent provided that such company has
appropriate storage facilities located in or around Toronto and agrees to store
the deposited materials there in accordance with the terms of this Agreement.
The new agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named hereunder, without any
further assurance, conveyance, act or deed.
ARTICLE 6 - DSI'S FEES
6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to
be paid its standard fees and expenses applicable to the services provided. DS1
or DSI's authorized representative shall notify the party responsible for
payment of DSI's fees at least 90 days prior to any increase in fees., For any
service not listed on DSI's standard fee schedule, DSI or DSI's authorized
representative will provide a quote prior to rendering the service.
6.2 Payment Terms. DSI shall not be required to perform any service
unless the payment for such service and any outstanding balances owed to DSI or
DSI's authorized representative are paid in full. All other fees are due upon
receipt of invoice. If invoiced fees are not paid, DSI may terminate this
Agreement in accordance with Section 5.2. Late fees on past due amounts shall
accrue at the rate of one and one-half percent per month (18% per annum) from
the date of the invoice.
-7-
<PAGE>
ARTICLE 7 - LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice, request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI, subject to Section 2.1.
7.2 Indemnification. DSI shall be responsible to perform its obligations
under this Agreement and to act in a reasonable and prudent manner with regard
to this escrow arrangement. Provided DSI has acted in the manner stated in the
preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions, damages,
arbitration fees and expenses, costs, attorney's fees and other liabilities
incurred by DSI relating in any way to this escrow arrangement.
7.3 Dispute Resolution. Any dispute, difference or question arising among
any of the -parties concerning the construction, meaning, effect or
implementation of this Agreement or any part hereof will be settled by a single
arbitrator mutually agreed upon by the parties, or failing agreement, an
arbitrator appointed pursuant to the Arbitration Act (Ontario) or similar
legislation. The decision of such arbitrator appointed pursuant to this
Agreement or such Act will be final and binding on the parties and no appeal
will lie therefrom.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the Province of Ontario except any laws which would
refer any matter to the laws of another jurisdiction. All parties irrevocably
attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the
subject matter hereof.
7.5 Notice of Requested Order. If any party intends to obtain an order
from the arbitrator or any court of competent jurisdiction which may direct DSI
to take, or refrain from taking any action, that party shall:
(a) Give DSI at least two business days' prior notice of the hearing;
(b) Include in any such order that, as a precondition to DSI's
obligation, DSI or DSI's authorized representative be paid in full for any past
due fees and be paid for the reasonable value of the services to be rendered
pursuant to such order; and
(c) Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the deposit materials if DSI may need to retain the
original in its possession to fulfill any of its other escrow duties.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Acceptance Form
and the Exhibits described herein, embodies the entire understanding between all
of the parties with
-8-
<PAGE>
respect to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. No amendment or
modification of this Agreement shall be valid or binding unless signed by all
the parties hereto, except that Exhibit A need not be signed by DSI, Exhibit B
need not be signed by Preferred Beneficiary and the Acceptance Form need only be
signed by the parties identified therein.
8.2 Notices. All notices, invoices, payments, deposits and other
documents and communications shall be given to the parties at the addresses
specified in the attached Exhibit C and Acceptance Form. It shall be the
responsibility of the parties to notify each other as provided in this Section
in the event of a change of address. The parties shall have the right to rely
on the last known address of the other parties. Unless otherwise provided in
this Agreement, all documents and communications may be delivered by First Class
mail.
8.3 Severability. In the event any provision of this Agreement is found
to be invalid. voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity of
this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable provision
most closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the parties. However, DSI shall
have no obligation in performing this Agreement to recognize any successor or
assign of Depositor or Preferred Beneficiary unless DSI receives clear,
authoritative and conclusive written evidence of the change of parties.
Data Securities International, Inc. Internet Liquidators International Inc.
By:____________________ By:____________________
Name:__________________ Name:__________________
Title:_________________ Title:_________________
Date:__________________ Date:__________________
-9-
<PAGE>
ACCEPTANCE FORM
Account Number __________
America Online, Inc., hereby (i) acknowledges that it is a Preferred Beneficiary
referred to in the Master Preferred Escrow Agreement effective February 12, 1997
with Data Securities International, Inc. as the escrow agent and Internet
Liquidators International, Inc. as the Depositor, (ii) agrees to be bound by all
provisions of such Agreement, and (iii) agrees that in addition to the Release
Conditions set forth in section 4.1 of this Agreement, a further Release
Condition shall exist if the Depositor is in material default of its obligations
to operate or maintain its E-Commerce Services as contained in the license
agreement attached hereto as Schedule "A" and such default is not cured as
provided therein.
By:________________________
Name:______________________
Title:_____________________
Date:______________________
Notices and communications
should be addressed to: Invoices should be addressed to:
Company Name:_________________ ____________________________________
Address: _________________ ____________________________________
_________________ ____________________________________
Designated
Contact: __________________ Contact:______________________________
Telephone __________________ _____________________________________:
Facsimile: __________________ ______________________________________
<PAGE>
Depositor hereby enrolls Preferred Beneficiary to the following account(s):
Account Name Account Number
- ------------ --------------
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
Depositor
_________________________ Data Securities International, Inc.
-2-
<PAGE>
SCHEDULE"A"
LICENSE AGREEMENT
<PAGE>
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number
Depositor represents to Preferred Beneficiary that deposit materials delivered
to DSI shall consist of the following:
[Confidential Information filed separately with the SEC]
________________________ _________________________
Depositor Preferred Beneficiary
By:_____________________ By:______________________
Name:___________________ Name:____________________
Title:__________________ Title:___________________
Date:___________________ Date:____________________
<PAGE>
EXHIBIT B
DESCRIPTION OF DEPOSIT MATERL4LS
Depositor Company Name_________________________________________________________
Account Number_________________________________________________________________
PRODUCT DESCRIPTION:
Product Name [Confidential Information filed separately with the SEC]_Version
[Confidential Information filed separately with the SEC]
Operating System: [Confidential Information filed separately with the SEC]
________________________________________________________________________________
Hardware Platform:[Confidential Information filed separately with the SEC]______
DEPOSIT COPYING INFORMATION:
Hardware required: [Confidential Information filed separately with the SEC]_____
--
software required:[Confidential Information filed separately with the SEC]______
--
________________________________________________________________________________
DEPOSIT MATERIAL DESCRIPTION:
Qty Media Type & Size Label Description of Each Separate Item
(Excluding documentation)
Disk 3.5" or __________
I X DAT tape 4 mm No Documentation
CD-ROM
Data Cartridge Tape _____
TK 70 or __________ tape
Magnetic tape __________
Documentation No Documentation
Other:_______________
<TABLE>
<CAPTION>
<S> <C>
I certify for Depositor that the above described DSI has inspected and accepted the above materials (any
deposit materials have been transmitted to DSL exceptions are noted above):
Signature: ___________________________________________
</TABLE>
<PAGE>
Print Name: _______________________
Date:_______________________ Date Accepted:_____________________
Exhibit B#
Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123
-2-
<PAGE>
EXHIBIT C
DESIGNATED CONTACT
Master Number____________________
Notices of communications should be Invoices should be addressed to:
addressed to:
Company Name:
_______________________ _________________________
Address:
_______________________ _________________________
_______________________ _________________________
_______________________ _________________________
Designated _______________________
Contact:: _______________________ Contact:_________________
Telephone: _______________________ _________________________
Facsimile _______________________ _________________________
Requests to change the designated contact should be given in writing by the
designated contact or an authorized employee.
<TABLE>
<CAPTION>
<S> <C>
Invoice inquiries and fee remittances to DSI
Contracts, deposit materials and notices to DSI or DSI's authorized representatives should
should be addressed to: be addressed to:
DSI Technology Asset Management Inc.
Contract Administration Accounts Receivable
Suite 2000 Building 8, Suite 300
9555 Chesapeake Drive 5045 Orbitor Drive
San Diego, CA 92123 Mississauga, Ontario L4W 4Y4
Telephone: (619) 694-1900 Telephone: (905) 602-9292
Facsimile (619) 694-1919 Facsimile: (905) 602-6631
</TABLE>
<PAGE>
ADDITIONAL ESCROW ACCOUNT AMENDMENT
TO MASTER PREFERRED ESCROW AGREEMENT
Master Number ____________________
New Account Number ____________________
____________________ ("Depositor") has entered into a Master Preferred
Escrow Agreement with Data Securities International, Inc. ("DSI"). Pursuant to
that Agreement, Depositor may deposit certain deposit materials with DSI.
Depositor desires that new deposit materials be held in a separate
account and be maintained separately from the existing account. By execution of
this Amendment, DSI will establish a separate account for the new deposit
materials. The new account will be referenced by the following name:
____________________.
Depositor hereby agrees that all terms and conditions of the existing
Master Preferred Escrow Agreement previously entered into by Depositor and DSI
will govern this account. The termination or expiration of any other account of
Depositor will not affect this account.
___________________________ Data Securities International, Inc.
Depositor
By:___________________________ By:___________________________
Name:_________________________ Name:___________________________
Title:___________________________ Title:___________________________
Date: ___________________________ Date:___________________________
<PAGE>
ACCEPTANCE FORM
Account Number
America Online, Inc. hereby (i) acknowledges that it is a Preferred Beneficiary
referred to in the Master Preferred Escrow Agreement effective February 12, 1997
with Data Securities International, Inc. as the escrow agent and Internet
Liquidators International Inc. as the Depositor, (ii) agrees to be bound by all
of the provisions of such Agreement and (iii) agrees that in addition to the
Release Conditions set forth --in Section 4.1 of this Agreement, a further
Release Condition shall exist if the Depositor is in material default of its
obligations to operate or maintain its IL Auction Service or to maintain the AOL
Auction Service as set out in the Auction Services Agreement attached hereto as
Schedule "A" and such default is not cured as provided therein. Notwithstanding
Section 2.1, the deposit materials for AOL shall be maintained in a DSI vault in
the USA
By:________________________
Name: WENDY L. BROWN
_______________________
Title: VICE PRESIDENT, ELECTRONIC COMMERCE
_____________________________________
Date:_______________________________________
Notices, communications and invoices should be addressed to:
Company Name: America Online, Inc.
Address: 22000 AOL Way
Dulles, Virginia 20166
Designated Contact: Legal Department (re: Internet Liquidators)
Telephone: (703)265
Facsimile: (703) 265-2208
Depositor hereby enrolls Preferred Beneficiary to the following account:
Account Name Account Number
- ------------ --------------
______________________ ___________________________
Internet Liquidators International Inc. (Depositor)
____________________________________
Data Securities International, Inc.
<PAGE>
SCHEDULE "D"
RECOGNIZED BROWSERS
Windows:
[Confidential Information filed separately with the SEC]
Mac:
[Confidential Information filed separately with the SEC]
<PAGE>
SCHEDULE "E"
AOL MERCHANT CERTIFICATION PROGRAM
The 10 Criteria for Merchant Certification
The following 10 criteria are the current standards to receive the America
Online Seal of Approval. We will continue to monitor and review these criteria
to make sure they meet reasonable customer's expectations for ordering online.
1. Receive orders electronically to process orders within 1 business day of
receipt.
2. Deliver all merchandise in professional packaging. All packages should
arrive undamaged ,well packed and neat (barring any shipping disasters).
3. Dedicated Customer Service personnel to be responsible for on-line medium.
In other words, there should be people whose primary concern is the on-line
customer's orders. Quite often the on-line customer is given a lower priority
in the fulfillment area, they need to be given as much priority as the rest of
your business.
4. Receive and respond to e-mails within 1 business day of receipt via a
computer available to the customer service staff.
5. Provide the customer with an order confirmation within 1 business day of
receipt. Order confirmation should include any information such as order status
(temporary back order or out of stock situations), and expected delivery times.
6. Ability to handle volumes in excess of 25% to 50% of your average daily
order volumes.
7. Monitor on-line store to minimize/eliminate out of stock merchandise
available.
8. Ship the displayed product at the price displayed without substituting.
9. Stellar Customer service policies- "The Customer is always Right, even when
he/she is not". The commitment to provide each customer with a win/win
experience.
10. Complete details on your customer service policies posted in your on-line
customer service area including: Shipping Information, Return Policies, Warranty
Information, and Contact Information.
<PAGE>
SCHEDULE "F"
AOL/IL AUCTION SERVICE OVERVIEW
<PAGE>
AQL/Internet Liquidators Auction System Overview
------------------------------------------------
The architectural platform for the Top Bid and Dutch Auction system will be as
follows:
Hardware:
- --------
[Confidential Information filed separately with the SEC]
Web Server/s (scalable items)
[Confidential Information filed separately with the SEC]
Software:
- --------
All operating systems (Excluding transaction system)
[Confidential Information filed separately with the SEC]
Transaction operating system
[Confidential Information filed separately with the SEC]
Database
[Confidential Information filed separately with the SEC]
Application Development languages (As required per application)
[Confidential Information filed separately with the SEC]
Performance
[Confidential Information filed separately with the SEC]
<PAGE>
SCHEDULE "J"
February 14, 1997
Ms. Ellen Kirsh
VP Corporate Development, General Counsel & Secretary
Digital City Inc.
1595 Spring Hill Road
5th floor, Vienna, Virginia 22182
Fax: 703-918-1198
Dear Ellen,
As you know, Internet Liquidators Inc. ("ILII") remains very interested in
pursuing licensing agreements with Digital City Inc. ("DCI), an affiliate of
America Online, Inc. ("AOL"). In order to proceed towards this end, we have set
forth immediately below the general terms upon which ILII is willing to continue
to pursue negotiations and close an arrangement with DCL
1. ILII licenses its Local Auction technology to DCI on an exclusive city-by-
city basis throughout the world, except in the Province of Ontario, Canada.
The technology configuration will be agreed upon by the parties as soon as
possible. DCI shall provide ILII with its technical specifications on or
before February 25, 1997 and ILTI shall provide DCI with its cost
information on or before March 5, 1997.
2. Licenses will have a term of two years with annual renewals. A mechanism
will be designed to require either party to provide the other with
appropriate advance notice of a planned termination of the relationship,
and to permit DCI to transition to an alternative technology.
3. DCI will pay ILII an annual license and annual maintenance fee on a per
city basis as mutually agreed upon. A formula to compute these fees will be
designed to enable ILII to recover its incremental costs (over the costs
incurred in connection with the AOL-ILII transaction ) over a reasonable
time period giving effect to the number of cities planned to be launched by
DCI. For example, the license and maintenance fees specified in the draft
letter dated February 7, 1997 addressed to Jeff Lymburner arc based upon a
rollout of 80 cities by DCI over approximately an 18 month period.
Additionally, the parties will in good faith consider the revenue potential
from the sale of advertising by ILII and the sale of goods sourced by ILII
when agreeing on license and maintenance pricing.
4. ILII will host the Local Auction Service for DCI, and will develop a DCI-
branded user interface which is customized by each local Digital City.
5. ILII will grant DCI most favored customer status.
<PAGE>
6. Closing date for the proposed transaction shall be no later than April 12,
1997.
7. Transaction shall be subject to completion of due diligence by ILII, which
has been substantially completed. ILII has not at this time discovered any
information which would cause it not to proceed with the transaction as
outlined in this letter.
This letter is not intended to create a binding or enforceable agreement, but
the parties are bound to proceed on the terms outlined above in the event they
otherwise elect to proceed with this transaction. This letter is subject to the
terms of the Nondisclosure Agreement between AOL and ILII dated August 8, 1996,
which is intended to apply to DCI, and may not be distributed without the
consent of the non -distributing party.
We look forward to a mutually beneficial business relationship.
Very truly yours
Paul Godin
President & CEO
2
<PAGE>
SCHEDULE "K"
Shareholders Agreement
Agreement has been terminated.
<PAGE>
Schedule "L"
Form of Registration Rights Agreement
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made the ____ day of February, 1997 (the "Effective Date") by
and between INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation having a
principal place of business at 5915 Airport Rd, Suite 330, Mississauga, Ontario
L4V 1T1 ("Issuer") and AMERICA ONLINE, INC., a corporation having a principal
place of business at 22000 AOL Way, Dulles, Virginia ("Subscriber").
BACKGROUND:
1. Issuer is a reporting issuer under the Securities Act (Ontario).
2. Pursuant to a subscription agreement between Subscriber and the Issuer
dated the date hereof (the "Subscription Agreement"), Subscriber is
acquiring an interest in Issuer by subscribing for previously unissued
common shares in the capital of Issuer and by obtaining a warrant to
acquire additional common shares in the capital of Issuer.
3. It is a condition of closing the subscription that the Subscriber and
Issuer enter into this registration rights agreement.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE ONE
INTERPRETATION
--------------
1.1 Definitions. In this Agreement, unless otherwise defined herein, each
-----------
capitalized term shall have the meaning attributed thereto in the Subscription
Agreement.
"Canadian Securities Acts" means the Securities Act (Ontario) and the applicable
securities legislation in all other Canadian provinces, as amended, and the
rules, policies, rulings, orders and regulations of all Canadian Commissions
promulgated thereunder, all as the same shall be in effect from time to time.
"Canadian Commissions" means the securities regulatory authorities in each of
the provinces of Canada.
"Commission" means the applicable Canadian Commission or the SEC with whom the
Issuer shall use its best efforts to effect the Registration of any Registrable
Shares pursuant to Section 2.4.1 of this Agreement.
<PAGE>
"Demand Registrations" shall have the meaning set out in Section 2.1.2 of this
Agreement.
"Long-Form Registration" means with respect to a Registration effected in
Canada, a Registration effected by way of a long-form prospectus prepared
pursuant to the applicable form prescribed under applicable securities
regulations and, with respect to a Registration effected in the United States, a
Registration effected by way of a registration document on Form F-1 or any
similar long-form registration.
"Other Shares" means at any time those common shares of the Issuer that do not
constitute Primary Shares or Registrable Shares.
"Person" means an individual, partnership, unincorporated association,
unincorporated syndicate, or a corporation.
"Primary Shares" means at any time the authorized but unissued common shares of
the Issuer.
"Registration" means the qualification and registration of Registrable Shares
under the Securities Act (or any of them) by way of Long-Form Registration or,
if available, Short Form Registration.
["Registrable Shares" means at any time, the common shares of the Issuer held
(or to be held upon conversion of any Restricted Shares) by Subscriber that
constitute Restricted Shares.]
"Registration Document" means a prospectus, registration document or other
document pursuant to which Registration may be effected.
"Registration Expenses" shall have the meaning set out in Section 2.4.2 of this
Agreement.
"Registration Period" means each year commencing on the date hereof or the
anniversary of the date hereof and ending one year later;
["Restricted Shares" means at any time, with respect to Subscriber, the common
shares of the Issuer held by it on the date hereof or issuable upon exercise,
exchange or conversion of the Warrant, and any shares or other securities
received in respect thereof, which are held by Subscriber and which have not
previously been sold to the public pursuant to a Long-Form Registration or a
Short-Form Registration.]
"Rule 144" means Rule 144 promulgated under the U.S. Securities Act or any
successor rule thereto or any complementary rule thereto.
"SEC" means the Securities and Exchange Commission or any other federal agency
at the time administering the U.S. Securities Act.
"Securities Act" means the applicable Canadian Securities Act or the U.S.
Securities Act.
2
<PAGE>
"Short-Form Registration" means, with respect to a Registration effected in
Canada, a Registration effected by way of a short form prospectus prepared
pursuant to the POP system under National Policy No. 47 or equivalent system
established from time to time by the Canadian Commissions and, with respect to a
Registration effected in the United States, a Registration effected by way of a
registration document on Form F-2 or F-3 or any similar Short-Form registration.
"U.S Securities Act" means the U.S. Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as the same shall be in effect
from time to time.
1.2 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not affect the construction or interpretation hereof.
1.3 Extended Meanings. Words in the singular include the plural and vice-
-----------------
versa and words in one gender include all genders.
1.4 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
oral or written, between such parties.
1.5 Invalidity. If any of the provisions contained in this Agreement is
----------
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not be in any way affected or
impaired thereby.
1.6 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of Ontario and the federal laws of Canada applicable
therein (excluding any provision that would result in the application of the law
of another jurisdiction) and shall be treated, in all respects, as an Ontario
contract. Issuer submits to the non-exclusive jurisdiction of the Courts of
Virginia and the U.S. Federal Court and Subscriber submits to the non-exclusive
jurisdiction of the Courts of Ontario.
ARTICLE TWO
REGISTRATION RIGHTS
-------------------
2.1.1 Registration Rights. If the Issuer makes a public offering of its
-------------------
securities in the Unites States, it shall register the common shares held by
Subscriber under the U.S. Securities Act. In addition, Subscriber shall have two
demand registration rights after a U.S. public offering. Subscriber shall
receive two similar demand registration rights with respect to a Registration in
Canada, which may be exercised at any time after - months after the purchase of
the common shares. Additionally, Subscriber shall have the piggyback
registration rights set out herein.
2.1.2 Demand Registration Rights: Subscriber may request the Issuer to
--------------------------
effect a Registration of their common shares. Subscriber when requesting such a
Registration shall be entitled to choose the jurisdictions where such
Registration shall be effected, [provided that the Issuer
3
<PAGE>
shall not be required to effect any Registration in any jurisdiction where it
has not completed a public offering.] Each request for a Registration shall be
in writing and shall specify the approximate number of Registrable Shares
requested to be qualified, the anticipated per share price range for such
offering, the intended method of disposition of such Registrable Shares and the
jurisdictions where Registration is to be effected. All Registrations requested
pursuant to this Section 2.1.2 are referred to herein as "Demand Registrations".
Notwithstanding anything contained herein to the contrary, and regardless of the
number of Registrable Shares held by Subscriber, so long as Subscriber holds
Registrable Shares it shall be entitled to request two Demand Registrations
(regardless of the number of Registrable Shares held by Subscriber) under the
applicable Canadian Securities Act, and two Demand Registrations under the U.S.
Securities Act, of the Registrable Shares which the Issuer has been so requested
to register, provided that to the extent that Registration Shares are included
in a Registration, the number of Demand Registrations it shall be entitled to
request shall be reduced by one. The Issuer shall be obligated to effect only
two Demand Registrations hereunder in each of Canada and the United States in
each Registration Period. A Registration will not count as one of the permitted
Demand Registrations for Subscriber until it has become effective or until a
receipt has been issued for the final prospectus or registration document, as
the case may be (unless such Registration has not become effective or a receipt
has not been issued due solely to the fault of Subscriber). The Issuer shall pay
the Registration Expenses in connection with each Demand Registration to the
extent permitted by applicable law, [except that Subscriber shall pay all fees
and expenses of Subscriber's counsel and the underwriting discounts, commissions
and similar fees, and transfer taxes applicable to the shares of Subscriber
included in such Registration.]
2.1.3 Short-Form Registrations. [unlimited number but no more than once
------------------------
every six months] Demand Registrations will be Short-Form Registrations
whenever the Issuer is permitted to use any such applicable Registrations. The
Issuer undertakes to use its best efforts to the extent practicable to make the
necessary regulatory filings to maintain its eligibility to use a Short-Form
Registration from the time it initially becomes eligible to use such
Registrations.
2.1.4 Priority on Demand Registrations. The Issuer will not include in any
--------------------------------
Registration pursuant to a Demand Registration any securities which are not
Registrable Shares without the prior written consent of Subscriber. If a
Registration pursuant to a Demand Registration is an underwritten offering and
the managing underwriters advise the Issuer in writing that in their opinion the
number of Registrable Shares and, if permitted hereunder in accordance with the
preceding sentence, the Primary Shares and the Other Shares requested to be
included in such offering exceeds the number of shares of the Issuer which can
be sold in an orderly manner in such offering within a price range acceptable to
the Subscriber, the Issuer will include the number of Registrable Shares,-
Primary Shares and Other Shares in such Registration in the following order:
a) first, the Registrable Shares owned by the Subscriber at the time of
such Registration;
b) second, the Primary Shares; and
c) third, the Other Shares.
4
<PAGE>
2.1.5 Restrictions on Registrations. The Issuer shall not be obligated to
-----------------------------
effect any registration under a Securities Act except in accordance with the
following provisions:
1. the Issuer shall not be obligated to effect any Demand Registration until
the later of six months after: (i) the date on which Registrable Shares are
sold by Subscriber pursuant to a previous Demand Registration; and (ii) the
date on which Registrable Shares are sold by Subscriber pursuant to Section
2.2.1.
2. the Issuer may postpone, for up to 180 days, the filing or effectiveness
of, or issuance of a receipt for, a Registration for a Demand Registration
made by Subscriber pursuant to Sections 2.1.1 or 2.1.2 if the Issuer in the
good faith judgement of its Board of Directors with advice from counsel
reasonably believes that such Registration would reasonably be expected to
have an adverse effect on any proposal or plan by the Issuer to engage in
any acquisition of assets or any merger, consolidation, takeover bid or
similar transaction and subject to applicable Securities Act. In the event
the Issuer postpones the filing of such registration statement or
prospectus, the Issuer shall pay all Registration Expenses in connection
with such Registration up to the date of postponement and such Registration
shall not ______ it as a Demand Registration for purposes of Section 2.1.1.
above.
3. If the filing of a Registration Document would require the disclosure of
material information which the Issuer has a bona fide business purpose for
preserving as confidential and for which the Issuer has filed a material
change report or other like document with any of the Commissions on a
confidential basis and which has not been publicly disclosed, the Issuer
shall not be required to effect a Registration pursuant to a Demand
Registration until the earlier of (i) the date upon which such material
information is disclosed to the public or ceases to be material; and (ii)
90 days after the Issuer makes such good faith determination. In the event
the Issuer postpones the filing of such registration statement or
prospectus, the Issuer shall pay all Registration Expenses in connection
with such Registration up to the date of postponement and such Registration
shall not count as a Demand Registration for purposes of Section 2.1.1.
above.
4. If the Issuer has been advised in writing (with a copy to Subscriber) by an
independent investment dealer selected by the Issuer that, in such dealer's
opinion, the Registration at that time and on the terms requested would
adversely affect any proposed financing by the Issuer, the Issuer shall not
be required to effect a Registration pursuant to a Demand Registration
until the later of: (i) 90 days after completion or abandonment of such
financing; and (ii) termination of any "blackout" period required by the
underwriters in connection with such financing; provided such blackout
period shall not be longer than 180 days. In the event the Issuer postpones
the filing of such registration statement or prospectus, the Issuer shall
pay all Registration Expenses in connection with such Registration up to
the date of postponement and such Registration shall not count as a Demand
Registration for purposes of Section 2.1.1. above.
Notwithstanding anything contained herein to the contrary, in no event
shall the periods during which the Issuer is not required to effect a
Registration pursuant to a Demand
5
<PAGE>
Registration as described above extend for more than 180 days. [The Subscriber
shall be bound by the restrictions of this Section only if, and to the extent
that, the executive officers of the Issuer owning Common Stock shall be bound by
such provisions.]
2.1.6 Selection of Underwriters. The Subscriber shall have the right to
-------------------------
select the investment banker(s) and manager(s) to administer the Registration,
subject to the Issuer's consent, which shall not be unreasonably withheld or
unduly delayed.
2.1.7 Other Registration Rights. Except as provided in this Agreement, the
-------------------------
Issuer shall not grant to any Person the right to request the Issuer to qualify
or register any equity shares of the Issuer or any shares convertible or
exchangeable into or exercisable for such shares without the prior written
consent of Subscriber.
2.2.1 Piggyback Registrations Rights. Whenever the Issuer proposes to
------------------------------
qualify or register any of its securities under any of the Securities Acts
(other than pursuant to a Demand Registration) in a form and manner which would
permit qualification and registration of one or more Registrable Shares (a
"Piggyback Registration"), the Issuer will give prompt written notice to
Subscriber of its intention to do so and will include in such qualification and
registration all Registrable Shares with respect to which the Issuer has
received written request for inclusion therein within 15 days after the receipt
by Subscriber of the Issuer's notice.
2.2.2 Piggyback Expenses. The Registration Expenses of the Piggyback
------------------
Registration will be paid by the Issuer to the extent permitted by applicable
law, except that Subscriber shall pay all fees and expenses of its counsel and
the underwriting discounts, commissions and similar fees, and transfer taxes
applicable to the Registrable Shares included in such Registration.
2.3.1 Priority on Piggyback Registrations. If a Piggyback Registration is
-----------------------------------
an underwritten distribution or registration on behalf of the Issuer, and the
managing underwriters advise the Issuer in writing that in their opinion the
number of shares requested to be included in such Registration exceeds the
number which can be sold in an orderly manner in such offering within a price
range acceptable to the Issuer, the Issuer shall include in such Registration:
(i) first, the Primary Shares the Issuer proposes to sell, (ii) second, the
Registrable Shares requested to be included in such distribution or
registration, pro rata based upon the number of Restricted Shares owned by
Subscriber at the time of such Registration, and (iii) third, Other Shares
requested to be included in such Registration.
2.3.2 Priority on Secondary Registration. If a Piggyback Registration is an
----------------------------------
underwritten secondary distribution or registration on behalf of the holders of
the Issuer's shares, other than the Subscriber, and the managing underwriters
advise the Issuer in writing that in their opinion the number of shares
requested to be included in such Registration pursuant to Paragraph 2.2.1.
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the holders initially requesting such
distribution or registration, then the Issuer's shares will be included in such
registration as follows (i) first, the shares of the holders initially
requesting such distribution or registration, (ii) second, the Registrable
Shares requested to be included in such distribution or registration, pro rata
based upon the number of Restricted Shares
6
<PAGE>
owned by the Subscriber at the time of such registration, and (iii) third, Other
Shares requested to be included in such distribution or registration.
2.3.3 Selection of Underwriters. [If any Piggyback Registration is an
-------------------------
underwritten offering the Subscriber if included in such Piggyback Registration
must be consulted concerning the selection of investment banker(s) and
manager(s) for the offering.]
2.3.4 Other Registrations. If the Issuer has previously filed a
-------------------
Registration Document with respect to Registrable Shares pursuant hereto, and if
such previous Registration Document has not been withdrawn or abandoned, subject
to the applicable Securities Act, the Issuer shall not file or cause to be
effected any other qualification or registration of any of its equity shares or
shares convertible or exchangeable into or exercisable for equity shares under
any of the Securities Acts (except on Forms S-4, F-4, F-8, F-80 or S-8 or any
successor forms for purposes of registration in the United States), on its own
behalf, until a period of at least ninety days has elapsed from the date of
closing of the sale of the Registrable Shares.
2.3.5 Holdback Agreements By Holders of Registrable Shares. Subscriber
----------------------------------------------------
agrees not to effect any public sale or distribution (including sales pursuant
to any prospectus exemption under any of the Securities Acts or Rule 144 under
the U.S. Act) of equity shares of the Issuer, or any shares convertible into or
exchangeable or exercisable for such shares, during the seven days prior to and
the 90-day period beginning on the effective date of the Registration Document,
provided that Subscriber has received prior notice of such dates, in respect of
any underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten Registration), unless the underwriters
managing the underwritten Demand Registration or Piggyback Registration, as the
case may be, otherwise agree.
2.3.6 Holdback Agreements By Issuer. The Issuer agrees not to effect any
-----------------------------
public sale or distribution of its equity shares, or any shares convertible into
or exchangeable or exercisable for such shares, during the seven days prior to
and during the 90-day period beginning on the effective date of the Registration
Document in respect of any [underwritten] Demand Registration or any
--------------
[underwritten] Piggyback Registration (except as part of such underwritten
- -------------
Registration pursuant to registrations on Forms S-4, F-4, F-8, F-80 or S-8 or
any successor forms or as required under employee stock incentive plans),
[unless the underwriters managing the registered public offering otherwise
agree]. In addition, the Issuer will use its best efforts to obtain lock-up
agreements for a period of 90 days following the date of the receipt for the
final prospectus or the effective date of the Registration Document, as
applicable, from holders of five percent or more of the Issuer's equity shares.
2.4.1 Preparation and Filing. If and whenever the Issuer is obligated
----------------------
pursuant to the provisions of this Agreement to use its best efforts to effect
the Registration of any Registrable Shares, the Issuer shall, as expeditiously
as practicable:
1. use its best efforts to cause a Registration Document to become and remain
effective for the lesser of (i) a period of 180 days; (ii) until all of
such Registrable Shares have been disposed of or; (iii) the maximum period
permitted under the Securities Act;
7
<PAGE>
2. furnish, at least five business days before filing a Registration Document
that registers such Registrable Shares, or any amendments or supplements
relating thereto, to counsel selected by Subscriber (the "Subscriber's
Counsel"), copies of all such documents proposed to be filed (it being
understood that such five-business-day period need not apply to successive
drafts of the same document proposed to be filed so long as such successive
drafts are supplied to such counsel in advance of the proposed filing by a
period of time that is customary and reasonable under the circumstances);
3. prepare and file with the Commission such amendments and supplements to
such Registration Document used in connection therewith as may be necessary
to keep such Registration Document effective for the period contemplated in
paragraph 2.4.1(1) above and to comply with the provisions of the
Securities Acts with respect to the sale or other disposition of such
Registrable Shares;
4. notify in writing the Subscribers' Counsel promptly (i) of the receipt by
the Issuer of any notification with respect to any comments by the
Commission with respect to such Registration Document or any amendment or
supplement thereto or any request by the Commission for the amending or
supplementing thereof or for additional information with respect thereto,
(ii) of the receipt by the Issuer of any notification with respect to the
issuance by the Commission of any stop order suspending the effectiveness
of such Registration Document or any amendment or supplement thereto or the
initiation or threatening of any proceeding for that purpose and (iii) of
the receipt by the Issuer of any notification with respect to the
suspension of the qualification of such Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes;
5. use its best efforts to register or qualify such Registrable Shares under
such other securities or blue sky laws of such jurisdictions as Subscriber
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable Subscriber to consummate the
disposition in such jurisdictions of the Registrable Shares; provided,
however, that the Issuer will not be required to qualify generally to do
business, subject itself to general taxation or consent to general service
of process in any jurisdiction where it would not otherwise be required so
to do but for this paragraph 2.4.1(5);
6. furnish to Subscriber such number of copies of the Registration Document
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as Subscriber may reasonably
request in order to facilitate the public sale or other disposition of such
Registrable Shares;
7. use its best efforts to cause such Registrable Shares to be registered or
qualified with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of
the Issuer to enable Subscriber to consummate the disposition of such
Registrable Shares;
8
<PAGE>
8. notify on a timely basis Subscriber at any time when a Registration
Document relating to such Registrable Shares is required to be delivered
under the Securities Act within the appropriate period mentioned in
paragraph 2.4.1(1) of this Section, of the happening of any event as a
result of which the Registration Document or the prospectus included in
such Registration Document, as then in effect, does not constitute full,
true or plain disclosure of all material facts of the Issuer and the shares
being qualified thereunder or includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of Subscriber, prepare and
furnish to Subscriber a reasonable number of copies of a supplement to or
an amendment of such Registration Document as may be necessary so that, as
thereafter delivered to the offerees of such shares, such Registration
Document constitutes full, true and plain disclosure of all material facts
of the Issuer and the securities being qualified thereunder and shall not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
9. make available for inspection by Subscriber or any underwriter
participating in any disposition pursuant to such Registration Document and
any attorney, accountant or other agent retained by any such seller or such
underwriter (collectively, the "Inspectors"), all pertinent financial and
other records, pertinent corporate documents and properties of the Issuer
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Issuer's
officers, directors and employees to supply all information (together with
the Records, the "Information") reasonably requested by any such Inspector
in connection with such Registration Document. Any of the Information which
the Issuer determines in good faith to be confidential, and of which
determination the Inspectors are so notified, shall not be disclosed by the
Inspectors unless (i) the disclosure of such Information is necessary to
avoid or correct a misstatement or omission in the Registration Document,
(ii) the release of such Information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction or (iii) such
Information has been made generally available to the public. Subscriber
agrees that it will, upon learning that disclosure of such Information is
sought in a court of competent jurisdiction, give notice to the Issuer and
allow the Issuer, at the Issuer's expense, to undertake appropriate action
to prevent disclosure of the Information deemed confidential;
10. use its best efforts to obtain from its independent certified public
accountants "comfort" letters in customary form and at customary times and
covering matters of the type customarily covered by comfort letters;
11. use its best efforts to obtain from its counsel an opinion or opinions in
customary form addressed and delivered to Subscriber;
12. provide a transfer agent and registrar (which may be the same entity and
which may be the Issuer) for such Registrable Shares;
9
<PAGE>
13. issue to any underwriter to which Subscriber may sell shares in such
offering certificates evidencing such Registrable Shares;
14. list Registrable Shares on any Canadian or U.S. national securities
exchange on which any common shares of Issuer are listed or, if the common
shares are not listed on such a national securities exchange, use its best
efforts to qualify such Registrable Shares for inclusion on the automated
quotation system of the National Association of Securities Dealers, Inc.
(the "NASD") or such Canadian or U.S. national securities exchange as
Subscriber shall request;
15. otherwise use its best efforts to comply with all applicable rules and
regulations of the Securities Act and the Commission and make available to
Subscriber, as soon as reasonably practicable, earnings statements (which
need not be audited) covering a period of 12 months beginning within three
months after the effective date of the Registration Document, which
earnings statements shall satisfy the provisions of the Securities Act; and
16. use its best efforts to take all other steps necessary to effect the
Registration of such Registrable Shares contemplated hereby.
2.4.2 Registration Expenses. Subject to applicable laws, all expenses
---------------------
incurred by the Issuer in complying with Article Two, including, without
limitation, all Registration and filing fees (including all expenses
incident to filing with the NASD or a national securities exchange), fees
and expenses of complying with securities and blue sky laws, printing
expenses, and fees and expenses of the Issuer's counsel and accountants,
and the fees and expenses of Subscriber's Counsel shall be paid by the
Issuer; provided, however, that all underwriting discounts and selling
commissions applicable to the Registrable Shares, and all fees and expenses
of any special or interim audit for any Registration initiated by
Subscriber pursuant hereto that is not otherwise required under the
Securities Act in connection with such Registration, shall be borne by
Subscriber, in proportion to the number of Registrable Shares.
ARTICLE 3
REPRESENTATION AND INDEMNIFICATION
3.1 No Conflict of Rights. The Issuer represents and warrants to
---------------------
Subscriber that the registration rights granted to Subscriber hereby do not
conflict with any other registration rights granted by the Issuer. The Issuer
shall not, after the date hereof, grant any registration rights which conflict
with or impair the registration rights granted hereby.
3.2 Indemnification. In connection with any registration of any
---------------
Registrable Shares under the Securities Act pursuant to this Agreement, the
Issuer shall indemnify and hold harmless Subscriber, its officers and directors,
each underwriter, broker or any other person acting on behalf of Subscriber and
each other person, if any, who controls any of the foregoing persons within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint
10
<PAGE>
or several, (or actions in respect thereof) to which any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in the Registration Document, any amendment or
supplement thereto or any document incident to registration or qualification of
any Registrable Shares, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or, with respect to
any prospectus, necessary to make the statements therein in light of the
circumstances under which they were made not misleading, or any violation by the
Issuer of the Securities Act or state securities or blue sky laws applicable to
the Issuer and relating to action or inaction required of the Issuer in
connection with such registration or qualification under such state securities
or blue sky laws; and shall reimburse Subscriber, such officer or director, such
underwriter, such broker or such other person acting on behalf of Subscriber and
each such controlling person for any legal or other expenses reasonably incurred
by any of them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Issuer shall not
be liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
Registration Document, amendment, supplement or document incident to
registration or qualification of any Registrable Shares (as the case may be) in
reliance upon and in conformity with written information furnished to the Issuer
through an instrument duly executed by Subscriber or an underwriter selected by
Subscriber that states that it is specifically for use in the preparation
thereof.
3.3 In connection with any Registration of Registrable Shares under the
Securities Act pursuant to this Agreement, Subscriber shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in the
preceding paragraph of this Section) the Issuer, each director of the Issuer,
each officer of the Issuer-who shall sign such Registration Document, each
underwriter, broker or other person acting on behalf of Subscriber, and each
person who controls any of the foregoing persons within the meaning of the
Securities Act with respect to any statement or omission from such Registration
Document, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, if such statement or
omission was made in reliance upon and in conformity with written information
furnished to the Issuer or such underwriter through an instrument duly executed
by Subscriber or an underwriter selected by Subscriber that states that it is
specifically for use in connection with the preparation of such Registration
Document or any amendment, supplement or other document relating thereto.
3.4 The indemnification required by this Article will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred, subject to prompt refund in the event any
such payments are determined not to have been due and owing hereunder.
3.5 Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
Sections of this Article, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice
11
<PAGE>
to the latter of the commencement of such action. In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such k indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be responsible for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof; provided, however, that if any indemnified party shall
have reasonably concluded that there may be one or more legal or equitable
defenses available to such indemnified party which are additional to or conflict
with those available to the indemnifying party, or that such claim or litigation
involves or could have an effect upon matters beyond the scope of the indemnity
agreement provided in this Article, the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party
and such indemnifying party shall reimburse such indemnified party and any
person controlling such indemnified party for that portion of the fees and
expenses of any counsel retained by the indemnified party which is reasonably
related to the matters covered by the indemnity agreement pursuant hereto.
3.6 The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of securities.
3.7 If the indemnification provided for in this Article is held by a court
of competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, claim, damage, liability or action referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage, liability or action in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions which resulted in such loss, claim, damage or liability as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Issuer and the
Subscriber agree that it would not be just and equitable if contributions
pursuant to this paragraph were determined by pro rata allocation or by any
other method of allocation which did not take into account the equitable
considerations referred to herein. The amount paid or payable to an indemnified
party as a result of the losses, claims, damages, liabilities or expenses
referred to above shall be deemed to include, subject to the limitation set
forth in Section 3.2, any legal or other expenses reasonably incurred in
connection with investigating or defending the same. Notwithstanding the
foregoing, in no event shall the amount contributed by a Subscriber exceed the
aggregate net offering proceeds received by Subscriber from the sale of
Subscriber's Registrable Shares.
12
<PAGE>
ARTICLE 4
TERMINATION
4.1 Termination. This Agreement shall terminate and be of no further
-----------
force or effect when there shall not be any Restricted Shares held by
Subscriber.
ARTICLE 5
GENERAL
5.1 Time. Time is of the essence of this Agreement and each of its
----
provisions.
5.2 Notice. Any notice or other communication (in this Section a "Notice")
------
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below:
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to AOL addressed to it at:
America Online, Inc.
72000 AOL Way
Dulles, Virginia 20166
Attention: Fred Singer, Vice-President
Fax No.: (703) 265-2409
with a copy to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Fax No.: (703) 265-2208
and in the case of a Notice to Issuer, addressed to it at:
5915 Airport Road, Suite 330
Mississauga, ON
13
<PAGE>
L4V 1T1
Attention: Paul Godin, President and Chief Executive Officer
Fax No.: (905) 672-5705
and cc:
David Pamenter
Gowling, Strathy & Henderson
Barristers and Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
Any Notice given or made in accordance with this Section 5.3 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to the other Party in accordance with the provisions of this Section 5.3.
5.3 Public Announcements. Neither of the parties hereto shall make any
--------------------
public statement or issue any press release concerning the transactions
contemplated by this Agreement except as may be necessary, in the opinion of
counsel to the party making such disclosure, to comply with the requirements of
all Applicable Law. If any such public statement or release is so required, the
party making such disclosure shall consult with the other party prior to making
such statement or release, and the parties shall use all reasonable efforts,
acting in good faith, to agree upon a text for such statement or release which
is satisfactory to both parties.
5.4 Assignment. None of this Agreement nor any right or obligation
----------
hereunder is assignable in whole or in part by either party without the prior
written consent of the other party. [Notwithstanding the foregoing, Subscriber
may, without the consent of Issuer, assign this Agreement and its rights
hereunder to any whollyowned subsidiary on condition that Subscriber remains
liable to observe and perform all of its covenants and obligations hereunder-]
Subject thereto, this Agreement shall inure to the benefit of and be binding
upon the parties and their respective successors (including any successor by
reason of amalgamation or statutory arrangement of either party) and permitted
assigns.
14
<PAGE>
5.5 Further Assurances. Each party shall do such acts and shall execute
------------------
and deliver such further agreements, documents, conveyances, deeds, assignments,
transfers and the like, and shall cause the doing of such acts and the execution
and delivery of such further items as are within its power and as the other
party may in writing at any time and from time to time reasonably request, in
order to give full effect to the provisions of this Agreement.
IN WITNESS WHEREOF the parties have duly executed this Agreement.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
By:___________________________________ c/s
Name:
Title:
By:___________________________________ c/s
Name:
Title:
AMERICA ONLINE, INC.
By:___________________________________ c/s
Name:
Title:
15
<PAGE>
SCHEDULE "M"
MATERIAL CONTRACTS
Product Suppliers:
List of Suppliers (as of January 30, 1997)
Draft Supplier Agreements (Four Versions)
Draft Marked-up Version of Agreement with W3 Edge Inc.
Service Supplier Agreements (as of January 30, 1997):
Agreement between RV Storage & Assembly Co. Ltd. and Internet Liquidators Inc.
dated February 2, 1996.
Automated Shipping System Letter of Agreement between United Parcel Service and
Internet Liquidators Inc. dated April 2, 1996.
Courier Service Agreement between Purolator Courier Ltd. and Internet
Liquidators Inc. dated February 21, 1996.
Premium Finance Agreement between AIG Credit Corp. of Canada and Internet
Liquidators International Inc. dated October 8, 1996.
Visa Agreement between the Bank of Nova Scotia and Internet Liquidators Inc.
dated February 21,1996.
Mastercard Agreement between the Bank of Montreal and Internet Liquidators Inc.
dated March 13 1996.
Credit Card Processing Agreement between First USA Merchant Services, Inc. and
Internet Liquidators USA, Inc. dated July 17, 1996.
American Express Agreement between Amex Bank of Canada and Internet Liquidators
Inc. dated July 20, 1996.
Employment Contractor Agreements:
Employment Agreement between Paul Godin and Internet Liquidators Inc. dated
January 1, 1996
Employment Agreement between Jeffrey Lymburner and Internet Liquidators Inc.
dated January 1, 1996.
<PAGE>
Designated Insured Persons and Company Reimbursement Policy between Aetna and
Internet Liquidators International, Inc. dated October 10, 1996.
Indemnity Agreement between Frank Clegg and Internet Liquidators International
Inc. dated September 16, 1996.
Engagement Letter between HDL Capital Corporation Agreement and Internet
Liquidators International Inc. dated August 22, 1996.
Toronto Star Newspapers Limited Agreements
Subscription Agreement dated February 12, 1997 between Toronto Star Newspapers
Limited ("Torstar") and Internet Liquidators International Inc. ("IL").
Warrant certificate dated February 12, 1997 executed by IL evidencing the
Warrant.
Shareholders' Agreement dated February 12, 1997 between Torstar, IL, 1184041
Ontario Inc. ("184041 ") and the Smythe Group Company ("Smythe").
E-Commerce Services Agreement dated February 12, 1997 between Torstar and IL.
Master Preferred Escrow Agreement dated February 12, 1997 between Torstar, IL
and Data Securities International, Inc.
IP Rights and Non-Competition Agreement dated February 12, 1997 between Torstar,
IL, 118404 1, Smythe, Paul Godin and Jeff Lymburner.
CP-29729-1
February 17 1997
2
<PAGE>
SCHEDULE "N"
FORM OF WARRANT
THIS WARRANT WILL BE VOID AND OF NO VALUE OR EFFECT UNLESS EXERCISED PRIOR TO
THE EXPIRY TIME.
COMMON SHARE PURCHASE WARRANT
INTERNET LIQUIDATORS INTERNATIONAL INC.
(the "Company")
(Incorporated under the laws of ONTARIO)
No. W-1
Right to Purchase Common Shares
THIS IS TO CERTIFY that for value received, AMERICA ONLINE, INC. ("AOL"), the
registered holder hereof, is entitled to exercise its rights under this Warrant,
in whole or in part, at any time, and from time to time, from 9:00 a.m. (Toronto
time) February 18, 1997 (the "Effective Date") to 4:00 p.m. (Toronto time)
September 1, 1999 (the "Expiry Time"), to purchase up to the number of fully
paid and non-assessable common shares without par value in the capital of the
Company as provided below (the "Common Shares"), as such Common Shares are
presently constituted, upon and subject to the terms and conditions hereinafter
referred to and at a subscription price as provided below (the "Exercise
Price"):
1. Pursuant to this Warrant, AOL may purchase such number of Common Shares as
will result at the time of exercise in AOL owning, on a fully diluted basis,
51% of the Common Shares. For the purposes hereof, "fully diluted basis"
shall be calculated at the time of the applicable exercise of the Warrant,
and refers to the percentage interest that AOL would have in the capital of
the Company if all options, rights, warrants or subscription privileges
issued or granted by the Company (whether or not currently exercisable or
exercisable on conditions) to purchase Common Shares had been exercised and
all securities of the Company convertible into, or exchangeable for, Common
Shares had been converted or exchanged.
2. The Exercise Price and the exercise period for each Common Share shall be:
(a) until October 15. 1997, US$1.50 per Common Share for the number of
Common Shares necessary to bring AOL's ownership interest at the time of
exercise, on a fully diluted basis, to 13%;
(b) from October 16. 1997 up to and including February 15. 1998, LTS$2.00
per Common Share for the number of Common Shares necessary to bring
AOL's ownership interest at the time of exercise, on a fully diluted
basis, to 13%;
<PAGE>
(c) provided that either option (i) or (ii) above has been fully exercised,
until July 1, 1998, US$3.00 per Common Share for the number of Common
Shares necessary to bring AOL's ownership interest at the time of exercise,
on a fully diluted basis, to 23%;
(d) provided that option (iii) above has been fully exercised, until February
15, 1999, US$3.00 per Common Share for the number of Common Shares
necessary to bring AOL's ownership interest at the time of exercise, on a
fully diluted basis, to 33%; and
(e) provided that option (iii) above has been fully exercised until September
1, 1999, or provided that option (iv) above has been fully exercised, until
February 15, 2000, the greater of 75% of Fair Market Value or US$3.00 per
Common Share for the number of Common Shares necessary to bring AOL's
ownership interest at the time of exercise, on a fully diluted basis, to
51%.
"Fair Market Value" means the weighted average closing price per Common
Share on the largest exchange or public market on which such Common Shares
are listed or quoted for the 30 trading days preceding the third trading
day prior to the date the Warrant is exercised.
3. The cash or, at AOL's option, Exercise Price to be paid by AOL to the
Company under this Warrant will be paid in
(a) up to the entire Exercise Price under Section 2(i) above may be paid with
an irrevocable voucher evidencing an advertising credit for advertisements
on AOL's online service at AOL's then current rate card rates (being, an
"Advertising Credit"); and
(b) up to 50% of the Exercise Price under Sections 2(ii) and (iii) above may be
paid with an Advertising Credit on the same basis.
Where an Advertising Credit is provided, the Company shall use its best
efforts to utilize such Advertising Credit within twelve (12) months of its
issuance.
In addition, where a portion of the Exercise Price may be paid with an
Advertising Credit, AOL may elect to pay cash in lieu of all, or part, of
the amount of the Advertising Credit provided that in such instance the
Company shall contemporaneously agree to spend no less than 50% of its
advertising budget on purchasing advertisements on AOL's online service
until such time as the amount spent on such advertising on AOL is equal to
the amount contributed by AOL that otherwise would have been paid with an
Advertising Credit.
4. Transfer taxes and other taxes related to the issuance of Common Shares
pursuant to the exercise of this Warrant, if any, and other ancillary
expenses related to the issuance of such Common Shares shall be paid by the
Company.
-2-
<PAGE>
5. This Warrant also provides that Common Shares shall not be subdivided,
consolidated, reclassified or otherwise changed unless contemporaneously
therewith the right of the holder of the Warrant to obtain Common Shares Is
similarly subdivided, consolidated, reclassified or otherwise changed in the
same proportion and the same manner. The Company will not adopt any poison
pill or similar provision that would take effect upon AOL's exercise of the
Warrant or otherwise limit AOL's ability to exercise the Warrant.
6. The right to purchase Common Shares in the capital of the Company may only
be exercised by AOL within the time hereinbefore set out by:
(a) duly completing in the manner indicated and executing the subscription form
annexed hereto, and
(b) surrendering this Warrant to the Company, at its registered office in the
City of Toronto, together with a certified check payable to the order of
the Company at par for the subscription price of the Common Shares
subscribed for and/or presentation of an Advertising Credit executed by an
officer of AOL.
7. Subject to the terms and conditions of this Warrant, upon such surrender and
payment, AOL shall be deemed for all purposes the holder of record of such
Common Shares and the Company covenants that it will (subject to the provisions
of this Warrant) cause a certificate or certificates representing such Common
Shares to be personally delivered to AOL at the address specified in such
subscription form or if no specification is made then to the address of AOL
hereof appearing in the register of warrants maintained by the Company pursuant
to this Warrant.
8. AOL may subscribe for and purchase any lesser number of whole Common Shares
than the number of Common Shares purchasable under this Warrant and in such
event shall be entitled to receive a new Warrant in respect of the balance of
the Common Shares purchasable under this Warrant not then subscribed for and
purchased. To the extent that this Warrant confers the right to purchase a
fraction of a Common Share, the Company shall not issue such fractional Common
Shares.
9. The holding of this Warrant shall not constitute AOL a shareholder of the
Company or entitle AOL to any right or interest in respect thereof except as
herein expressly provided.
10. AOL may transfer this Warrant to any person to whom AOL has assigned its
Common Shares. Following any such transfer, (1) references herein to AOL shall
be read as references to the transferee; (2) Section 3 hereof shall be amended
to delete all references to payment other than by cash; and (3) the amount of
any then outstanding Advertising Credits shall be paid in cash to the Company.
Subject to this condition, the transferee of this Warrant shall, subject to the
requirements of this Warrant, be entitled to have such Warrant transferred to
its name at the registered office of the Company in the City of Toronto under
such reasonable regulations as the Company may prescribe. The person in whose
name this Warrant shall be registered shall be deemed and regarded as the
absolute owner hereof for all purposes and the Company shall not be affected by
any notice or
-3-
<PAGE>
knowledge to the contrary. The register shall at all reasonable times be
open for inspection by the holder of any Warrant.
11. In case this Warrant shall become mutilated or be lost, destroyed or
stolen, the Company, in the reasonable exercise of its discretion, may
issue a new Warrant of like date and tenor as the one mutilated, lost,
destroyed or stolen in exchange for and in place of, and upon surrender and
cancellation of such mutilated Warrant or in lieu of and in substitution
for such lost, destroyed or stolen Warrant, and the substituted Warrant
shall be in like form and shall be entitled to like benefits herewith.
12. The applicant for the issue of a new Warrant pursuant to the above
paragraph 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 Company such evidence of ownership and of the loss,
destruction or theft of the Warrant so lost, destroyed or stolen as shall
be satisfactory to the Company in the reasonable exercise of its discretion
and such applicant may also be required to furnish an indemnity in amount
and form satisfactory to the Company in the reasonable exercise of its
discretion, and shall pay the reasonable charges of the Company in
connection therewith.
13. This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada (excluding any
provisions that would result in the application of the laws of another
jurisdiction).
IN WITNESS WHEREOF the Company has caused this Warrant to be signed by its
duly authorized officers as of the 21st day of February, 1997.
INTERNET LIQUIDATORS INTERNATIONAL INC.
By:______________________________________
Name:
Title:
By:______________________________________
Name:
Title:
-4-
<PAGE>
SCHEDULE "O"
INTELLECTUAL PROPERTY RIGHTS
. see attached copy of letter from MacBeth & Johnson, Barristers &
Solicitors, to Brent Bowes of Internet Liquidators Inc. dated August 29,
1996.
. IP Rights and Non-Competition Agreement between Toronto Star Newspapers
Limited, Paul Godin, 1184041 Ontario Inc., Jeff Lymburner, Smythe Group
Company and Internet Liquidators International Inc. made the 12th day of
February, 1997. A copy of the agreement is contained in Schedule "M".
[Incorporated by Reference. See Exhibit 3.3]
<PAGE>
MacBETH & JOHNSON
BARRISTERS-AT-LAW & SOLICITORS
PATENT AND TRADE MARK AGENTS
OUR REF: TB-0-3140/File Overview
August 28, 1996
Via Facsimile
- -------------
Brent Bowes
INTERNET LIQUIDATORS INC.
5915 Airport Road
Unit 330
Mississauga, Ontario
L4V 1T1
Dear Brent:
Re: Internet Liquidators Inc. File Overview
---------------------------------------
This is further to your telephone request yesterday.
The following is our updated report to you regarding the current
status of the patent, trade marks and copyright applications relating to
Internet Liquidators Inc.
Re: Patents
- -----------
With regard to patent protection, an application was filed in Canada
July 11, 1996, and in the U.S. on about August 26, 1996.
Your contact on this matter is Warren Hall of our associated patent
firm, Dennison Associates.
Re: Trade Marks
- ---------------
With regard to trade marks, before the company was incorporated. an
application was filed by Paul Godin in Canada as of February 17, 1995 for the
trade mark "INTERNET LIQUIDATORS & Design." It was registered February 23,
1996. It was assigned to Internet Liquidators Inc. effective March 28,1996.
An application for the word mark "INTERNET LIQUIDATORS" has been, or
is just being, filed in Canada.
<PAGE>
As of September 27, 1995, an application was filed for the word mark
"INTERNET LIQUIDATORS" in the U.S., namely SN 74/734948.
As of about January 26, 1996, an application was also filed on behalf
of Internet Liquidators Inc. for the trade mark "ONLINE AUCTION" in Canada, SN
802,840 and the corresponding application for the same trade mark in the U.S.
was filed on March 18, 1996.
On March 13, 1996 with the Canadian Trade Marks Office was an
application for the trade mark "ONLINE OUTLET MALL."
On March 13, 1996 an application was filed with the Canadian Trade
Marks Office for the trade mark "CLUB RADD" and we filed a corresponding
application for "CLUB R.A.D.D." in the U.S. on March 27, 1996.
Preliminary searches for all these marks were conducted and we located
no prior filings.
Re: Copyrights
- --------------
With regard to copyrights, we have been advised by the company that
the entire computer program including any audiovisual material regarding their
proposed service was authored by Paul Godin, Jeff Lymburner and Christopher J.A.
Beaune as works for hire. The end product of course has not yet been finalized,
but copyright attaches immediately upon creation rather than registration.
Moreover, Canadian copyright registrations have already been obtained for the
audiovisual and artistic elements as they appeared on the proposed display
screens, A United States copyright application was filed February 9, 1996 for
the "INTERNET LIQUIDATORS" collection of sample display screens.
Trade Secrets
- -------------
Lastly, with respect to trade secrets and confidential information, it
is our understanding that no one else has adopted the idea of a reverse auction
over the Internet. Thus, in addition to the protection discussed above, the idea
is currently protected under the law of confidence.
We trust this information meets your current deadline and we look
forward to hearing from you.
Yours very truly,
MACBETH & JOHNSON
Tony Bortolin
TB:keh/
-2-
<PAGE>
SCHEDULE "P"
MAJOR SHAREHOLDER INTERESTS
The following is a list of shareholders owning greater than 10% of the
issued and outstanding shares in the capital of Internet Liquidators
International Inc.:
Smythe Group Company - 1,850,000 shares
1184041ntario Inc. - 1,812,500 shares
<PAGE>
SCHEDULE "Q"
ENCUMBRANCES
Standard Mercantile Bancorp Limited Partnership re: Loan Agreement
with Internet Liquidators International Inc. dated October 18, 1996
General Security Agreement between Internet Liquidators International
Inc. and Standard Mercantile Bancorp, Limited Partnership dated October 18,
1996.
Indenture of Guarantee between Internet Liquidators International Inc.
and Standard Mercantile Bancorp, Limited Partnership dated October 18, 1996.
<PAGE>
SCHEDULE "R"
YANKEE AUCTION FUNCTIONAL SPECIFICATIONS
Overview
The proposed enhancements will allow the current ILI Auction System to
incorporate a Regular Type Auction format, in addition to the Dutch Auction and
Mall Systems.
The new applications will allow for MI control of all pages by ILI and serve,
where possible, information from dynamically generated and cached.HTML pages.
Template edit functions will also be included to allow global changes to be made
to all pages.
All items preceded with a "." and noted in italics are areas which we believe
could be incorporated into the system to further enhance the functionality.
The functional elements of these options are based upon the requested popular
auction format currently found on the Internet.
- -------------------------------------------------------------------------------
Home Page
- ---------
[Confidential Information filed separately with the SEC] Functional elements
available from this page include:
Section A
Display counter with the number of bids taken to date
Section B
Customer service icon and link
Section C
About the Auction icon and link
Section D
How it Works icon and link
Section E
Auction Formats icon and link
Section F
- --------------------------------------------------------------------------------
Page 1
<PAGE>
Customer Testimonials icon and link
Section G
E-mail request to be added to the Hot Product for Action batch mailing list
Section H
Bid Status Check icon and link
Section J
Product Categories Listing with appropriate links
Section K
Listing of products flagged as Hot Deals
- --------------------------------------------------------------------------------
Section A - Total Bids Counter
- ------------------------------
At the time of each bid, a system counter will be updated to keep track of the
total number of bids received to date. The total bid counter will be available
on the home page. It will be extracted and incorporated into the home page at
the time of refresh of the page.
- --------------------------------------------------------------------------------
Section B - Customer Service
- ----------------------------
The customer service section will contain all elements as they relate to
customer inquiries which can be made from the website. This section includes the
following sub-elements:
Section B1 - Order Status and Account Inquiry
Provide an information page with an explanation of what a client can expect
to see on the resulting pages.
Provide capture fields for the clients user id and password plus the
clients postal code for additional verification.
Section BIA - Order Status and Account Inquiry Application
Provide an application that will process the information supplied. In the
event of full verification of the user, the following information is to be
displayed:
Section BIA1 - Open bids of all current auctions
- --------------------------------------------------------------------------------
Page 2
<PAGE>
To include the auction number, date the bid was placed and amount of
the bid. Also to include the current bid range and a link to the
specific product page(s).
Section BIA2 - Recent winning bids and orders
Include a list of all winning bids or orders over the last x days,
where x is defined by the client. Contains a list of the products
purchased and links to contact information for the specific products -
for purposes of shipment verification and tracking.
Section BIA3 - Recent unsuccessful bids
A list of all bids placed which were not successful. Links to the
specific products will be provided as well as the sale price cost
range of the specific product.
Section B2 - Vendor/Customer Service Contacts
Provide a database built .htm. page that lists all the vendors and provides
appropriate E-mail contact links.
Section B3 - Setup New Account
Provide an information page explaining the account setup operation.
[Confidential Information filed separately with the SEC]
Section B4 - Edit Current Account/Error in Bidding
Provide an information page on how to correct the account information and
how to change bids. Provide an E-mail link for bid changes.
Section B5 - Request Additional Product Specifications
Provide an information page with an E-mail link to allow a person to
request additional product information.
[Confidential Information filed separately with the SEC]
Section B6 - Shipping Policies/International Shipping
Provide an information page outlining the specific information and an E-
mail link to customer support.
[Confidential Information filed separately with the SEC]
- --------------------------------------------------------------------------------
Page 3
<PAGE>
Section B7 - Server and Bidding Problems
Provide an information page listing the common problems and the relevant
solutions. Include an E-mail link to submit additional problems and/or
request other solutions.
Section B8 - How to Become a Merchant
Provide an information page on how to become a merchant and provide an E-
mail link to the relevant contact person.
Section B9 - Suggestion Box
Provide an information page with instructions and an E-mail link for the
submission of suggestions.
- --------------------------------------------------------------------------------
Section C - About the Auction/ILI
- ---------------------------------
Provide an information page in the matching format outlining the auction systems
and the site. Could re-use a lot of the existing information and just add new
information relevant to the new auction system.
- --------------------------------------------------------------------------------
Section D - How it Works
- ------------------------
Provide an information page outlining the functionality of the auction system.
- --------------------------------------------------------------------------------
Section E - Auction Formats
- ---------------------------
Provide an information page outlining the different functional elements of the
auction. This page could include information about the current Auction and Mail
systems, with links to the appropriate sections of the site.
- --------------------------------------------------------------------------------
Section F - Customer Testimonials
- ---------------------------------
- --------------------------------------------------------------------------------
Page 4
<PAGE>
Provide a dynamic page, which is updated as new testimonials are entered on the
system. The order of display is controlled either automatically, based on
receipt of testimonial or prioritized by ILI.
- --------------------------------------------------------------------------------
Section G - Request for Hot Products E-mail
- -------------------------------------------
Section G1 - Append to Database Application
Provide an application to append the provided E-mail address to the
database of mail recipients. This will be a common mail database, but these
requests will be flagged for this function.
Section G2 - Hot Products Batch Mall Application
Provide an application which will mail the list of all products set as Hot
Products to the persons on the mailing list. The frequency of mail out can
be determined by ILI or overridden and sent on instruction by ILI.
- --------------------------------------------------------------------------------
Section H - Bid Status Check
- ----------------------------
Same application and systems outlined in section B I A, but linked from the Home
Page.
- --------------------------------------------------------------------------------
Section J - Product Categories
- ------------------------------
This section is the core functional element of this section of the site. It
allows for the selection of products and the placement of bids.
Provide an application, working in conjunction with the Home Page application,
to provide a list of all available categories, refreshed at the same frequency
as the rest of the site HTML files. All categories listed will be in the form of
links which will allow access to the listing of products in the specific
category.
Section J1 - Product Listing
Provide an application which will list all products within a specific
category, that are available on the auction. The auction number will be the
link to the product and auction detail and the page where a bid can be
placed. The application will produce standard .HTML files as output and
refresh them at the refresh frequency of the site. Information about each
product will be limited to one line of text and include:
. The closing date of the auction
- --------------------------------------------------------------------------------
Page 5
<PAGE>
. The condition of the item ie. New, Used, Refurb, etc.
. The name of the item
. A brief description of the item, including main specifications
. The street price of the item
- --------------------------------------------------------------------------------
Section J2 - Product and Auction Status Detail
Provide an application that will generate HTML detail pages for each
product in the auction. The refresh will occur at the standard site refresh
time.
[Confidential Information filed separately with the SEC]
This page will include:
. A description of the item
. An image of the item
. The minimum acceptable bid amount
. The bid increment value
. Current quantity available
. The auction number
. The date and time at which the auction closes
. The date and time of the last bid
. A list of the current high bids, including the name of the bidder, the
state of origin, date and time of bid, quantity and price bid
. A free form area to allow the entry of specifications and other pertinent
information
. Warranty information, including the cost of extended warranties, if
available
. Sales tax policies
. Maximum shipping costs
In addition to this available information, this page will have the following
options:
Section J2A - Bid on Current Product
Provide an application to prepare the bid screen for the current product.
These screens will be in HTML format, refreshed at half the standard
refresh rate of the site OR whenever a bid is placed on a product,
whichever occurs first.
This page will provide the following:
. The description of the product
- --------------------------------------------------------------------------------
Page 6
<PAGE>
. The auction number
. The minimum acceptable bid amount
. The bid increment
. The maximum US shipping charge
. The maximum Canadian shipping charge
. The minimum amount required to win the current item
. A field to capture the new bid price
. A field to capture the quantity required
. Provide the user with an option to select if they will not accept a
reduced quantity of the item
. A field for the client's ILI user id and password
If the client has not previously registered, then they will be
required to complete the following fields:
. First name
. Last name
. Company
. Street address
. City
. County
. Province/state
. Postal/zip code
. Country
. E-mail address
. Daytime phone number
. Evening phone number
. Fax number
. Payment method (Visa, Amex, Mastercard)
. Card Number
. Expiry date
The client will also have the option of specifying an alternate ship
to address. If this is required, the following information will be
captured:
. Name
. Street address
. City
. Province/state
. Postal/zip code
- --------------------------------------------------------------------------------
Page 7
<PAGE>
. Country
An additional comment field will also be provided so the client can enter
comments regarding this bid. These comments will be listed next to the
appropriate name on the list of current bids for the product.
Section J2A1 - Process Bid
Provide an application to place the bid, received from Section
J2A, into the bids database. In addition to the placement of the
new bid in the database the following functions will be
performed:
. The client will be e-mailed with the appropriate information regarding the
bid that has been placed
. If this new bid is higher than any previous bids, all the clients who have
previously bid on the item will be e-mailed, informing them that they have
been outbid on the specific item"
Section J3 - View Next Product for Bidding
Provide an application to determine the next product in sequence for bidding and
allow paging to successive products using this application. The output from the
application will be passed to the application building the page for Section J2A.
This will allow for a link on the page which will allow the client to page
through the available products in the specific category.
Section J4 - Return to Index
Provide an application to "remember" where the client came from and provide this
information to the application building the pages for Section J2A. This will
allow for the provision of a link to return the category listing page.
Section J5 - Return to Home
Provide a link to the home page.
- -------------------------------------------------------------------------------
Section K - Hot Deals
- ---------------------
This section displays all products that have been flagged in the product
database as Hot Deals.
Provide an application to generate a list of all products that fail into this
category, to be displayed on the Home Page. The output of the application will
be fed to the application generating the Home Page.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
Each product listing will be the name of the product, a brief description and
the street price of the item.
Selection of the item on the list will take the client directly to Section J2
where the client may bid on the product.
- --------------------------------------------------------------------------------
Section M - Backened Processing
- -------------------------------
In order for the auction system to be fully automated the following system
functions will be provided. Wherever possible, they will be integrated into the
existing Auction and Mall systems.
Section M1 - Page Build Application
The auction system will be built on the premise that all product
information and bidding will be done from HTML pages. As the content of
these pages will change with each bid, it is necessary to rebuild the pages
at specific intervals.
This application will be in the form of a system service which will run
continually. It will update all bid pages at an initial 5 minute frequency.
This may be lengthened or shortened depending on requirements.
In addition, a portion of this application will be in the form of a
reusable object which can be called by the bid placement application to
allow the page to be rebuilt immediately after a bid has been placed.
Section M2 - Auction Processor
This application will control the final auction process to determine when
the auction has officially closed.
Each auction will have a closing date and time associated with it. At this
appointed time the auction will close technically, however it will still
remain open for a period of 5 minutes. If any bids are received during the
5 minute period, the auction will continue to remain open for another 5
minutes. This cycle will continue until a period of 5 minutes has lapsed,
without bid activity, before the auction is fully closed. The full bid
process, defined in Section J2A and J2B will be followed in all cases.
Section M3 - Billing Processor
Once the auction has closed, the Billing Processor will be activated. It
will support both US and Canadian funds transactions, using the GPS payment
Interface.
-------------------------------------------------------------------------------
Page 9
<PAGE>
Bids will be processed in the order of the highest bid first and will
continue processing until the stock quantity has been depleted or the
amount of qualifying bids has been depleted. The sequence of billing will
be serialized, thus allowing for declined credit card transactions to be
ignored in the quantity process and allowing for the full available
quantity of items to be sold.
All successful bidders will be notified by appropriate E-mail, as well as
the supplier of the goods, where appropriate.
Section M4 - Reporting Processor
The reporting processor will, at the close of each auction, forward an E-
mail based report to ILI outlining the quantity of products sold and the
appropriate successful bid numbers. It will also include information such
as product remaining.
[Confidential Information filed separately with the SEC]
Section M5 - Template Manager
This application will allow for the remote editing of the structure of the
various pages of the auction system. Changes will be limited to the
variable content of the pages and the layout of this content section.
Section M6 - System Overrides
This application will allow ILI staff to override any of the time based
functions, ie. the builds of the pages and the processing of the E-mail
batch functions, allowing them to be executed on demand.
Section M7 - Remote Management Systems
All necessary changes will be made to the current Remote Management System
to allow the functions of this auction format to be managed from that
specific platform.
Section N - Performance Optimization
- ------------------------------------
In addition to the system aspect of the site which will be so designed to
optimize the performance of the site, certain graphic elements will be
redesigned to allow for faster downloading. At the same time we will strive to
improve the look and feel of the site as well as the functionality.
<PAGE>
EXHIBIT 3.5
IP RIGHTS AND NON-COMPETITION AGREEMENT
THIS AGREEMENT is made the 21st day of February, 1997
B E T W E E N:
AMERICA ONLINE, INC., a corporation incorporated under the laws of
Delaware,
("AOL")
- and -
PAUL GODIN, executive, of the town of Kettleby in the Province of
Ontario
("Godin")
- and -
1184041 ONTARIO INC., a corporation incorporated under the laws of
Ontario
("GodinCo")
- and -
JEFF LYMBURNER, executive, of the city of Etobicoke in the Province of
Ontario
("Lymburner")
- and -
SMYTHE GROUP COMPANY, a corporation incorporated under the laws of
Nova Scotia
("LymburnerCo")
- and -
INTERNET LIQUIDATORS INTERNATIONAL INC., a corporation amalgamated
under the laws of Ontario (the "Corporation")
BACKGROUND:
1. Pursuant to a subscription agreement between AOL and the Corporation dated
the date hereof, AOL is acquiring an interest in Internet Liquidators
International Inc.
<PAGE>
-2-
2. It is a condition of closing the subscription with AOL that each of the
Principals enter into this intellectual property rights and non-compete
agreement with the Corporation and AOL.
3. The Principals and the Corporation have agreed that entering into this
Agreement is in their respective best interests in order (i) to clarify
that the intellectual property rights in Developments made by the
Principals is and will continue to be owned by the Corporation and (ii) to
specify the extent to which the Principals may compete with the Corporation
in certain circumstances.
IN CONSIDERATION of the premises and the mutual covenants contained herein and
other good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto covenant and agree as follows:
ARTICLE ONE
INTERPRETATION
1.1 Definitions: In this Agreement:
------------
"Agreement" means this IP Rights and Non-Competition Agreement and all schedules
annexed hereto as the same may be amended from time to time in accordance with
the provisions hereof; "hereof", "hereto", and "hereunder" and similar
expressions refer to this Agreement and not to any particular article or
section; except where the context specifically requires, "Article" or "Section"
refers to the specified article or section of this Agreement;
"Business" has the meaning attributed thereto in Section 2.1;
"Business Day" means any day other than a Saturday, Sunday, statutory holiday or
civic holiday in Toronto, Ontario or Virginia;
"Confidential Information" includes any of the following:
(i) any and all versions of the products, software and related
documentation owned or marketed by the Corporation, as well as
the software and documentation owned by the Corporation's
suppliers and used internally by the Corporation, including all
related algorithms, concepts, data, designs, flowcharts, ideas,
programming techniques, specifications and source code
listings;
(ii) all Developments (as defined below);
(iii) information regarding the Corporation's business operations,
methods and practices, including marketing strategies, product
pricing, margins and hourly rates for staff and information
regarding the financial affairs of the Corporation;
(iv) the names of the Corporation's clients and the names of the
suppliers of computer services and software to the Corporation,
and the nature of the
<PAGE>
-3-
Corporation's relationships with these clients and suppliers;
(v) technical and business information of or regarding the clients
of the Corporation obtained in order for the Corporation to
provide such clients with products and services; and
(vi) any other trade secret or confidential or proprietary
information in the possession or control of the Corporation,
but Confidential Information does not include information which is or becomes
generally available to the public without fault of the Party.
"Developments" include all the following which are related to the Business:
(i) copyright works, software, documentation, data, designs,
scripts, photographs, music, reports, flowcharts, trade-marks,
specifications and source code listings, and any related works,
including any enhancements, modifications, or additions to the
products owned, marketed or used by the Corporation; and
(ii) inventions, devices, discoveries, concepts, ideas, algorithms,
formulae, know-how, processes, techniques, systems and
improvements, whether patentable or not, developed, created,
generated or reduced to practice by any Principal, alone or
jointly with others, during the Principal's employment with the
Corporation or which result from tasks assigned to any
Principal by the Corporation or which result from the use of
the premises or property (including equipment, supplies or
Confidential Information) owned, leased or licensed by the
Corporation.
"employee" refers to any individual who is an employee or who has any other form
of working relationship with the Corporation whereby services are provided to
the Corporation for compensation whether as an independent contractor,
consultant, advisor or otherwise and whether such services are provided
personally or through a corporation controlled by such individual and
"employment" is to be given a corresponding, broad meaning;
"Party" means one of the Principals, AOL or the Corporation and "Parties" means
all of them collectively;
"Person" includes an individual, corporation, partnership, joint venture, trust,
unincorporated organization, government or any agency or instrumentality thereof
or any other juridical entity; and
"Principal" has the meaning attributed thereto in Section 2.1.
1.2 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of Ontario and the federal laws of Canada applicable
therein (excluding any provisions that would result in the application of the
law of another jurisdiction) and shall be treated, in all respects, as an
Ontario contract. Godin, GodinCo, Lymburner, LymburnerCo, and the Corporation
submit to the non-exclusive jurisdiction of the Courts of Virginia and the U.S.
Federal Court. AOL submits to the non-exclusive jurisdiction of the Courts of
Ontario.
<PAGE>
-4-
1.3 Entire Agreement. This Agreement, including all schedules hereto,
-----------------
together with the agreements and other documents referred to herein, constitute
the entire agreement between the Parties pertaining to the subject matter hereof
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties and there are no
warranties, representations or other agreements between the Parties in
connection with the subject matter hereof except as specifically set forth
herein and therein. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by the Party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision (whether or not similar) nor shall
such waiver constitute a continuing waiver unless otherwise expressly provided.
1.4 Gender and Number. In this Agreement words in the singular include the
------------------
plural and vice-versa; words in one gender include all genders.
1.5 Headings. Article and Section headings contained herein are included
---------
solely for convenience, are not intended to be full or accurate descriptions of
the content thereof and shall not be considered part of this Agreement.
<PAGE>
-5-
ARTICLE TWO
PROPRIETARY RIGHTS PROTECTION
2.1 Importance of Proprietary Rights Protection. Each Party acknowledges that
--------------------------------------------
the Corporation is engaged in a continuous program of research and development,
marketing and exploitation of on-line auction software products and related
services (the "Business"). Each Party also recognizes the importance of
protecting the Corporation's trade secrets, confidential information and other
proprietary information and related rights acquired through the Corporation's
expenditure of time, effort and money. Therefore, in the case of Godin and
Lymburner or any other Party who is an employee of the Corporation
(collectively, the "Principals" and individually a "Principal"), in
consideration of the desire of the Principals to be employed or continue to be
employed by the Corporation in a capacity in which they will receive and/or
contribute to the Corporation's confidential information and in consideration of
the salary, wages or other compensation the Principals will receive from the
Corporation and for their employment by the Corporation, each agrees to be bound
by the following terms and conditions in this Article.
2.2 Non-Disclosure of Confidential Information. At all times each Principal
-------------------------------------------
shall keep the Confidential Information in confidence, taking all necessary
precautions against unauthorized disclosure of the Confidential Information, and
shall not directly or indirectly disclose, allow access to, transmit or transfer
the Confidential Information to a third party, nor shall any Principal copy or
reproduce the Confidential Information except as may be reasonably required to
perform his duties for the Corporation.
2.3 Restricted Use of Confidential Information.
-------------------------------------------
(a) At all times each Principal shall not use the Confidential Information
in any manner except as reasonably required for each Principal to
perform his duties for the Corporation.
(b) Without limiting his obligations under subsection (a), each Principal
shall neither use nor take advantage of the Confidential Information
for any purpose other than the Business.
(c) Upon the request of the Corporation, each Principal shall immediately
return to the Corporation all materials, including all copies in
whatever form, containing the Confidential Information which are in
the Principal's possession or under the Principal's control.
2.4 Ownership of Confidential Information.
--------------------------------------
(a) Each Principal acknowledges and agrees that he has not and shall not
acquire any right, title or interest in or to the Confidential
Information.
(b) Each Principal agrees to make full disclosure to the Corporation of
each Development promptly after its creation. Each Principal hereby
assigns and transfers to the Corporation, and agrees that the
Corporation shall be the exclusive owner of, all of the Principal's
right, title and interest to each Development throughout the world,
including all trade secrets, patent rights, copyrights and all
<PAGE>
-6-
other intellectual property rights therein. Each Principal further
agrees to cooperate fully at all times with respect to signing further
documents and doing such acts and other things reasonably requested by
the Corporation to confirm such transfer of ownership of rights,
including intellectual property rights, effective at or after the time
the Development is created and to obtain patents or copyrights or the
like covering the Developments. Each Principal agrees that the
obligations in this clause (b) shall continue beyond the termination
of the Principal's employment with the Corporation with respect to
Developments created during his employment with the Corporation.
(c) Each Principal agrees that the Corporation, its assignees and their
licensees are not required to designate the Principal as the author of
any Developments. Each Principal hereby waives in whole all moral
rights which the Principal may have in the Developments, including the
right to the integrity of the Developments, the right to be associated
with the Developments, the right to restrain or claim damages for any
distortion, mutilation or other modification of the Developments, and
the right to restrain use or reproduction of the Developments in any
context and in connection with any product, service, cause or
institution. Notwithstanding the foregoing, the Corporation agrees
that Godin and Lymburner shall be entitled to personal recognition for
their efforts in creating the Developments.
2.5 Non-Competition. Each Principal agrees that during the time that he is an
---------------
employee of the Corporation and for a period of 24 months thereafter the
Principal will not become engaged, directly or indirectly as an employee,
consultant, partner, principal, agent, proprietor, shareholder (other than a
holding of shares listed on a stock exchange that does not exceed 5% of the
outstanding shares so listed) or advisor, in a business which:
(i) develops or markets products or services competitive with the products
or services marketed by the Corporation, or
(ii) provides consulting, maintenance, support or training services that
are competitive with the consulting, maintenance, support or training
services provided by the Corporation,
in any country where the Corporation has shipped material amounts of product in
the preceding twelve months, provided that after the Principal ceases to be an
employee of the Corporation the relevant time for judging such matters as where
the Corporation is conducting the Business shall be the time that the Principal
ceases to be an employee of the Corporation.
2.6 Non-Solicitation of Clients. Each Principal agrees that during the time
----------------------------
that he is an employee of the Corporation and for a period of 18 months
thereafter, the Principal shall not, directly or indirectly, contact or solicit
any Clients of the Corporation for the purpose of selling or supplying to these
Clients of the Corporation any products or services which are competitive with
the products or services sold or supplied by the Corporation at the time that
the Principal ceases to be an employee of the Corporation. The term "Client of
the Corporation" means any business or organization that:
(a) was a supplier to the Corporation of goods or services offered at
auction, or otherwise, for sale through the Corporation at the time
that the Principal ceases to be
<PAGE>
-7-
an employee of the Corporation; or
(b) became a supplier of the Corporation within six months after the
Principal ceased to be an employee of the Corporation if the Principal
was significantly involved with the marketing effort in respect of
such supplier prior to the date the Principal ceased to be an employee
of the Corporation.
The foregoing is not intended to include Persons purchasing goods or services
through the Corporation's on-line auction service but does include suppliers to
the Corporation of goods or services offered at auction, or otherwise, for sale
through the Corporation.
2.7 Non-Solicitation of Employees. Each Principal agrees that during the time
------------------------------
that he is an employee of the Corporation and for a period of 12 months
thereafter, the Principal shall not directly or indirectly solicit or induce or
attempt to induce any persons who were employees of or consultants to the
Corporation at the time the Principal ceased to be an employee of the
Corporation, to terminate their employment with the Corporation.
2.8 Reasonableness of Non-Competition and Non-Solicitation Obligations. Each
-------------------------------------------------------------------
Principal confirms that the obligations in Section 2.5, 2.6 and 2.7 are fair and
reasonable given that, among other reasons,
(i) the sustained contact the Principal will have with the clients of the
Corporation will expose the Principal to Confidential Information
regarding the particular requirements of these clients and the
Corporation's unique methods of satisfying the needs of these clients,
all of which the Principal agrees not to act upon to the detriment of
the Corporation; and/or
(ii) the Principal will be performing important development work on the
products and services provided by the Corporation,
and the Principal agrees that the obligations in Sections 2.5, 2.6 and 2.7,
together with the Principal's other obligations under this Agreement, are
reasonably necessary for the protection of the Corporation's proprietary
interests. Each Principal further confirms that Sections 2.5, 2.6 and 2.7 are
in addition to the non-disclosure and other obligations provided elsewhere in
this agreement. Each Principal also acknowledges that his obligations contained
in this Agreement will not preclude him from becoming gainfully directly
employed in the computer products industry following the date he ceases to be an
employee of the Corporation given the Principal's general knowledge and
experience in the computer industry.
2.9 No Conflicting Obligations.
----------------------------
(a) Each Principal acknowledges and represents to the Corporation that his
performance as an employee of the Corporation shall not breach any
agreement or other obligation to keep confidential the proprietary
information of any prior employer of such Principal or any other third
party. Each Principal further acknowledges and represents that he is
not bound by any agreement or obligation with any third party which
conflicts with any of his obligations under this Agreement.
(b) Each Principal represents and agrees that he will not bring to the
Corporation, and
<PAGE>
-8-
shall not use in the performance of his work with the Corporation, any
trade secrets, confidential information and other proprietary
information of any prior employer of the Principal or any other third
party. Each Principal represents and agrees that in his work creating
Developments he will not knowingly infringe the intellectual property
rights, including copyright, of any third party.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties re Ownership. Each Principal hereby,
--------------------------------------------
jointly and severally, represents and warrants to the Corporation and AOL (and
acknowledges that the Corporation and AOL are relying upon such representations
and warranties) that except as set forth in Schedule "O" of the Subscription
Agreement between AOL and the Corporation dated February 18, 1997, to the best
of the Principals' knowledge, information and belief after due enquiry the
Corporation is the exclusive owner of the Technology (as defined in such
Subscription Agreement) and all right, title and interest in and to the
Technology, free and clear of all encumbrances except as set out therein and
neither Principal has any knowledge of any claim of adverse ownership in any
Technology.
ARTICLE FOUR
MISCELLANEOUS
4.1 Notice. Any notice or other communication (in this Section a "Notice")
-------
required or permitted to be given or made hereunder shall be in writing and
shall be well and sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to AOL addressed to it at:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: Fred Singer, Vice-President
Fax No.: (703) 265-2409
with a copy to:
<PAGE>
-9-
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Fax No.: (703) 265-2208
and in the case of a Notice to Corporation addressed to it at:
Internet Liquidators International Inc.
5915 Airport Rd.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-5705
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 4.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Any Party may from time to time change its address for notice by giving Notice
to other Party in accordance with the provisions of this Section 4.1.
<PAGE>
-10-
4.2 Further Assurances. Each Party will execute any documents and give such
-------------------
further assurances as may be necessary or appropriate in connection with
performing its obligations under this Agreement and which shall be deemed to
include any assurances reasonably requested by the Corporation to protect its
trade secrets and any other confidential information in its possession or
control.
4.3 Amendments. This Agreement may only be amended by an instrument in
-----------
writing signed by all Parties.
4.4 Counterparts. This Agreement may be executed in several counterparts (by
-------------
Principal Shareholders at the date hereof and by those who are by the terms
hereof obligated to execute a counterpart hereof), each of which shall be deemed
to be an original, but all such counterparts together shall constitute one and
the same instrument. Any such counterpart or other Agreement to be bound hereby
shall be effectively delivered to each Party by delivery of an executed copy
thereof to the secretary of the Corporation.
4.5 Severability. If any of the provisions contained in this Agreement is
-------------
found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein shall not be in any way affected or
impaired thereby and the rights and obligations of the Parties shall be
construed as if the Agreement did not contain the particular invalid or
unenforceable provision unless such invalid or unenforceable provision is
material to any of the Parties, in which event the Parties shall immediately
negotiate a replacement therefor to preserve their respective interests as
contemplated herein, to the extent permitted under applicable law.
<PAGE>
-11-
4.6 Time of Essence. Time is of the essence hereof.
----------------
IN WITNESS WHEREOF the parties have duly executed this Agreement.
AMERICA ONLINE, INC.
By: c/s
-------------------------
Name: Fred Singer
Title: Vice-President of Corporate
Development
1184041 ONTARIO INC.
By: c/s
-------------------------
Paul Godin
Title:
In the presence of: )
)
)
l/s
- ------------------------- -------------------------
Witness: Paul Godin
SMYTHE GROUP COMPANY
By: c/s
-------------------------
Jeff Lymburner
Title:
In the presence of: )
)
)
l/s
- ------------------------- -------------------------
Witness: Jeff Lymburner
INTERNET LIQUIDATORS INTERNATIONAL
INC.
By: c/s
-------------------------
Name:
Title:
By: c/s
-------------------------
Name:
Title:
<PAGE>
Exhibit 3.6
Confidential
INTERACTIVE MARKETING AGREEMENT
-------------------------------
This Interactive Marketing Agreement (the "Agreement"), dated as of
November 1, 1997 (the "Effective Date"), is between America Online, Inc.
("AOL"), a Delaware corporation, with offices at 22000 AOL Way, Dulles, Virginia
20166, and Internet Liquidators International, Inc. ("IL") a corporation, with
offices at 5915 Airport Road, Suite 330, Mississauga, Ontario L4V 1T1. AOL and
IL may be referred to individually as a "Party" and collectively as "Parties."
INTRODUCTION
------------
AOL and IL each desires to modify its current contractual relationship, as
set forth in the Auction Services Agreement between the parties dated February
21, 1997 (the "Prior Agreement"), to establish an interactive marketing
relationship whereby AOL will promote and distribute an interactive site
referred to (and further defined) herein as the Affiliated IL Site. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Certain portions of the Prior Agreement
are incorporated herein by reference; the remaining portions are terminated
pursuant to the terms hereof. Defined terms used but not defined in the body of
the Agreement will be as defined on Exhibit A attached hereto. Depending on the
form in which the Affiliated IL Site is made available for distribution through
the AOL Network, the Affiliated IL Site is referred to (and further defined in
each case) herein as one of the following: a Linked IL Site (i.e., if the
Affiliated IL Site promoted and distributed hereunder is a generally available
IL Interactive Site), a Customized IL Site (i.e., if the Affiliated IL Site is a
version of IL's Interactive Site that is customized for AOL Members) or a
Rainman IL Site (i.e., if the Affiliated IL Site is an online area on the AOL
Service that is created using AOL's proprietary "Rainman" technology). The first
twelve-month period following the Effective Date is referred to herein as "Year
One" and the second twelve-month period is "Year Two."
TERMS
-----
1. PROMOTION, DISTRIBUTION AND MARKETING.
- -- -------------------------------------
1.1. AOL Promotion of Affiliated IL Site. AOL will provide IL with the
---- -----------------------------------
online promotions for the Affiliated IL Site which are listed on the
"Initial Promotional Plan" attached hereto as Exhibit H (the
"Promotions"). Subject to IL's reasonable approval, AOL will have the
right to fulfill its promotional commitments with respect to any of
the foregoing by providing IL mutually agreeable comparable
promotional placements in alternative areas of the AOL Network. In
addition, if AOL is unable to deliver any particular Promotion, AOL
will work with IL to provide IL, as its sole remedy, a mutually
agreeable comparable promotional placement. AOL reserves the right to
redesign or modify the organization, structure, "look and feel,"
navigation and other elements of the AOL Service at any time. In the
event such modifications materially and adversely affect any specific
Promotion, AOL will work with IL to provide IL, as its sole remedy, a
mutually agreeable comparable promotional placement. The Parties will
meet quarterly to review the Initial Promotional Plan, and, if
requested by IL, to mutually agree upon reallocation of certain
Impressions within the promotional areas listed in Exhibit H (each, a
"Promotional Area") and within new areas created by AOL (so long as
AOL provides IL with reasonable prior notice of such new areas). The
new placements will be provided based on AOL's then-current
advertising rate card and will have total value equal to (a) the
number of Impressions to be reallocated divided by [Confidential
Information filed separately with the SEC] Impressions times (b)
[Confidential Information filed separately with the SEC].
Reallocations pursuant to the foregoing will be subject to Impressions
availability, and the cumulative number of reallocated Impressions in
any year will not exceed [Confidential Information filed separately
with the SEC] of the number of Impressions owed to IL for the
remainder of such year.
1
<PAGE>
Confidential
1.2. Impressions. The online promotions AOL provides pursuant to Section
---- ------------
1.1 will result in the annual numbers of Impressions indicated for the
Promotional Areas identified on Exhibit H. AOL will determine
placement of these promotions in its reasonable editorial discretion.
AOL will not be obligated to provide in excess of any of the foregoing
target amounts of Impressions in any year. Any shortfall in
Impressions at the end of a year will not be deemed a breach of the
Agreement by AOL; such shortfall will be added to the Impressions
target for the subsequent year. In the event there is a shortfall in
the total number of Impressions across all promotional areas as of the
end of the Term (a "Final Shortfall"), AOL will provide IL with one of
the following, chosen by AOL in its sole discretion: (i) AOL will
provide mutually agreeable promotional placements in Promotional Areas
until such time as AOL has "made good" on the Final Shortfall, or (ii)
AOL will provide advertising placements in mutually agreed upon areas
of the AOL Network with a total value, based on AOL's then-current
advertising rate card, equal to (a) the Impressions shortfall divided
by [Confidential Information filed separately with the SEC]
Impressions times (b) [Confidential Information filed separately with
the SEC]. In the event there is a windfall in Impressions in any year,
AOL's Impressions target for the subsequent year will be reduced by
the amount of such windfall; provided that if AOL exceeds the
Impressions target for any year by more than [Confidential Information
filed separately with the SEC], the Parties will discuss in good faith
an increase in the Gross Margin payable to AOL for such year. In the
event that (a) during Year One, cumulative Total Revenues (as defined
in Section 3.2) for such year exceed [Confidential Information filed
separately with the SEC], or (b) during Year Two, cumulative Total
Revenues for such year exceed [Confidential Information filed
separately with the SEC], AOL's entire Impressions commitment for the
remainder of the Term will be deemed satisfied; provided that AOL will
continue to provide promotional placement in the Promotional Areas
identified in Exhibit H as "Continuous Placements."
1.3. Content of Promotions. The specific IL Content (e.g., IL's logo) to be
---- ----------------------
contained within the Promotions will be determined by IL, subject to
Section 2.4, AOL technical limitations and AOL's then generally
applicable policies relating to advertising and promotions (with
changes to such policies provided to IL with notice as generally
provided to other parties subject to such policies). Except to the
extent described herein, the specific form, placement, duration and
nature of the Promotions will be as determined by AOL in its
reasonable editorial discretion (consistent with the editorial
composition of the applicable screens).
1.4. IL Promotion of Affiliated IL Site and AOL. As set forth in fuller
---- -------------------------------------------
detail in Exhibit B, IL will promote AOL as its preferred Interactive
Service and will promote the availability of the Affiliated IL Site
through the AOL Network. IL will not promote, market or distribute an
Interactive Service; provided that IL will not be deemed in breach of
the foregoing sentence (a) as a result of IL's performance of its
obligations pursuant to existing contracts with GTE and Bell Sympatico
(the "Excluded Obligations") or (b) solely by reason of IL's entering
into a licensing agreement with another Interactive Service. IL
represents and warrants that the Excluded Obligations are not
inconsistent with the obligations owed to AOL pursuant to this Section
1.4, Section 2.8 or Section 2.11 and that IL's performance of the
Excluded Obligations will not materially diminish the value to AOL of
this Section 1.4, Section 2.8 or Section 2.11.
1.5. Option to Host AOL Auction Service. Article Three of the Prior
---- -----------------------------------
Agreement (and any other provision of the Prior Agreement necessary to
the performance of any obligation of Article Three) is hereby
incorporated by reference into the Agreement.
2. AFFILIATED IL SITE.
- -- ------------------
2
<PAGE>
Confidential
2.1. Content. IL will make available through the Affiliated IL Site the
---- --------
offering of Products and other Content described on Exhibit C. IL will
review, delete, edit, create, update and otherwise manage all Content
available on or through the Affiliated IL Site in accordance with the
terms of this Agreement. IL will ensure that the Affiliated IL Site
does not in any respect promote, advertise, market or distribute the
products, services or content of any Interactive Service.
2.2. General Sales Restrictions. Except as provided in this Section 2.2
---- ---------------------------
and Section 2.3, IL will be entitled to sell only consumer retail-
oriented Products through the Affiliated IL Site and only through the
format of an Online Auction ("Auction Sales"). Notwithstanding the
foregoing, IL will be entitled to create a non-prominent, below-the-
fold link to a limited sub-area, accessible only to a limited number
of pre-qualified users possessing special IL passcodes, in which IL
will conduct business-oriented Online Auctions (including business-to-
business sales) (the "Business-to-Business Area"); provided that IL
will not use any of the promotional placements provided hereunder or
any other space on the Affiliated IL Site or the AOL Network to
promote, market or advertise the Business-to-Business Area. Any
changes or modifications to the consumer retail-oriented focus of the
Affiliated IL Site or any material alteration to the Online Auction
format (e.g., use of member-to-member auctions or fee-based membership
clubs) will be subject to AOL's prior written approval. In addition,
in no event will IL promote, market, distribute, sell or otherwise
offer or provide through the Affiliated IL Site (or links therefrom)
(other than through the Business-to-Business Area of the Affiliated IL
Site) Products from any of the following categories: (a) floral or
plant products, (b) long distance telecommunications products or
services, (c) automobiles or other vehicles (or related buying
services) ("Auto Sales") or (d) books (or book-related products such
as audio-books) ("Book Sales"). The limitations in the foregoing
sentence are referred to herein as the "General Sales Restrictions."
In consideration of IL's agreement above with respect to Auto Sales,
AOL agrees to take reasonable efforts to facilitate discussions
between IL and AOL's primary automobile buying service providers so
that IL may offer to license its Online Auction technology to such
providers. Notwithstanding the restriction above on Book Sales, IL
will be entitled to sell rare used books (i.e., books previously
possessed by a consumer) in print form through the Affiliated IL Site,
so long as IL does not offer more than 250 titles at any one time. AOL
will be entitled to add to the list of categories subject to the
General Sales Restrictions upon 30 days written notice to IL; provided
that (a) IL is not then generating material revenues in the category
AOL wishes to add and (b) either (i) the category is not listed as an
"Auction Products" in Exhibit C or (ii) IL has no firm, written
commitments or plans to offer such category within thirty (30) days
following the date of such notice.
2.3. Direct Sales. Subject to the General Sales Restrictions and Section
---- -------------
2.4, IL will be entitled to sell directly to AOL Users through the
Affiliated IL Site (i.e., through a non-Online Auction format on the
Affiliated IL Site) any of the "Direct Sales Products" listed on
Exhibit C, so long as (a) such sales ("Direct Sales") do not
constitute more than [Confidential Information filed separately with
the SEC] of the Transaction Revenues generated through the Affiliated
IL Site in any quarter and (b) Direct Sales in any category do not
constitute [Confidential Information filed separately with the SEC] of
the Transaction Revenues generated through the Affiliated IL Site in
any quarter; provided that, subject to the General Sales Restrictions,
IL will be entitled to sell such Direct Sales Products to AOL Users
through "offline" means (e.g., direct mail) and email, subject to the
terms and conditions of this Agreement (including, without limitation,
Section 2.4 below and paragraphs 10, 11 and 12 of Exhibit G). Any
additions to the list of Direct Sales will be subject to AOL's prior
written approval. Solely for purposes of the foregoing sentence, any
Transaction Revenues generated through (a) an "offline" means (e.g.,
direct mail but excluding email or any online fulfillment) ("Offline
Revenues"), (b) certain mutually identified Special Offers created
pursuant to Section 2.10 or (c) the
3
<PAGE>
Confidential
Interactive Site owned and operated by Recording Artists Against Drunk
Driving (the "RAADD Site" and "RAADD Revenues") will be excluded from
the calculation of Transaction Revenues; provided that IL will not
promote, market or advertise the RAADD Site's availability on or
through the Affiliated IL Site; provided that IL may provide a non-
prominent link to such site within the Affiliated IL Site. Offline
Revenues will be included in the calculation of Gross Margin and
Transaction Revenues in every other instance pursuant to the
Agreement, but RAADD Revenues will not be so included; provided that
if RAADD Revenues constitute more than [Confidential Information filed
separately with the SEC] of the Transaction Revenues generated through
the Affiliated IL Site in any quarter, such revenues will be so
included, except that the Parties will negotiate in good faith whether
IL will pay AOL compensation relating to such revenues and the
appropriate amount of such compensation; provided, further, that if
RAADD Revenues constitute more than[Confidential Information filed
separately with the SEC] of the Transaction Revenues generated through
the Affiliated IL Site in any quarter, the Parties will negotiate in
good faith only the appropriate amount of compensation due to AOL.
2.4. Promotional Limitations. Subject to the General Sales Restrictions,
---- ------------------------
IL will be entitled to promote, market and advertise its Products
using the promotional placements identified on Exhibit H and any
additional advertising placements on the AOL Service and/or AOL.com
purchased by IL under separate agreement with AOL, subject to the
following: (i) absent AOL's prior written approval, IL will not
promote, market or distribute any Products other than those listed as
"Auction Products" listed on Exhibit C (or those otherwise allowed
pursuant to Section 2.2); (ii) all promotion, marketing and
advertising for Auction Sales will indicate that the Products are
being offered in an Online Auction format, (iii) all promotion,
marketing and advertising on the AOL Network for Direct Sales will be
subject to AOL's prior written approval; and (iv) IL will not promote,
market or advertise Direct Sales within the Affiliated IL Site on any
screen that is directly linked to or from any Promotion.
2.5. Production Work. Except as agreed to in writing by the Parties
---- ----------------
pursuant to the "Production Work" section of the Legal Terms &
Conditions attached hereto as Exhibit G, IL will be responsible for
all production work associated with the Affiliated IL Site, including
all related costs and expenses (other than AOL's internal costs).
2.6. Communications. IL will be responsible for all communications costs
---- ---------------
and expenses associated with the Affiliated IL Site, including,
without limitation, all costs related to hosting and connectivity. In
addition, IL shall provide all computer, telephone and other equipment
or resources necessary for IL to access the AOL Network. IL will
utilize a dedicated high speed connection to maintain quick and
reliable transport of information to and from the IL data center and
AOL's designated data center. IL will bear all costs and expenses
associated with such communication line(s).
2.7. Technology. IL shall take all reasonable steps necessary to conform
---- -----------
its promotion and sale of Products through the Affiliated IL Site to
the then-existing technologies made available to IL by AOL (the "AOL
Technologies"). If the Affiliated IL Site is a Customized IL Site, IL
will not use or integrate any technology or software other than the
AOL Technologies in such site without AOL's prior written approval.
AOL shall be entitled to require reasonable changes to the Content
(including, without limitation, the features or functionality) within
any Affiliated IL Site to the extent such Content will, in AOL's good
faith judgment, adversely affect any operational aspect of the AOL
Network. AOL reserves the right to review and test the Affiliated IL
Site from time to time to determine whether the site is compatible
with AOL's then-available client and host software and the AOL
Network.
4
<PAGE>
Confidential
2.8. Product Offering. Subject to the Excluded Obligations (as set forth
---- -----------------
in Section 1.4), IL will ensure that the Affiliated IL Site includes
all of the Products and other Content (including, without limitation,
any features, functionality or technology) that are then made
available by or on behalf of IL through any Additional IL Channel;
provided, however, that (a) such inclusion will not be required where
it is commercially or technically impractical to either Party (i.e.,
inclusion would cause either Party to incur substantial incremental
costs); and (b) the specific changes in scope, nature and/or offerings
required by such inclusion will be subject to AOL's review and
approval and the terms of this Agreement.
2.9. Online Auctions Terms and Conditions. IL will ensure that (a) the
---- -------------------------------------
pricing and the terms and conditions related to Online Auctions
services in the Affiliated IL Site are no less favorable, taken as a
whole, to the pricing and the terms and conditions for substantially
similar Online Auctions services offered by or on behalf of IL or
through any Additional IL Channel under IL's control and (b) the
pricing and the terms and conditions related to Online Auctions
services in the Affiliated IL Site will be reasonably competitive,
taken as a whole, with the pricing and the terms and conditions for
substantially similar Online Auctions services offered by any IL
competitor through any online medium.
2.10. Special Offers. Subject to the Excluded Obligations, IL will (a)
----- ---------------
promote through the Affiliated IL Site any special or promotional
offers made available by or on behalf of IL or through any Additional
IL Channel controlled by IL and (b) promote through the Affiliated IL
Site a reasonable number of special or promotional offers (with
reasonable best efforts to promote twelve (12) per year) which are
available exclusively to AOL Members (e.g., AOL Members-only auctions
for certain Products, free gift certificates to AOL Members upon the
purchase of Product(s), tie-ins to AOL's reward or frequent purchaser
points program) ((a) and (b) collectively, the "Special Offers");
provided that clause (a) will not apply to the extent that IL cannot
make such Special Offer available in the event such offer requires
specific technology or matching offers from AOL which AOL cannot or
elects not to provide to IL. IL will provide AOL with reasonable
prior notice of Special Offers so that AOL can market the
availability of such Special Offers in the manner AOL deems
appropriate in its editorial discretion, subject to the terms and
conditions hereof.
2.11. Operating Standards. IL will ensure that the Affiliated IL Site
----- --------------------
complies at all times with the operating standards set forth in
Exhibit E. To the extent site standards are not established in
Exhibit E with respect to any aspect or portion of the Affiliated IL
Site (or the Products or other Content contained therein), IL will
provide such aspect or portion at a level of accuracy, quality,
completeness, and timeliness which, taking such aspect or portion as
a whole, meets or exceeds prevailing standards in the online auctions
industry.
2.12. Customized IL Site. IL will comply with the "Customized IL Site
----- -------------------
Requirements" set forth in Exhibit D.
2.13. Advertising Sales. Both Parties will have the right to license or
----- ------------------
sell promotions, advertisements, links, pointers or similar services
or rights ("Advertisements") through the Affiliated IL Site subject
to the Advertising Minimum (except for special promotional sales of
advertising reasonably agreed upon by the parties), AOL's then-
applicable advertising policies and both Parties' reasonable prior
approval. The specific advertising inventory within the Affiliated IL
Site will be as reasonably determined by the Parties. In connection
with the sale by IL of an Advertisement, IL will, in each instance,
provide AOL with a completed standard Advertising Registration Form
relating to such Advertisement.
3. PAYMENTS.
- -- --------
3.1. Guaranteed Payments. IL will pay AOL a guaranteed amount of Ten
---- --------------------
Million Dollars (US$10,000,000) as follows: (a) One Million Two
Hundred Fifty Thousand Dollars (US$1,250,000) on the Effective Date
and each of the 3-month, 6-month and 9-month
5
<PAGE>
Confidential
anniversaries of the Effective Date and (b) One Million Two Hundred
Fifty Thousand Dollars (US$1,250,000) on each of the the first day of
Year Two and the 3-month, 6-month and 9-month anniversaries of such
date.
3.2. Sharing of Gross Margin. For purposes of this Section 3.2, each of
---- ------------------------
the 3-month periods associated with the payments described in Section
3.1 is a "Quarter." If during any Quarter, the amount of Transaction
Revenues and Advertising Revenues (collectively, the "Total Revenues")
generated during such Quarter equals or exceeds [Confidential
Information filed separately with the SEC] (the "Quarterly Revenue
Hurdle"), then IL will pay AOL fifty percent (50%) of the Gross Margin
generated thereafter in such Quarter. Notwithstanding the foregoing,
if at any time during Year One or Year Two, cumulative Total Revenues
for such year equals or exceeds [Confidential Information filed
separately with the SEC], then IL will pay AOL fifty percent (50%) of
the Gross Margin generated thereafter during such year; further, if
AOL has provided IL with [Confidential Information filed separately
with the SEC] cumulative Impressions during any year or [Confidential
Information filed separately with the SEC] cumulative Impressions for
the Term, then IL will pay AOL fifty percent (50%) of the Gross Margin
generated thereafter during the Term. IL will pay all of the foregoing
amounts on a quarterly basis within thirty (30) days of the end of the
quarter in which the applicable Transaction Revenues were received.
[Confidential Information filed separately with the SEC]
3.3. Sharing of Advertising Revenues. IL will be entitled to all
---- --------------------------------
Advertising Revenues generated during any Quarter; provided that (a)
the Total Revenues generated during any Quarter exceeds the Quarterly
Revenue Hurdle, the Parties will share equally in all Advertising
Revenues generated thereafter in such Quarter and (b) if at any time
during the Term, Total Revenues during Year One or Year Two equals or
exceeds [Confidential Information filed separately with the SEC], then
the Parties will share equally in all Advertising Revenues generated
thereafter during such year. Each Party will pay the other Party all
Advertising Revenues received and owed to such other Party as
described herein on a quarterly basis within thirty (30) days of the
end of the quarter in which such amounts were received by such Party.
3.4. Alternative Revenue Streams. In the event IL or its Affiliates (a)
---- ----------------------------
receives or desires to receive, directly or indirectly, any
compensation in connection with the Affiliated IL Site other than
Transaction Revenues or Advertising Revenues ("Additional Revenues")
or (b) restructures or desires to restructure the nature of its
transactions with AOL Users in a manner that results in Transaction
Revenues (e.g., establishment of club memberships) ((a) and (b), each
an "Alternative Revenue Stream"), IL will promptly inform AOL in
writing, and the Parties will negotiate in good faith regarding
whether IL will be allowed to establish such Alternative Revenue
Stream through the Affiliated IL Site, and if so, the equitable
portion of Additional Revenues (if applicable) that will be shared
with AOL.
3.5. Wired Payments; Late Payments. All payments required under this
---- ------------------------------
Agreement will be paid in immediately available, non-refundable U.S.
funds wired to the receiving Party's's account. All amounts owed
hereunder not paid when due and payable will bear interest from the
date such amounts are due and payable at the prime rate plus 2%
3.6. Reports.
---- --------
3.6.1. Sales Reports. IL will provide AOL in an automated manner
------ --------------
with a monthly report containing the information specified on
Exhibit J (and any other information
6
<PAGE>
Confidential
mutually agreed upon by the Parties or reasonably required for
measuring revenue activity by IL through the Affiliated IL
Site). More generally, each payment to be made pursuant to
this Section 3 shall be accompanied by a report containing
information which supports the payment, including information
identifying gross Transaction Revenues, all items deducted or
excluded from gross Transaction Revenues to produce
Transaction Revenues, including, without limitation,
chargebacks and credits for returned or cancelled goods or
services (and, where possible, an explanation of the type of
reason therefor, e.g., bad credit card information, poor
customer service, etc.) and all items deducted or excluded
from Transaction Revenues to produce Gross Margin.
3.6.2. Fraudulent Transactions. To the extent permitted by
------ ------------------------
applicable laws, IL will provide AOL with an prompt report of
any fraudulent order, including the date, screenname and
amount associated with such order, following IL obtaining
knowledge that the order is, in fact, fraudulent.
3.7. Other Agreements. To the extent IL enters any arrangement with AOL
---- -----------------
for distribution of the Affiliated IL Site through AOL's other
properties (e.g., Digital City), the revenue sharing described above
will not, unless agreed upon by the parties thereto, apply to revenues
generated pursuant to such arrangement (i.e., AOL will not be entitled
to "double dipping").
4. RESERVED.
- -- --------
5. TERM; RENEWAL; TERMINATION.
- -- --------------------------
5.1. Term. Unless earlier terminated as set forth herein, the initial term
---- -----
of this Agreement will be two (2) years from the Effective Date (the
"Term").
5.2. Renewal. The Agreement may be renewed only by mutual agreement of the
---- --------
Parties..
5.3. Termination at End of Year One. Either Party may terminate the
---- -------------------------------
Agreement as of the end of Year One upon written notice to the other
Party given at least sixty (60) days prior to the end of Year One.
5.4. Termination for Breach. Except as expressly provided elsewhere in
---- -----------------------
this Agreement, either Party may terminate this Agreement at any time
in the event of a material breach of the Agreement by the other Party
which remains uncured after thirty (30) days written notice thereof to
the other Party (or such shorter period as may be specified elsewhere
in this Agreement); provided that AOL will not be required to provide
notice to IL in connection with IL's failure to make any payment to
AOL required hereunder (and the cure period will therefore begin upon
IL's failure to make any payment when due and payable hereunder and
last for thirty (30) days). Notwithstanding the foregoing, in the
event of a material breach of a provision that expressly requires
action to be completed within an express period shorter than 30 days
(e.g., failure to provide a bug fixes within specified times pursuant
to Exhibit E) (a "Short Cure Period"), either Party may terminate this
Agreement if the breach remains uncured after written notice thereof
to the other Party.
5.5. Termination for Bankruptcy/Insolvency. Either Party may terminate
---- --------------------------------------
this Agreement immediately following written notice to the other Party
if the other Party (i) ceases to do business in the normal course
without an immediate successor, (ii) becomes or is declared bankrupt,
(iii) is the subject of any proceeding related to its liquidation or
insolvency (whether voluntary or involuntary) which is not dismissed
within ninety (90) calendar days or (iv) makes an assignment for the
benefit of creditors.
7
<PAGE>
Confidential
5.6. Linking After Termination/Expiration. Upon expiration or termination
---- ------------------------------------
hereof, the Parties will discuss in good faith an alternative linking
arrangement (e.g., whereby AOL may be entitled to continue providing
links on the AOL Network so that AOL Users can access the Affiliated
IL Site, and, in return, IL will continue to make the revenue-sharing
payments to AOL.
6. ARBITRATION. The Parties will establish a "Management Committee" made up of
- -- -----------
two (2) senior executives from each of the Parties for the purpose of
resolving Disputes (as defined below). If the Parties are unable to resolve
any dispute, controversy or claim arising under this Agreement (excluding
any disputes relating to intellectual property rights or confidentiality)
(each a "Dispute"), such Dispute shall be submitted for resolution by the
Management Committee. If the Management Committee is unable to resolve the
Dispute within ten (10) business days after submission to them, the Dispute
shall be solely and finally settled by arbitration in Washington, D.C.,
under the auspices of the American Arbitration Association; provided that
the Federal Rules of Evidence shall apply in toto to any such Dispute and,
-------
subject to the time constraints described below, the Federal Rules of Civil
Procedure shall apply with respect to discovery. The arbitrator may enter a
default decision against any Party who fails to participate in the
arbitration proceedings. The decision of the arbitrator on the points in
dispute shall be final, unappealable and binding, and judgment on any award
may be entered in any court having jurisdiction thereof. Neither Party shall
be excused from performing its obligations hereunder during the pendency of
such arbitration. Notwithstanding the foregoing, consistent with the
Parties' desire to avoid waste of time and unnecessary expense, any Dispute
arising from any provision of the Agreement which provides for the Parties
to reach mutual agreement as to certain terms therein (each, a "Mutual
Agreement Clause") shall not be submitted to arbitration but shall be
resolved in good faith by the Management Committee; provided that prior to
submission of any Dispute relating to a Mutual Agreement Clause to the
Management Committee, each Party will negotiate in good faith regarding the
subject matter of such clause and will not unreasonably withold or delay its
acceptance of the other Party's proposed terms.
7. STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth
- -- --------------
on Exhibit F attached hereto and Legal Terms & Conditions set forth on
Exhibit G attached hereto are each hereby made a part of this Agreement.
8
<PAGE>
Confidential
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. INTERNET LIQUIDATORS INTERNATIONAL, INC.
By: _______________________________ By: _______________________________
Print Name: ________________________ Print Name: ________________________
Title: ______________________________ Title: ______________________________
9
<PAGE>
Confidential
EXHIBIT A
Definitions
-----------
The following definitions will apply to this Agreement:
Additional IL Channel. Any third-party distribution channel (e.g., an
- ---------------------
Interactive Service) through which a version or portion of the Affiliated IL
Site or any IL Interactive Site (or, in each case, any of the Products or other
Content contained therein) is made available.
Advertising Minimum. (i) [Confidential Information filed separately with the
- -------------------
SEC] per thousand entries per month by AOL Members into the Affiliated IL Site
or (ii) such different rate or rates as AOL may establish based upon market
conditions and publish during the Term.
Advertising Revenues. The combination of AOL Advertising Revenues and Internet
- --------------------
Advertising Revenues:
AOL Advertising Revenues. Aggregate amounts collected plus the fair market
------------------------
value of any other compensation received (such as barter advertising) by
IL, AOL or either Party's agents, as the case may be, arising from the
license or sale of Advertisements, less applicable Advertising Sales
Commissions; provided that, in order to ensure that AOL receives fair value
in connection with Advertisements, IL will be deemed to have received no
less than the Advertising Minimum in instances when IL makes an
Advertisement available to a third party at a cost below the Advertising
Minimum. AOL Advertising Revenues does not include amounts arising from
Advertisements on any screens or forms preceding, framing or otherwise
directly associated with the Affiliated IL Site, which will be sold
exclusively by AOL.
Internet Advertising Revenues. For each Advertisement on any IL
-----------------------------
Interactive Site linked to the Affiliated IL Site, the product of:
[Confidential Information filed separately with the SEC] and such amount
would be subject to the revenue sharing described in Section 3.3. IL will
be responsible for calculating the Internet Advertising Quotient related to
Internet Advertising Revenues. For any period during which IL fails to
calculate the Internet Advertising Quotient (other than as a sole result of
AOL's failure to provide necessary Impressions information), such quotient
will be deemed to be one hundred percent (100%).
Advertising Sales Commission. In the case of an Advertisement, (i) actual
- ----------------------------
amounts paid as commission to third party agencies in connection with sale of
the Advertisement or (ii) [Confidential Information filed separately with the
SEC], in the event the Party has sold the Advertisement directly and will not be
deducting any third party agency commissions.
Affiliate. (i) in the case of AOL, any agent, distributor, or franchisee of
- ---------
AOL, or any entity controlling, controlled by or in common control with,
directly or indirectly, AOL, or in which AOL holds, directly or indirectly, at
least a [Confidential Information filed separately with the SEC] equity interest
and (ii) in the case of IL, any entity controlling, controlled by or in common
control with, directly or indirectly, IL.
Affiliated IL Site. The specific area to be promoted and distributed by AOL
- ------------------
hereunder in which IL can market and complete transactions regarding its
Products. Depending on the form in which the Affiliated IL Site is made
available for distribution through the AOL Network, the Affiliated IL Site is
referred to herein as a Linked IL Site, a Customized IL Site or a Rainman IL
Site.
AOL Look and Feel. The elements of graphics, design, organization,
- -----------------
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with IL Sites within the AOL Service.
10
<PAGE>
Confidential
AOL Member. Any authorized user of the AOL Service, including any sub-accounts
- ----------
using the AOL Service under an authorized master account.
AOL Network. (i) The AOL Service and (ii) any other product or service owned,
- -----------
operated, distributed or authorized to be distributed by or through AOL or its
Affiliates worldwide through which such party elects to offer the Licensed
Content (which products or services may include, without limitation, the
international versions of the AOL Service, Interactive Sites promoting AOL
products and services, any "offline" products or services of AOL or its
Affiliates and any CD-ROM merchandising products which may be distributed by AOL
or its Affiliates).
AOL Purchaser. (i) Any person or entity who enters the Affiliated IL Site from
- -------------
the AOL Service or AOL.com including, without limitation, from any third party
area therein (to the extent entry from such third party area is traceable
through both Parties' commercially reasonable efforts), and generates
Transaction Revenues or Additional Revenues (regardless of whether such person
or entity provides an e-mail address during registration which includes a domain
other than an "AOL.com" domain); and (ii) any other person or entity who, when
purchasing a product, good or service through a IL Interactive Site, provides an
AOL.com domain name as part of such person or entity's e-mail address; provided
that any person or entity who has previously satisfied the definition of AOL
Purchaser will remain an AOL Purchaser, and any subsequent purchases by such
person or entity will also give rise to Transaction Revenues and Additional
Revenues hereunder (and will not be conditioned on the person or entity's
satisfaction of clauses (i) or (ii) above).
AOL Service. The U.S. version of the America Online brand service, specifically
- -----------
excluding (a) AOL.com or any other AOL Interactive Site, (b) the international
versions of the AOL Service (e.g., AOL Japan), (c) "Driveway," "NetFind," "AOL
Instant Messenger" or any similar product or service offered by or through the
U.S. version of the America Online brand service, (d) "Digital Cities,"
"WorldPlay," "Entertainment Asylum," the "Hub," or any similar "sub-service"
offered by or through the U.S. version of the America Online brand service and
(e) any programming or content area offered by or through the U.S. version of
the America Online brand service which is provided and operationally controlled
by a third-party content provider and not by AOL (or any successor to or
substitute for any of the foregoing properties in clauses (a) through (e)).
AOL User. Any user of the AOL Service, AOL.com or the AOL Network.
- --------
AOL.com. AOL's primary Internet-based Interactive Site marketed under the
- -------
"AOL.COM" brand, specifically excluding (a) the AOL Service, (b) the
international versions of the AOL Service (e.g., AOL Japan), (c) "Driveway,"
"NetFind," "AOL Instant Messenger" or any similar product or service offered by
or through such site or any other AOL Interactive Site, (d) "Digital Cities,"
"WorldPlay," "Entertainment Asylum," the "Hub," or any similar "sub-service"
offered by or through such site or any other AOL Interactive Site and (e) any
programming or content area offered by or through such site or any other AOL
Interactive Site which is provided and operationally controlled by a third-party
content provider and not by AOL (or any successor to or substitute for any of
the foregoing properties in clauses (a) through (e)).
Confidential Information. The definition of Confidential Information contained
- ------------------------
in Schedule A to the Prior Agreement is incorporated herein by reference.
Content. Information, materials, features, Products, advertisements,
- -------
promotions, links, pointers and software, including any modifications, upgrades,
updates, enhancements and related documentation.
Customized IL Site. Any version or portion of IL's site on the World Wide Web
- ------------------
(or any other IL Interactive Site, as expressly agreed in writing by the
Parties) which is customized for AOL Members and/or AOL Users pursuant to the
Agreement.
Dutch Auction. An auction in which a Product is offered for sale starting a
- -------------
preset price which declines incrementally over a limited, preset time period
until a bidder matches the price offered, thereby completing the transaction.
11
<PAGE>
Confidential
Gross Margin. Transaction Revenues less cost of goods sold, cost of shipping
- ------------
and reasonable deductions for bad debts.
Impressions. Any access by a user to the file representing the page containing
- -----------
the applicable advertisement, promotion or other similar placement required
under this Agreement.
Interactive Service. Any entity (other than AOL) that offers online or Internet
- -------------------
connectivity (or any successor form of connectivity), aggregates and/or
distributes third-party interactive Content, or provides interactive
navigational services (including, without limitation, any online service
providers, Internet service providers, WebTV, @Home or other broadband
providers, search or directory providers, "push" product providers such as the
Pointcast Network or providers of interactive environments such as Microsoft's
"Active Desktop").
Interactive Site. Any interactive site or area (other than the Affiliated IL
- ----------------
Site) which is managed, maintained or owned by IL or its agents or to which IL
provides and/or licenses information, content or other materials, including, by
way of example and without limitation, (i) an IL site on the World Wide Web
portion of the Internet or (ii) a channel or area delivered through a "push"
product such as the Pointcast Network or interactive environment such as
Microsoft's proposed "Active Desktop."
Licensed Content. All Content offered through the Affiliated IL Site pursuant
- ----------------
to this Agreement, including any modifications, upgrades, updates, enhancements,
and related documentation.
Linked IL Site. Any version or portion of the Affiliated IL Site that consists
- --------------
of IL's site on the World Wide Web (or any other IL Interactive Site, as
expressly agreed in writing by the Parties).
Online Auction. A Yankee Auction (as defined in the Prior Agreement) or a Dutch
- --------------
Auction.
Product. Any product, good or service which IL offers, sells or licenses to AOL
- -------
Users through (i) the Affiliated IL Site (including through any Interactive Site
linked thereto), (ii) an "offline" means (e.g., toll-free number) for receiving
orders related to specific offers within the Affiliated IL Site requiring
purchasers to reference a specific promotional identifier or tracking code,
including, without limitation, products sold through surcharged downloads (to
the extent expressly permitted hereunder) or (iii) any email solicitations sent
to AOL Users.
Rainman IL Site. Any version or portion of the Affiliated IL Site that is
- ---------------
created using AOL's proprietary "Rainman" technology.
Transaction Revenues. Aggregate amounts paid by AOL Purchasers in connection
- --------------------
with the sale, licensing, distribution or provision of any Products, including,
in each case, handling, shipping, service charges, and excluding, in each case,
(a) amounts collected for sales or use taxes or duties, (b) credits and
chargebacks for returned or cancelled goods or services and (c) credit card
transaction fees.
12
<PAGE>
Confidential
EXHIBIT B
IL Cross-Promotion
------------------
Online
- ------
In each Interactive Site controlled by IL, IL will include:
. A prominent promotional banner linking to AOL-designated Content on AOL.com
or the AOL Service (if feasible) appearing "above the fold" on the first
screen of the IL Interactive Site
. A prominent "Try AOL" feature elsewhere in the site where users can obtain
promotional information about AOL products and services and, at AOL's option,
download or order AOL's then-current version of client software for the AOL
Service or software for any other AOL products or services (e.g., AOL's
Instant Messenger service)/1/; and
. To the extent IL offers or promotes any products or services similar to AOL's
"component" products and services (e.g., Netfind or other search/directory
service, NetMail or free/discount email service, Instant Messenger,
yellow/white pages, "My AOL"-type personalized information, classifieds,
etc.), prominent offers or promotions related to such AOL-designated products
or services.
Offline
- -------
In IL's television, radio and print advertisements and in any publications,
programs, features or other forms of media over which IL exercises at least
partial editorial control, IL will include:
. Specific references or mentions (verbally where feasible) of the Affiliated
IL Site's availability through America Online(R) prior to, and at least as
prominent as, any reference to any IL Interactive Site; and
. For instance, listing of the "URL(s)" the IL Interactive Site will be
accompanied by the AOL "keyword" for the Affiliated IL Site.
In addition, the Parties will discuss (a) opportunities to bundle AOL software
with IL fulfillment packages and other mailings and (b) terms by which AOL will
have access to IL customer lists.
- ---------------------
/1/ AOL will pay ILI a standard bounty for each person who registers for the AOL
Network using ILI's special identifier for this promotion and subsequently pays
AOL at least three monthly usage fees for the use of the AOL Network. Note that
if this promotion is delivered through Microsoft's Active Desktop or any other
"push" product (an "Operating System"), such feature will link users directly to
AOL software within the Operating System or direct users without Internet access
to an AOL application setup program within the Operating System (all subject to
any standard policies of the Operating System).
13
<PAGE>
Confidential
EXHIBIT C
Description of Products and Other Content
-----------------------------------------
Direct Sales Products
- ---------------------
1. Computers and Computer-Related Products
Desktop Computers
Notebook Computers
Monitors
Upgrades & Accessories
2. Printers, Scanners & Copiers
3. Games
4. Consumer Electronics
5. Cameras
6. Sporting Goods
7. Jewelry
8. Appliances
9. Gifts
10. Rare Books
11. Collectibles
12. Toys
13. Memorabilia - sports, entertainment & other
14. Housewares
15. Apparel and Wearables
Auction Products
- ----------------
1. Computers and Computer-Related Products
Desktop Computers
Notebook Computers
Monitors
Upgrades & Accessories
2. Printers, Scanners & Copiers
3. Games
4. Consumer Electronics
5. Cameras
6. Sporting Goods
7. Jewelry
8. Travel
9. Appliances
10. Gifts
11. Rare Books
12. Collectibles
13. Toys
14. Memorabilia - sports, entertainment & other
15. Housewares
16. Apparel and Wearables
14
<PAGE>
Confidential
EXHIBIT D
Customized IL Site Requirements
-------------------------------
Competitive Content. The Customized IL Site will not contain advertisements,
- -------------------
promotions, links, sponsorships or similar content (i) on behalf of any
Interactive Service or (ii) otherwise in conflict with AOL's standard
advertising policies or any AOL agreements with third parties in existence as of
the Effective Date.
Traffic Flow. IL will take reasonable efforts, as agreed by the Parties, to
- ------------
insure that AOL traffic is either kept within the Customized IL Site or
channelled back into the AOL Network (with the exception of advertising links
sold and implemented pursuant to the Agreement). In no event will traffic link
to an Interactive Service. The Parties will work together on mutually
acceptable links (including links back to the AOL Service and AOL.com) within
the Customized IL Site in order to create a robust and engaging AOL User
experience.
Hosting. IL will provide all computer servers, routers, switches and
- -------
associated hardware in an amount reasonably necessary to meet anticipated
traffic demands, adequate power supply (including generator back-up) and HVAC,
adequate insurance, adequate service contracts and all necessary equipment
racks, floor space, network cabling, and power distribution to support the
Customized IL Site. In the event IL requests AOL to assume any of the foregoing
responsibilities (e.g., providing floor space for a server at AOL facilities)
and AOL agrees to do so, IL will pay AOL's then-standard hosting fees.
Technical Performance. IL will perform the following technical obligations (and
- ---------------------
any reasonable updates thereto from time to time by AOL):
[Confidential Information filed separately with the SEC]
15
<PAGE>
Confidential
EXHIBIT E
Operating Standards
-------------------
General. IL will take all reasonable efforts to ensure that the Affiliated IL
- -------
Site (including the Products and other Content contained therein) will be in the
top three (3) in the Online Auctions industry with respect to performance and to
quality averages or standards, as follows. The (i) scope and selection of
Products, (ii) quality of Products, (iii) customer service and fulfillment
associated with the marketing and sale of Products and (iv) ease of use of the
Affiliated IL Site will, with respect to each measure, be reasonably competitive
in all respects taken as a whole with that which is offered by any IL
competitors. In addition Parties to agree on certain additional metrics
specifically related to the Affiliated IL Site.
IL Capacity. IL will maintain sufficient servers, software and other technical
- -----------
infrastructure necessary for IL to receive and support traffic from the AOL
Service on a timely basis, without producing material delays. In the event IL
fails to satisfy this requirement AOL will have the right (in addition to any
other remedies available to AOL hereunder) to defer the promotions it provides
to IL hereunder, as mutually agreed, to the extent necessary to minimize user
delays until such time as IL corrects its infrastructure deficiencies. To the
extent AOL fails to make necessary adjustments to the AOL technical
infrastructure for capacity increases, IL will not be penalized pursuant to the
foregoing.
Speed; Accessibility. IL will ensure that the performance and availability of
- --------------------
the Affiliated IL Site (a) is monitored on a continuous, 24/7 basis and (b)
remains competitive in all material respects taken as a whole with the
performance and availability of other similar sites based on similar form
technology. If any or all portions of the Affiliated IL Site are contained
within HTML-based World Wide Web forms (or any other forms created using a
technology other than AOL's proprietary form technology) ("Web Forms") (i.e., if
the Affiliated IL Site is a Linked IL Site or a Customized IL Site), IL will
take all commercially reasonable steps to ensure that: (i) the functionality and
features within the Web Forms are optimized for the AOL client software then in
use by AOL Members; and (ii) the Web Forms are designed and populated in a
manner that minimizes delays when AOL Members and AOL Users attempt to access
such Web Forms.
User Interface. IL will maintain a graphical user interface within the
- --------------
Affiliated IL Site that is competitive in all material respects with interfaces
of other similar sites based on similar form technology. AOL reserves the right
to conduct focus group testing to assess IL's competitiveness in this regard.
The parties also incorporate herein by reference Section 2.9 of the Prior
Agreement.
Service Level Response. The parties incorporate herein by reference Section
- ----------------------
2.14 of the Prior Agreement.
Improvements. IL will perform any unfinished improvements required pursuant to
- ------------
Section 2.8 of the Prior Agreement.
Fraud. IL will diligently monitor the Affiliated IL Site for fraud and abuse
- -----
and will provide adequate staffing for maintenance of both "Rainman" forms and
Web Forms to the extent contained in the Affiliated IL Site. In the event that
fraudulent activity associated with use of the Affiliated IL Site exceeds two
times AOL's average occurrence of fraud (weighted by number of transactions) for
a similar time frame across its credit card transaction activities through the
AOL Service (as measurable by AOL) (the "Average Fraud Level"), then the Parties
will make such modifications to any and all applicable operations, systems,
information flows related to fraud prevention and billing as are necessary to
reduce such fraudulent activity to no greater than two times the Average Fraud
Level.
Customer Support Services:
- -------------------------
IL will:
16
<PAGE>
Confidential
1. Provide customer support assistance to customers of the Affiliated IL Site
by electronic mail and through a dedicated 800 number during normal business
hours and will provide and manage the 800 number service, including a
customized script, which will be developed in conjunction with AOL prior to
the commencement of customer support services being provided.
2. Answer product related questions and provide related online direction.
3. Manage account authorization issues
4. Provide assistance on transaction activity
5. Pass via warm transfer to an AOL support center (to be designated by AOL)
customers calls to the extent required under the circumstances (and as
instructed by AOL customer care representatives) and provide the information
within IL's possession related to transaction activity necessary to service
such customers calls.
6. Maintain the following service level:
(a) Calls must be routed to a responsible support representative in as
efficient a manner as possible, preferably with no more than one transfer after
the call is answered.
(b) IL Support Call personnel will conduct their services in a friendly
and responsive manner, with the intention of providing a high level of member
satisfaction.
(c) IL will provide AOL the appropriate telephone number for warm transfer
to the IL Support Center of customers that have inadvertently called the AOL
Technical Support Call Center regarding inquiries relating to services provided
by IL.
(d) As of January 1, 1998, IL will provide reports to track usage of IL
customer service, including areas of support requested by customer and service,
number of email and phone queries and resolution of problems
7. IL will also work with AOL in developing policies (not otherwise addressed
herein) that are designed to combat any repeated customer service complaints and
to prevent deceptive selling practices.
24x7 Monitoring. AOL Network Operations Center (NOC) will work with a IL-
- ---------------
designated technical contact in the event of any performance malfunction or
other emergency related to the Affiliated IL Site and will either assist or work
in parallel with IL's contact using IL tools and procedures, as applicable. The
Parties will develop a process to monitor performance and member behavior with
respect to access, capacity, security and related issues both during normal
operations and during special promotions/events.
Telecommunications. The Parties agree to explore encryption methodology to
- ------------------
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component failure
will significantly impact AOL Users. The network will be sized such that no
single line runs at more than 70% average utilization for a five minute peak in
a daily period.
Security Review. IL and AOL will work together to perform any appropriate
- ---------------
ongoing security reviews of, and to perform tests of, the IL system, network,
and service security in order to evaluate the security risks and provide
recommendations to IL. IL will use commercially reasonable best efforts to fix
any security risks or breaches of security as may be identified by AOL's
Operations Security to be performed on behalf of IL will be as determined by AOL
in its sole discretion.
17
<PAGE>
Confidential
EXHIBIT F
Standard Online Commerce Terms & Conditions
-------------------------------------------
1. AOL Network Distribution. IL will not authorize or permit any third party to
------------------------
distribute or promote the Affiliated IL Site through the AOL Network absent
AOL's prior written approval.
2. Provision of Other Content. Except with respect to the Products provided in
--------------------------
Exhibit C, IL will not include third party products, services, content or
programming ("Third Party Content") or links to Third Party Content (excluding
advertising links pursuant to the Agreement) in the Affiliated IL Site without
AOL's prior written approval. IL will be entitled to provide additional Products
or other Content in addition to the Products and other Content specifically
described in Exhibit C (the "Additional Content"); provided that IL's provision
of any Additional Content will be subject to AOL's prior written approval.
Except as expressly agreed in writing by AOL, AOL will have no promotional
obligations with respect to any Additional Content or Third Party Content.
3. Contests. IL will take all steps necessary to ensure that any contest,
--------
sweepstakes or similar promotion conducted or promoted through the Affiliated IL
Site (a "Contest") complies with all applicable federal, state and local laws
and regulations.
4. Navigational Icons. Subject to the prior consent of IL, which consent will
------------------
not be unreasonably withheld, AOL will be entitled to establish navigational
icons, links and pointers connecting the Affiliated IL Site (or portions
thereof) with other content areas on or outside of the AOL Network.
5. Links to Other Sites. Except as otherwise expressly allowed hereunder, IL
--------------------
will not establish any links between the Affiliated IL Site and any other area
on or outside of the AOL Network, including, without limitation, sites on the
World Wide Web portion of the Internet or other Interactive Sites, without the
prior written approval of AOL. In the event that AOL approves any such links or
pointers, such approval will, in each case, be subject to IL's compliance with
the then-current terms and conditions for such links or pointers, as such terms
and conditions may be amended by AOL from time to time, acting reasonably.
6. Disclaimers. Upon AOL's request, IL agrees to include within the Rainman
-----------
Screens a product disclaimer (the specific form and substance to be mutually
agreed upon by the Parties) indicating that transactions are solely between IL
and AOL Users purchasing products from IL.
7. AOL Look and Feel. IL acknowledges and agrees that AOL will own all right,
-----------------
title and interest in and to the elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with online areas contained within the AOL Network ("the AOL Look and Feel"),
subject to IL's ownership rights in any IL trademarks or copyrighted material
within the Affiliated IL Site and the IL Look and Feel.
8. Management of the Affiliated IL Site. IL will manage, review, delete, edit,
------------------------------------
create, update and otherwise manage all Products available on or through the
Affiliated IL Site, in a timely and professional manner and in accordance with
the terms of this Agreement. IL will ensure that each Affiliated IL Site is
current, accurate and well-organized at all times. IL warrants that the
Affiliated IL Site, including all Products and Contents available therein: (i)
will not infringe on or violate any copyright, trademark, U.S. patent or any
other third party right; and (ii) will not contain any Product which violates
any applicable law or regulation. AOL will have no obligations with respect to
the Products available on or through the Affiliated IL Site, including, but not
limited to, any duty to review or monitor any such Products.
9. Removal of Content. AOL will have the right to remove, or direct IL to
------------------
remove, any Content in the Affiliated IL Site which, as reasonably determined by
AOL (i) violates AOL's then-standard Terms of Service (as set forth on the AOL
Service) or the terms of this Agreement or (ii) is inconsistent in any material
manner with the terms of the Agreement or the scope and purpose of the
Affiliated IL Site as described in Exhibit C (including, without limitation,
with respect to both (i) and (ii), any features, functionality or technology) or
(iii) is otherwise in conflict with AOL's programming objectives or its existing
contractual commitments to third parties. In addition, in the event that AOL
reasonably believes that software, technology or other technical components of
the Affiliated IL Site will materially affect AOL network or other operations,
IL will work in good faith with AOL to limit access to such components from the
AOL Service. If the Affiliated IL Site is a Linked IL Site and such site
contains any Content which AOL desires to remove or have removed pursuant to the
foregoing, then IL will take all commercially reasonable steps to block access
by AOL Users to such Content using IL's then-available technology. In the event
that IL cannot, through such
18
<PAGE>
Confidential
efforts, block access to the Content in question, then IL will provide AOL
prompt written notice of such fact no later than five (5) days after AOL
notifies IL of AOL's objection to such Content. AOL may then, at its option,
either (i) restrict access from the AOL Network to the Content in question using
technology available to AOL or (ii) terminate all links, promotions and
advertisements for the Affiliated IL Site until such time as the Content in
question are no longer displayed. IL will cooperate with AOL's reasonable
requests to the extent AOL elects to implement any of the foregoing access
restrictions.
10. Duty to Inform. IL will promptly inform AOL of any information related to
--------------
the IL Service or Affiliated IL Site which could reasonably lead to a claim,
demand, or liability of or against AOL and/or its affiliates by any third
party.
11. Customer Service. It is the sole responsibility of IL to provide customer
----------------
service to persons or entities purchasing Products through the AOL Network
("Customers"). IL will bear full responsibility for all customer service,
including without limitation, order processing, billing, fulfillment, shipment,
collection and other customer service associated with any Products offered, sold
or licensed through the Affiliated IL Site, and AOL will have no obligations
whatsoever with respect thereto. IL will receive all emails from Customers via a
computer available to IL's customer service staff and generally respond to such
emails within one business day of receipt. IL will receive all orders
electronically and generally process all orders within one business day of
receipt, provided Products ordered are not advance order items. IL will ensure
that all orders of Products are received, processed, fulfilled and delivered on
a timely and professional basis. IL will offer AOL Users who purchase Products
through such Affiliated IL Site a money back satisfaction guarantee. IL will
bear all responsibility for compliance with federal, state and local laws in the
event that Products are out of stock or are no longer available at the time an
order is received. IL will also comply with the requirements of any federal,
state or local consumer protection or disclosure law. Payment for Products will
be collected by IL directly from customers. IL's order fulfillment operation
will be subject to AOL's reasonable review.
12. Production/Technical Work. In the event that IL requests AOL's production
-------------------------
or technical assistance in connection with (i) ongoing programming and
maintenance related to the Affiliated IL Site, (ii) a redesign of or addition to
the Affiliated IL Site (e.g., a change to an existing screen format or
construction of a new custom form), (iii) production to modify work performed by
a third party provider or (iv) any other type of production work, IL will work
with AOL to develop a detailed production plan for the requested production
assistance (the "Production Plan"). Following receipt of the final Production
Plan, AOL will notify IL of (i) AOL's availability to perform the requested
production work, (ii) the proposed fee or fee structure for the requested
production and maintenance work and (iii) the estimated development schedule for
such work. To the extent the Parties reach agreement regarding implementation of
agreed-upon Production Plan, such agreement will be reflected in a separate work
order signed by the Parties. To the extent IL elects to retain a third party
provider to perform any such production work, work produced by such third party
provider must generally conform to AOL's production Standards & Practices (a
copy of which will be supplied by AOL to IL upon request). The specific
production resources which AOL allocates to any production work to be performed
on behalf of IL will be as determined by AOL in its sole discretion.
13. Overhead Accounts. To the extent AOL has granted IL any overhead accounts
-----------------
on the AOL Network, IL will be responsible for the actions taken under or
through its overhead accounts, which actions are subject to AOL's applicable
Terms of Service and for any surcharges, including, without limitation, all
premium charges, transaction charges, and any applicable communication
surcharges incurred by any overhead Account issued to IL, but IL will not be
liable for charges incurred by any overhead account relating to AOL's standard
monthly usage fees and standard hourly charges, which charges AOL will bear.
Upon the termination of this Agreement, all overhead accounts, related screen
names and any associated usage credits or similar rights, will automatically
terminate. AOL will have no liability for loss of any data or content related to
the proper termination of any overhead account.
14. Merchant Certification Program. IL will participate in any generally
------------------------------
applicable "Certified Merchant" program operated by AOL or its authorized agents
or contractors. Such program may require merchant participants on an ongoing
basis to meet certain reasonable standards relating to provision of electronic
commerce through the AOL Service and may also require the payment of certain
reasonable certification fees to the applicable entity operating the program.
19
<PAGE>
Confidential
EXHIBIT G
Legal Terms & Conditions
------------------------
1. Promotional Materials/Press Releases. Each Party will submit to the other
------------------------------------
Party, for its prior written approval, which will not be unreasonably withheld
or delayed, any marketing, advertising, press releases, and all other
promotional materials related to the Affiliated IL Site and/or referencing the
other Party and/or its trade names, trademarks, and service marks (the
"Materials"); provided, however, that either Party's use of screen shots of the
Affiliated IL Site for promotional purposes will not require the approval of the
other Party so long as the AOL Network is clearly identified as the source of
such screen shots. Each Party will solicit and reasonably consider the views of
the other Party in designing and implementing such Materials. Once approved,
the Materials may be used by a Party and its affiliates for the purpose of
promoting the Affiliated IL Site and the content contained therein and reused
for such purpose until such approval is withdrawn with reasonable prior notice.
In the event such approval is withdrawn, existing inventories of Materials may
be depleted. Notwithstanding the foregoing, either Party may issue press
releases and other disclosures as required by law or as reasonably advised by
legal counsel without the consent of the other Party and in such event, prompt
notice thereof will be provided to the other Party.
2. License.
-------
2.1. IL hereby grants AOL a non-exclusive license to market, license,
distribute, reproduce, display, perform, transmit and promote the Affiliated IL
Site and the Products contained therein (or any portion thereof) through such
areas or features of the AOL Network as AOL deems appropriate, subject to
Section 2.2. AOL Users will have the right to access and use the Affiliated IL
Site.
2.2. For any country in which AOL is not operating (i.e., AOL is not then
offering IL's Online Auction service and physically shipping product to
consumers in such country), IL may give AOL written notice that IL wishes to
reserve such country for 3 months in order to permit IL to attempt to negotiate
an exclusive license with a third party for such country to exploit the IL
Online Auction technology. Upon receiving such notice AOL will have 30 business
days to demonstrate to IL that AOL has expended significant effort to prepare to
operate in such country and has firm, written commitments to operate in such
country within the next year. Failing such demonstration, IL shall have 3
months in which to negotiate a term sheet with a third party and an additional 2
months to conclude the exclusive transaction. If IL is unable to obtain such
term sheet or to conclude the exclusive transaction within applicable period,
AOL shall be free to operate on a non-exclusive basis in such country.
3. Trademark License. In designing and implementing the Materials and subject
-----------------
to the other provisions contained herein, IL will be entitled to use the
following trade names, trademarks, and service marks of AOL: the "America
Online" brand service, "AOL" service/software and AOL's triangle logo; and AOL
and its Affiliates will be entitled to use the trade names, trademarks, and
service marks of IL (collectively, together with the AOL marks listed above, the
"Marks"); provided that each Party: (i) does not create a unitary composite mark
involving a Mark of the other Party without the prior written approval of such
other Party; and (ii) displays symbols and notices clearly and sufficiently
indicating the trademark status and ownership of the other Party's Marks in
accordance with applicable trademark law and practice.
4. Ownership of Trademarks. Each Party acknowledges the ownership of the other
-----------------------
Party in the Marks of the other Party and agrees that all use of the other
Party's Marks will inure to the benefit, and be on behalf, of the other Party.
Each Party acknowledges that its utilization of the other Party's Marks will not
create in it, nor will it represent it has, any right, title, or interest in or
to such Marks other than the licenses expressly granted herein. Each Party
agrees not to do anything contesting or impairing the trademark rights of the
other Party.
5. Quality Standards. Each Party agrees that the nature and quality of its
-----------------
products and services supplied in connection with the other Party's Marks will
conform to quality standards set by the other Party. Each Party agrees to
supply the other Party, upon request, with a reasonable number of samples of any
Materials publicly disseminated by such Party which utilize the other Party's
Marks. Each Party will comply with all applicable laws, regulations, and
customs and obtain any required government approvals pertaining to use of the
other Party's marks.
6. Infringement Proceedings. Each Party agrees to promptly notify the other
------------------------
Party of any unauthorized use of the other Party's Marks of which it has actual
knowledge. Each Party will have the sole right and discretion to bring
proceedings alleging infringement of its Marks or unfair competition related
thereto; provided, however, that each Party agrees to provide the other Party
with its reasonable cooperation and assistance with respect to any such
infringement proceedings.
7. Representations and Warranties. The representations
------------------------------
20
<PAGE>
Confidential
and warranties ontained in Sections 5.1(a), 5.2, 5.3, 5.4, 5.5, 5.6, 5.7 and 5.9
of the Prior Agreement are hereby incorporate by reference into this Agreement.
In addition, each Party represents and warrants to the other Party that: (i)
such Party has the full corporate right, power and authority to enter into this
Agreement and to perform the acts required of it hereunder; (ii) the execution
of this Agreement by such Party, and the performance by such Party of its
obligations and duties hereunder, do not and will not violate any agreement to
which such Party is a party or by which it is otherwise bound; (iii) when
executed and delivered by such Party, this Agreement will constitute the legal,
valid and binding obligation of such Party, enforceable against such Party in
accordance with its terms; and (iv) such Party acknowledges that the other Party
makes no representations, warranties or agreements related to the subject matter
hereof that are not expressly provided for in this Agreement.
8. Confidentiality. Each Party acknowledges that Confidential Information may
---------------
be disclosed to the other Party during the course of this Agreement. Each Party
agrees that it will take reasonable steps, at least substantially equivalent to
the steps it takes to protect its own proprietary information, during the Term
of this Agreement, and for a period of three years following expiration or
termination of this Agreement, to prevent the duplication or disclosure of
Confidential Information of the other Party, other than by or to its employees
or agents who must have access to such Confidential Information to perform such
Party's obligations hereunder, who will each agree to comply with this section.
Notwithstanding the foregoing, either Party may issue a press release or other
disclosure containing Confidential Information without the consent of the other
Party, to the extent such disclosure is required by law, rule, regulation or
government or court order. In such event, the disclosing Party will provide at
least five (5) business days prior written notice of such proposed disclosure to
the other Party. Further, in the event such disclosure is required of either
Party under the laws, rules or regulations of the Securities and Exchange
Commission or any other applicable governing body, such Party will (i) redact
mutually agreed-upon portions of this Agreement to the fullest extent permitted
under applicable laws, rules and regulations and (ii) submit a request to such
governing body that such portions and other provisions of this Agreement receive
confidential treatment under the laws, rules and regulations of the Securities
and Exchange Commission or otherwise be held in the strictest confidence to the
fullest extent permitted under the laws, , rules or regulations of any other
applicable governing body.
9. Limitation of Liability; Disclaimer; Indemnification.
----------------------------------------------------
9.1. Liability. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE
---------
OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR
INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED IL
SITE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT
LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS
("COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN
LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A
THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO SECTION 9.3. EXCEPT
AS PROVIDED IN SECTION 9.3, NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR
MORE THAN $1,000,000; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE
AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY PURSUANT TO
SECTION 4.
9.2. No Additional Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
------------------------
AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL
NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED IL SITE, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY
WARRANTY REGARDING THE PROFITABILITY OF THE AFFILIATED IL SITE.
9.3. Indemnity. Either Party will defend, indemnify, save and hold harmless
---------
the other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable attorneys'
fees ("Liabilities"), resulting from the indemnifying Party's material breach of
any duty, representation, or warranty of this Agreement, except where
Liabilities result from the gross negligence or knowing and willful misconduct
of the other Party.
9.4. Claims. Each Party agrees to (i) promptly notify the other Party in
------
writing of any indemnifiable claim and give the other Party the opportunity to
defend or negotiate a settlement of any such claim at such other Party's
expense,
21
<PAGE>
Confidential
and (ii) cooperate fully with the other Party, at that other Party's expense, in
defending or settling such claim. AOL reserves the right, at its own expense, to
assume the exclusive defense and control of any matter otherwise subject to
indemnification by IL hereunder, and in such event, IL will have no further
obligation to provide indemnification for such matter hereunder.
9.5. Acknowledgment. AOL and IL each acknowledges that the provisions of this
--------------
Agreement were negotiated to reflect an informed, voluntary allocation between
them of all risks (both known and unknown) associated with the transactions
contemplated hereunder. The limitations and disclaimers related to warranties
and liability contained in this Agreement are intended to limit the
circumstances and extent of liability. The provisions of this Section 6 will be
enforceable independent of and severable from any other enforceable or
unenforceable provision of this Agreement.
10. Solicitation of AOL Users. During the Term of this Agreement, and for the
-------------------------
two-year period following the expiration or termination of this Agreement,
neither IL nor its agents will use the AOL Network to (i) solicit, or
participate in the solicitation of AOL Users when that solicitation is for the
benefit of any Interactive Service which could reasonably be construed to be or
become in competition with AOL or (ii) promote any services which could
reasonably be construed to be in competition with AOL including, but not limited
to, services available through the Internet. In addition, IL may not send AOL
Users e-mail communications promoting IL's Products through the AOL Network
without a "Prior Business Relationship." For purposes of this Agreement, a
"Prior Business Relationship" will mean that the AOL User has either (i) engaged
in a transaction with IL through the AOL Network or (ii) voluntarily provided
information to IL through a contest, registration, or other communication, which
included notice to the AOL User that the information provided by the AOL User
could result in an e-mail being sent to that AOL User by IL or its agents. A
Prior Business Relationship does not exist by virtue of an AOL User's visit to
an Affiliated IL Site (absent the elements above). More generally, IL will be
subject to any standard policies regarding e-mail distribution through the AOL
Network which AOL may implement.
11. Collection of User Information. IL is prohibited from collecting AOL
------------------------------
Member screennames and AOL User email addresses from public or private areas of
the AOL Network, except as specifically provided below. IL will ensure that any
survey, questionnaire or other means of collecting AOL Member screennames or AOL
User email addresses, names, addresses or other identifying information ("User
Information"), including, without limitation, requests directed to specific AOL
Member screennames or AOL User email addresses and automated methods of
collecting screennames (an "Information Request") complies with (i) all
applicable laws and regulations and (ii) any privacy policies which have been
issued by AOL in writing during the Term and of which IL has been given
reasonable prior notice (the "AOL Privacy Policies"); provided that AOL's
periodic publication and announcement of such policies generally to the AOL
Member base shall qualify as reasonable for purposes of the foregoing. Each
Information Request will clearly and conspicuously specify to the AOL Users at
issue the purpose for which User Information collected through the Information
Request will be used (the "Specified Purpose").
12. Use of User Information. IL will restrict use of the User Information
-----------------------
collected through an Information Request to the Specified Purpose. In no event
will IL (i) provide User Information to any third party (except to the extent
specifically (a) permitted under the AOL Privacy Policies or (b) authorized by
the members in question), (ii) rent, sell or barter User Information, (iii)
identify, promote or otherwise disclose such User Information in a manner that
identifies AOL Users as end-users of the AOL Network or (iv) otherwise use any
User Information in contravention of Section 10 above. Notwithstanding the
foregoing, in the case of AOL Purchasers who purchase Products from IL, IL will
be entitled to use User Information from such Purchasers as part of IL's
aggregate list of Customers; provided that IL's use does not in any way
identify, promote or otherwise disclose such User Information in a manner that
identifies Purchasers as end-users of the AOL Network. In addition, IL will not
use any User Information for any purpose (including any Specified Purpose) not
directly related to the business purpose of the Affiliated IL Site.
13. Excuse. Neither Party will be liable for, or be considered in breach of or
------
default under this Agreement on account of, any delay or failure to perform as
required by this Agreement as a result of any causes or conditions which are
beyond such Party's reasonable control and which such Party is unable to
overcome by the exercise of reasonable diligence.
14. Independent Contractors. The Parties to this Agreement are independent
-----------------------
contractors. Neither Party is an agent, representative or partner of the other
Party. Neither Party will have any right, power or authority to enter into any
agreement for or on behalf of, or incur any obligation or liability of, or to
otherwise bind, the other Party. This Agreement will not be interpreted or
construed to create an association, agency, joint venture or partnership between
the Parties or to impose any liability attributable to such a relationship upon
either Party.
15. Notice. Section 7.1 of the Prior Agreement is incorporated herein by
------
reference.
16. No Waiver. The failure of either Party to insist upon or enforce strict
---------
performance by the other Party of any
22
<PAGE>
Confidential
provision of this Agreement or to exercise any right under this Agreement will
not be construed as a waiver or relinquishment to any extent of such Party's
right to assert or rely upon any such provision or right in that or any other
instance; rather, the same will be and remain in full force and effect.
17. Return of Information. Upon the expiration or termination of this
---------------------
Agreement, each Party will, upon the written request of the other Party, return
or destroy (at the option of the Party receiving the request) all confidential
information, documents, manuals and other materials specified the other Party.
18. Survival. Sections 3.1, 3.2, 3.4, 3.5 and 6 of the body of the Agreement
--------
and Paragraphs 4, 6, 8, 9, 10, 11, 12, 15, 16, 17, 18, 24 and 25 of this Exhibit
F, will survive the completion, expiration, termination or cancellation of this
Agreement.
19. Entire Agreement. This Agreement sets forth the entire agreement and
----------------
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein, including, without limitation, the Prior
Agreement. Neither Party will be bound by, and each Party specifically objects
to, any term, condition or other provision which is different from or in
addition to the provisions of this Agreement (whether or not it would materially
alter this Agreement) and which is proffered by the other Party in any
correspondence or other document, unless the Party to be bound thereby
specifically agrees to such provision in writing.
20. Amendment. No change, amendment or modification of any provision of this
---------
Agreement will be valid unless set forth in a written instrument signed by the
Party subject to enforcement of such amendment, and in the case of AOL, by an
executive of at least the same standing to the executive who signed the
Agreement.
21. Further Assurances. Each Party will take such action (including, but not
------------------
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or continuing
performance of this Agreement.
22. Assignment. Section 7.2 of the Prior Agreement is incorporated herein by
----------
reference
23. Construction; Severability. In the event that any provision of this
--------------------------
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
Parties to this Agreement, (i) such provision will be deemed to be restated to
reflect as nearly as possible the original intentions of the Parties in
accordance with applicable law, and (ii) the remaining terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect.
24. Remedies. Except where otherwise specified, the rights and remedies
--------
granted to a Party under this Agreement are cumulative and in addition to, and
not in lieu of, any other rights or remedies which the Party may possess at law
or in equity; provided that, in connection with any dispute hereunder, IL will
be not entitled to offset any amounts that it claims to be due and payable from
AOL against amounts otherwise payable by IL to AOL.
25. Applicable Law; Jurisdiction. This Agreement will be interpreted, construed
----------------------------
and enforced in all respects in accordance with the laws of the Commonwealth of
Virginia except for its conflicts of laws principles. IL consents to the non-
exclusive jurisdiction of the courts of the Commonwealth of Virginia and the
federal courts situated in the Commonwealth of Virginia, and AOL consents to the
non-exclusive jurisdiction of the Courts of Ontario, each in connection with any
action to enforce the provisions of this Agreement, to recover damages or other
relief for breach or default under this Agreement, or otherwise arising under or
by reason of this Agreement.
26. Export Controls. Both Parties will adhere to all applicable laws,
---------------
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the other
Party or the direct product of such technical data to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
27. Headings. The captions and headings used in this Agreement are inserted
--------
for convenience only and will not affect the meaning or interpretation of this
Agreement.
28. Counterparts. This Agreement may be executed in counterparts, each of
------------
which will be deemed an original and all of which together will constitute one
and the same document.
29. Approvals. Any provision of the Agreement which conditions certain actions
---------
or rights on the approval of a Party will mean that the approving Party will not
unreasonably withold or delay its approval in such instance.
23
<PAGE>
Confidential
EXHIBIT H
Initial Promotional Plan
- ------------------------
Shopping Channel Placement Impressions
- --------------------------------------
1. "Hot" Savings Anchor Tenancy (Continuous Placement)
2. Computer Hardware Tenant (Continuous Placement)
3. Home Office Tenant (Continuous Placement)
Computing Channel Placement Impressions
- ---------------------------------------
1. Computing Superstore Button (Auctions Category button on CSS Main Screen)
(Continuous Placement)
2. Sponsors Package in Chat, Message Boards, Live Events (integrated branding
and promotion) (Continuous Placement)
3. Monthly Live Event Promotion (Live Auction) (Rotation) (300,000 annual
Impressions)
WorkPlace Channel Sponsors Package Impressions
- ----------------------------------------------
1. Main Screen Banner Sponsors Package Rotation (Continuous Placement)
2. "Your Business" Department Main Screen Sponsors Package (Continuous
Placement)
3. "Products & Services" Department Main Screen Sponsors Package (Continuous
Placement)
4. WorkPlace Sub-Screen Banners Sponsors Package (Rotation) (4,000,000 annual
Impressions)
AOL.com Targeted Promotion (91mm annual Impressions)
- ----------------------------------------------------
1. Shopping NetChannel Tenancy (placement on Auctions & Bargains Dept. screen)
(Continuous Placement)
2. Holiday Blitz Program (rotation on aol.com site during gift giving season)
(Rotation)
3. AOL Instant Messenger (advertising window on Buddy List; 60 sec. banner
rotation) (Rotation)
4. General Advertising (various AOL.com screens) (Rotation)
AOL Service Advertising Package (33.8mm annual Impressions)
- -----------------------------------------------------------
1. Banner advertising in Sports, Travel, Computing and Interest Channels as
well as other areas of the Service (comprehensive ad plan to be determined
in conjunction with AOL Interactive Marketing) (Rotation)
2. Superbowl Event Sponsors Package (runs 1/14/98-1/27/98; 500,000 annual
Impressions for Year One)
In addition, AOL will (a) provide ILI with keywords "Online Auction"
[Confidential Information filed separately with the SEC] and (b) take best
efforts to provide at least six (6) special promotions from time to time as
mutually agreed. This may include but is not limited to promotion in AOL Live,
Welcome Screen, and Run-of-Service advertising. [Confidential Information filed
separately with the SEC]
24
<PAGE>
Confidential
EXHIBIT J
Transaction Information
-----------------------
In its monthly reports, IL will detail the following information (items marked
with asterisk to be provided as of the first calendar quarter of 1998):
. total items ordered (and by category)
. gross sales (as a whole and by category)
. margin percentage
. main page traffic levels (page views)
. category page traffic levels (page views)*
. average order size
. number of e-mail addresses signed up for newsletter
. credit card usage (type of card) (e.g. 60% visa, 20% MC, 20% Amex and other)
. winning bid per Product (on a best efforts basis)
. ranking of categories by dollar sales
. ranking of categories by number of bids*
. ranking of categories by user traffic*
. number of site registrations per week
. number of unique accounts/screennames registering per week
25
<PAGE>
Exhibit 3.9
INTERNET LIQUIDATORS INC.
- and -
CIBC MELLON TRUST COMPANY
----------------------------------
----------------------------------
Warrant Indenture
Providing for the Issue of Common Share Purchase Warrants
dated as of October 3, 1997
<PAGE>
<TABLE>
<S> <C>
ARTICLE 1...............................................................INTERPRETATION 1
1.1 Definitions................................................................... 1
1.2 Entire Indenture.............................................................. 4
1.3 Headings...................................................................... 4
1.4 Extending Meanings............................................................ 4
1.5 References.................................................................... 4
1.6 Business Day.................................................................. 4
1.7 Meaning of.................................................................... 5
1.8 Time.......................................................................... 5
1.9 Choice of Language............................................................ 5
1.10 Applicable Law:............................................................... 5
ARTICLE 2...............................................ISSUE AND PURCHASE OF WARRANTS 5
2.1 Form and Terms of Warrants:................................................... 5
2.2 Transfer and Ownership of Warrants: (1)....................................... 6
2.3 Warrantholders not Shareholders:.............................................. 7
2.4 Signing of Warrants:.......................................................... 7
2.5 Countersigning:............................................................... 7
2.6 Loss, Mutilation, Destruction or Theft of Warrants:........................... 8
2.7 Issue of Warrants:............................................................ 8
2.8 Warrants to Rank Pari Passu:.................................................. 8
2.9 Exchange of Warrants:......................................................... 8
2.10 Recognition of Registered Holder:............................................ 9
ARTICLE 3.................................................COVENANTS OF THE CORPORATION 9
3.1 Covenants of the Corporation:................................................. 9
3.2 Securities Qualification Requirements:........................................ 11
ARTICLE 4............................................ADJUSTMENT TO SUBSCRIPTION RIGHTS 11
4.1 Adjustment to Subscription Rights:............................................ 11
4.2 Adjustment of Purchase Price:................................................. 16
4.3 Adjustment Rules:............................................................. 17
4.4 Proceedings Prior to any Action Requiring Adjustment:......................... 19
4.5 Certificate of Adjustment:.................................................... 19
4.6 Notice of Special Matters:.................................................... 19
4.7 No Action after Notice:....................................................... 20
4.8 Protection of Agent:.......................................................... 20
ARTICLE 5........................................EXERCISE AND CANCELLATION OF WARRANTS 20
5.1 Exercise of Warrants:......................................................... 20
5.2 Effect of Exercise of Warrants................................................ 22
5.3 Postponement of Delivery of Certificates:..................................... 22
5.4 Cancellation of Warrants:..................................................... 23
5.5 Warrants Void after Expiry Time:.............................................. 23
5.6 Fractions of Common Shares:................................................... 23
5.7 Subscription for Less than Entitlement:....................................... 23
ARTICLE 6...............................................................NON-REDEMPTION 23
6.1 Non-Redemption of Warrants:................................................... 23
ARTICLE 7...................................................MEETINGS OF WARRANTHOLDERS 23
7.1 Convening of Meeting:......................................................... 24
7.2 Notice:....................................................................... 24
7.3 Chairman:..................................................................... 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.4 Quorum:....................................................................... 24
7.5 Show of Hands:................................................................ 24
7.6 Poll:......................................................................... 25
7.7 Regulations:.................................................................. 25
7.8 Minutes:...................................................................... 25
7.9 Powers Exercisable by Extraordinary Resolution:............................... 26
7.10 Meaning of.................................................................... 27
7.11 Powers Cumulative:............................................................ 28
7.12 Corporation, Warrantholders and Agent May be Represented:..................... 28
7.13 Binding Effect of Resolutions:................................................ 28
7.14 Holdings by the Corporation or Subsidiaries of the Corporation Disregarded:... 28
ARTICLE 8...................................SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS 28
8.1 Provision for Supplemental Indentures for Certain Purposes:.................... 28
8.2 Corporation May Consolidate, etc. on Certain Terms:............................ 29
8.3 Successor Body Corporate Substituted:.......................................... 30
8.4 Amendments for Listing:........................................................ 30
ARTICLE 9..........................................................CONCERNING THE AGENT 30
9.1 Trust Indenture Legislation:.................................................. 31
9.2 Rights and Duties of Agent:................................................... 31
9.3 Evidence, Experts and Advisers:............................................... 32
9.4 Documents, Monies, etc. Held by Agent:....................................... 33
9.5 Action by Agent to Protect Interests:........................................ 33
9.6 Agent Not Required to Give Security:.......................................... 34
9.7 Protection of Agent:......................................................... 34
9.8 Replacement of Agent:........................................................ 34
9.9 Conflict of Interest:......................................................... 35
9.10 Acceptance of Trusts:......................................................... 36
9.11 Agent Not to be Appointed Receiver:........................................... 36
9.12 Authorization to Carry on Business:........................................... 36
9.13 Liability of Agent:.......................................................... 36
ARTICLE 10......................................................................NOTICES 36
10.1 Notice to Corporation:........................................................ 37
10.2 Notice to Warrantholders:..................................................... 37
10.3 Notice to Agent:.............................................................. 37
10.4 Mail Service Interruption:.................................................... 38
ARTICLE 11..................................................POWER OF BOARD OF DIRECTORS 38
11.1 Board of Directors:........................................................... 38
ARTICLE 12..........................................FORMAL EXECUTION AND EFFECTIVE DATE 38
12.1 Suits by Warrantholders:...................................................... 38
12.2 Waiver of Default............................................................. 39
12.3 Further Assurances:........................................................... 39
12.4 Severability:................................................................. 39
12.5 Satisfaction and Discharge of Indenture....................................... 39
12.6 Formal Date and Execution Date:............................................... 40
12.7 Counterparts:................................................................. 40
12.8 Enurement:.................................................................... 40
</TABLE>
ii
<PAGE>
THIS Warrant Indenture dated as of the 3rd day of October, 1997, is made
B E T W E E N:
INTERNET LIQUIDATORS INC., a company incorporated under the laws
of the Province of Ontario
(hereinafter called the "Corporation")
- and -
CIBC MELLON TRUST COMPANY, a trust company incorporated under the
laws of Canada
(hereinafter called the "Agent")
WHEREAS the Corporation proposes to create and issue up to 3,832,675
Warrants to be constituted, issued and sold in the manner herein set forth; and
WHEREAS the Agent has agreed to act as warrant agent on behalf of the
Warrantholders on the terms and conditions herein set forth;
WHEREAS the foregoing statements of fact and recitals are made by the
Corporation and not the Agent.
NOW THEREFORE in consideration of the premises and in further consideration
of the mutual covenants herein set forth, the parties hereto agree as follows:
ARTICLE 1
INTERPRETATION
--------------
1.1 Definitions: In this Indenture, unless there is something in the subject
-----------
matter or context inconsistent therewith, the following words have the
respective meanings indicated below:
<PAGE>
-2-
(a) "Agent" has the meaning specified above and includes a successor agent
determined in accordance with Section 9.2;
(b) "Business Day" means a day which is not a Saturday, Sunday or civic or
statutory holiday in the Province of Ontario;
(c) "Closing Date" means October 3, 1997, being the date of the closing of
the completion of the issue and sale by the Corporation of the Special
Warrants;
(d) "Common Shares" means collectively the fully paid and non-assessable
common shares in the capital of the Corporation as presently
constituted and, except where the context hereof otherwise requires,
includes common shares issued or to be issued in accordance with the
due exercise of Warrants hereunder;
(e) "counsel" means a barrister and solicitor or a firm of barristers and
solicitors retained by the Agent or retained by the Corporation and
acceptable to the Agent;
(f) "director" means a director of the Corporation for the time being and
reference without more to action by the directors means action by the
directors of the Corporation as a board or, whenever duly empowered,
action by a committee of the board;
(g) "Dividends paid in the Ordinary Course" means such dividends payable
in cash (or in securities, property or assets of equivalent value)
declared payable on a Common Share in any fiscal year of the
Corporation to the extent that the amount or value of such dividends
in the aggregate do not exceed 5% of the Purchase Price and for such
purposes the amount of any dividends paid in other than cash or shares
shall be the fair market value of such dividends as determined by the
directors acting reasonably;
(h) "Exercise Date" has the meaning ascribed to it in section 5.2;
(i) "Exercise Form" means the exercise form accompanying a Warrant
Certificate;
(j) "Exercise Number" means the number of Common Shares which may be
received from time to time on exercise of a Warrant;
(k) "Expiry Date" means January 3, 1999;
(l) "Expiry Time" means 5:00 p.m., Toronto time, on the Expiry Date;
(m) "Extraordinary Resolution" has the meaning ascribed to it in Section
7.10;
<PAGE>
-3-
(n) "person" means any entity whatsoever including without limitation an
individual, a corporation, a partnership, a trustee, a trust, an
unincorporated organization or a syndicate and words importing persons
have a similar meaning;
(o) "Prospectus" means a "final" prospectus qualifying for distribution
the Common Shares and Warrants issuable upon exercise or deemed
exercise of the exchange rights of the Special Warrants;
(p) "Purchase Price" means $1.65 per Common Share;
(q) "Qualifying Provinces" means the Province of Ontario and such other
jurisdictions in Canada in which purchasers of Special Warrants are
resident;
(r) "Special Warrants" means collectively the special warrants of the
Corporation issued pursuant to a Special Warrant Indenture dated as of
October 3, 1997 (the "Special Warrant Indenture") entitling registered
holders thereof to receive upon the exercise of the exchange rights
thereof, one unit (herein a "Unit") consisting of one Common Share and
one-half a Warrant or alternatively, if a receipt by the last of the
securities regulatory authorities in the Qualifying Provinces for a
Prospectus is not obtained on or prior to 120 days after the Closing
Date, each Unit shall consist of 1.1 Common Shares and 0.55 Warrants
(in lieu of one Common Share and one-half a Warrant);
(s) "subsidiary of the Corporation" means a corporation of which voting
securities carrying a majority of the votes attached to all
outstanding voting securities are owned, directly or indirectly, by
the Corporation or by one or more subsidiaries of the Corporation, or
by the Corporation and one or more subsidiaries of the Corporation
and, as used in this definition, voting securities means securities,
other than debt securities, carrying a voting right to elect directors
either under all circumstances or under some circumstances that may
have occurred and are continuing;
(t) "Warrant Certificate" means a warrant certificate in the form of
warrant certificate attached hereto as Schedule "A";
(u) "Warrantholder" or "holder" means the registered holder of a Warrant
hereunder;
(v) "Warrants" means collectively, the Common Share purchase warrants of
the Corporation entitling registered holders thereof to receive one
Common Share (or such kind and amount of shares or other securities or
property calculated pursuant to Article 4 hereof, as the case may be)
on the exercise of one such warrant at or before the Expiry Time upon
payment of the Purchase Price by way of certified cheque or bank draft
payable to the Corporation; and
<PAGE>
-4-
(w) "Weighted Average Price" in respect of a Common Share at any date
means the weighted average closing price of the Common Shares, as
quoted on the Canadian Dealing Network, or, on any stock exchange upon
which the Common Shares are then listed. The Weighted Average Price
will be calculated over the thirty (30) consecutive trading days
before the date on which the Weighted Average Price is to be
determined. The Weighted Average Price shall be determined by dividing
the aggregate of the sale prices of all the Common Shares sold on the
said exchange or market, as the case may be, during the said thirty
(30) consecutive trading days by the total number of Common Shares so
sold. If there is no market for the Common Shares during the period
in which the Weighted Average Price thereof would otherwise be
determined, the Weighted Average Price shall be determined by the
directors of the Corporation acting reasonably and in good faith.
(x) "written order of the Corporation", "written request of the
Corporation", "written consent of the Corporation", "certificate of
the Corporation" and any other document required to be signed by the
Corporation, means, respectively, a written order, request, consent,
certificate or other document signed in the name of the Corporation by
any one of the president, any vice-president, or the secretary of the
Corporation, and may consist of one or more instruments so executed.
1.2 Entire Indenture: This Indenture constitutes the entire agreement
----------------
between the parties hereto relating to the subject matter hereof and supersedes
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties and there are no general or
specific warranties, representations or other agreements by or among the parties
in connection with the entering into of this Indenture or the subject matter
hereof except as specifically set forth herein.
1.3 Headings: The division of this Indenture into Articles, Sections,
--------
Subsections, paragraphs and other subdivisions, 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 or the
Warrants.
1.4 Extending Meanings: In this Indenture, whenever the context permits or
------------------
requires, words importing number shall include the singular and the plural and
words importing gender shall include all genders.
1.5 References: References to an Article, Section, Subsection, paragraph or
----------
other subdivision or schedule shall be construed as references to an Article,
Section, Subsection, paragraph or other subdivision of or schedule to this
Indenture unless the context otherwise requires.
<PAGE>
-5-
1.6 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 on or before the requisite time on the next succeeding
day that is a Business Day.
1.7 Meaning of "Outstanding": Every Warrant represented by a Warrant
------------------------
Certificate countersigned and delivered by the Agent hereunder shall be deemed
to be outstanding until it shall be cancelled or delivered to the Agent for
cancellation or until the Expiry Time; provided that where a new Warrant
Certificate has been issued pursuant to Section 2.6 to replace one which has
been mutilated, lost, stolen or destroyed, the Warrants represented by only such
new Warrant Certificate shall be counted for the purpose of determining the
aggregate number of Warrants outstanding.
1.8 Time: Time shall be of the essence hereof and of the Warrants issued
----
hereunder.
1.9 Choice of Language: The parties hereby acknowledge that they have
------------------
expressly requested that this Indenture and all notices, statements of account
and other documents required or permitted to be given or entered into pursuant
hereto be drawn up in the English language only. Les parties reconnaissent
avoir expressment demandees que la presente Convention ainsi que tout avis, tout
etat de compte et tout autre document a etre ou pouvant etre donne ou conclu en
vertu des dispositions des presentes, soient rediges en langue anglaise
seulement.
1.10 Applicable Law: This Indenture and the Warrants shall be governed by
--------------
and construed in accordance with the laws of the Province of Ontario and the
laws of Canada applicable therein. The parties hereto submit to the exclusive
jurisdiction of the courts in the Province of Ontario. The parties agree that
any litigation between the parties which arises pursuant to or in connection
with this Indenture, or any of its provisions, shall be referred to the courts
in the Province of Ontario and shall not be referred to the courts in any other
jurisdiction.
ARTICLE 2
ISSUE AND PURCHASE OF WARRANTS
------------------------------
2.1 Form and Terms of Warrants: (1) Subject to the provisions hereof, up
--------------------------
to an aggregate of 3,832,675 Warrants are hereby authorized to be created by the
Corporation and each whole Warrant, together with payment of the Purchase Price
prior to the Expiry Time, shall entitle a holder thereof to acquire one Common
Share (or other kind and amount of shares and securities or property calculated
pursuant to the provisions of Article 4, as the case may be) at any time after
their issue and on or prior to the Expiry Time.
(2) The Warrants shall be executed by the Corporation and certified
by the Agent and shall be in registered form and the Warrant Certificates
shall be substantially in the form set out in Schedule "A" hereto with, subject
to the provisions of this Indenture, such additions, variations and/or omissions
as may from time to time be agreed upon between the Corporation and the Agent
and as otherwise provided by this Indenture, and shall be numbered in such
<PAGE>
-6-
manner as the Corporation, with the approval of the Agent, may prescribe. All
Warrants shall, save as to denominations, be of like tenor and effect. The
Warrant Certificates may be reproduced or
printed in such form (except as to content) as the Corporation may determine.
No change in the form of the Warrant Certificates shall be required (except as
to content) by reason of any adjustment made pursuant to Article 4.
2.2 Transfer and Ownership of Warrants: (1) The Agent shall maintain a
----------------------------------
register of the holders at its principal office in the City of Toronto which
shall be open for inspection by any agent or representative of the Corporation
or a Warrantholder, in which shall be entered the name and addresses of the
holders of the Warrants, the number of Warrants held by them and all other
information required by law. The Agent shall, from time to time when requested
to do so in writing by the Corporation, furnish the Corporation with a list of
the names and addresses of holders of Warrants entered in the registers kept by
the Agent and showing the number of Common Shares which might then be acquired
upon the exercise of the Warrants held by each such holder.
(2) Except as otherwise set forth in this Section 2.2, the Warrants are
not transferable.
(3) A person who furnishes evidence to the reasonable satisfaction of the
Agent that he is:
(a) a Warrantholder;
(b) an executor, administrator, heir or legal representative of the heirs
of the estate of a deceased Warrantholder;
(c) a guardian, committee, trustee, curator or tutor representing a
Warrantholder who is an infant, an incompetent person or a missing
person;
(d) a liquidator of, or a trustee in bankruptcy for, a Warrantholder; or
(e) a transferee of a Warrantholder,
may as hereinafter stated, by surrendering such evidence together with the
Warrant Certificate in question to the Agent (by delivery or mail as set forth
in Section 10.3) and subject to such reasonable requirements with respect to the
payment by the holder of the costs associated with the transfer as the Agent may
prescribe and all applicable securities legislation and requirements of
regulatory authorities, become noted upon the register of Warrantholders. After
receiving the surrendered Warrant Certificates and upon the person surrendering
the same meeting the requirements as hereinbefore set forth, the Agent shall
forthwith give written notice thereof together with confirmation as to the
identity of the person entitled to become the holder to the Corporation.
Forthwith after receiving written notice from the Agent as aforesaid, the
Corporation shall, in accordance with the provisions of Section 2.7, cause a new
Warrant
<PAGE>
-7-
Certificate to be issued and sent to the new holder and the Agent shall alter
its register of holders accordingly.
(4) Subject to the provisions of this Indenture and applicable law, the
Warrantholder shall be entitled to the rights and privileges attaching to the
Warrants free from all equities and rights of set-off or counterclaim between
the Corporation and such Warrantholder's transferor or previous holder of
Warrants and the issue of Common Shares by the Corporation upon the exercise of
Warrants by any Warrantholder in accordance with the terms and conditions herein
contained shall discharge all responsibilities of the Corporation and the Agent
with respect to such Warrants.
2.3 Warrantholders not Shareholders: A Warrantholder shall not, as such, be
-------------------------------
deemed to be or regarded as a shareholder of the Corporation nor shall such
Warrantholder be entitled to any right or interest except as is expressly
provided in this Indenture and in the Warrant Certificate.
2.4 Signing of Warrants: The Warrant Certificates shall be signed either
-------------------
manually or by facsimile signature by any one director or officer of the
Corporation and may, but need not be, under the corporate seal of the
Corporation. A facsimile signature upon any Warrant Certificate shall for all
purposes hereof be deemed to be the signature of the person whose signature it
purports to be and to have been signed at the time such facsimile signature is
reproduced. If a person whose signature, either manually or in facsimile,
appears on a Warrant Certificate is not a director or officer of the Corporation
at the date of this Indenture or at the date of the countersigning and delivery
of such Warrant Certificate, such fact shall not affect in any way the validity
of the Warrants or the entitlement of the holder thereof to the benefits of this
Indenture.
2.5 Countersigning: No Warrant Certificate shall be issued, or if issued,
--------------
shall be valid or exercisable or entitle the holder thereof to the benefits of
this Indenture until the Warrant Certificate has been manually countersigned by
or on behalf of the Agent. The countersignature by or on behalf of the Agent on
any Warrant Certificate shall not be construed as a representation or warranty
by the Agent as to the validity of this Indenture or of the Warrants or as to
the performance by the Corporation of its obligations under this Indenture and
the Agent shall in no way be liable or answerable for the use made of the
Warrants. The countersignature of the Agent shall, however, be a representation
and warranty of the Agent that the Warrant Certificate has been duly
countersigned by or on behalf of the Agent pursuant to the provisions of this
Indenture and shall be conclusive evidence as against the Corporation that the
Warrant Certificate so countersigned has been duly issued hereunder and the
holder is entitled to the benefits hereof and thereof.
2.6 Loss, Mutilation, Destruction or Theft of Warrants: (1) In case any of
--------------------------------------------------
the Warrant Certificates issued and countersigned hereunder shall become
mutilated or be lost, destroyed or stolen, the Corporation shall, upon the
holder complying with this Section 2.6, issue and thereupon the Agent shall
countersign and deliver a new Warrant Certificate of like date and tenor in
exchange for and in place of the one mutilated, lost, destroyed or stolen and
upon
<PAGE>
-8-
surrender and 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 Agent
and shall entitle the holder thereof to the benefits hereof and rank equally in
accordance with its terms with all other Warrants issued hereunder.
(2) The applicant for the issue of a new Warrant Certificate pursuant to
this Section 2.6 shall bear the reasonable costs of the issue thereof, which
costs will include all applicable taxes, and in case of loss, destruction or
theft shall, as a condition precedent to the issue thereof, furnish to the
Corporation and to the Agent 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 Agent, in their discretion
and such applicant may also be required to furnish an indemnity bond in amount
and form satisfactory to the Corporation and the Agent in their discretion, and
shall pay the reasonable charges of the Corporation and the Agent in connection
therewith.
2.7 Issue of Warrants: Warrant Certificates shall be signed by the
-----------------
Corporation as aforesaid and delivered to the Agent from time to time. The
Agent shall countersign any Warrant Certificate delivered by the Corporation to
the Agent as aforesaid and shall forthwith deliver to the person or persons in
whose name or names the Warrant Certificate is to be issued (as specified in any
written order from time to time given by the Corporation to the Agent and signed
by the President, Secretary or Assistant Secretary of the Corporation) or mail
to such person or persons at their respective addresses specified in the written
order from the Corporation the Warrant Certificate for the appropriate number of
Warrants.
2.8 Warrants to Rank Pari Passu: All Warrants shall rank pari passu,
---------------------------
whatever may be the actual date of same.
2.9 Exchange of Warrants:
--------------------
(a) Warrant Certificates may, upon compliance with the reasonable
requirements of the Agent, be exchanged for Warrant Certificates in
any other authorized denomination representing in the aggregate the
same number of Warrants. The Corporation shall sign and the Agent
shall countersign, in accordance with Sections 2.4 and 2.5, all
Warrant Certificates necessary to carry out the exchanges contemplated
herein.
(b) Warrant Certificates may be exchanged only at the principal office of
the Agent in the City of Toronto. Any Warrant Certificates tendered
for exchange shall be surrendered to the Agent and cancelled.
(c) Except as otherwise herein provided, the Agent may charge registered
holders requesting an exchange a reasonable sum for each Warrant
Certificate exchanged; and payment of such charges and reimbursement
of the Agent or the Corporation for any and all taxes or governmental
or other charges required to be paid shall be
<PAGE>
-9-
made by the party requesting such exchange as a condition precedent to
such exchange.
2.10 Recognition of Registered Holder: The Corporation and the Agent may
--------------------------------
deem and treat the registered holder of any Warrant Certificate as the absolute
beneficial owner of the Warrants represented thereby for all purposes under this
Indenture and the Corporation and the Agent shall not be affected by any notice
or knowledge to the contrary except where the Corporation or the Agent is
required to take notice by statute or by order of a court of competent
jurisdiction. A Warrantholder shall be entitled to the rights evidenced by the
Warrants registered in his name free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any intermediate holder
thereof and all persons may act accordingly and the receipt by any such
Warrantholder of Common Shares upon the exercise thereof shall be a good
discharge to the Corporation and the Agent for the same and neither the
Corporation nor the Agent shall be bound to inquire into the title of any such
holder except where the Corporation or the Agent is required to take notice by
statute or by order of a court of competent jurisdiction.
ARTICLE 3
COVENANTS OF THE CORPORATION
----------------------------
3.1 Covenants of the Corporation: The Corporation represents, warrants,
----------------------------
covenants and agrees with the Agent for the benefit of the Agent and the
Warrantholders as follows:
(a) To Issue Warrants and Reserve Common Shares: That it is duly
-------------------------------------------
authorized to create and issue the Warrants and that the Warrant
Certificates, when issued and countersigned as herein provided, will
be valid and enforceable against the Corporation and that, subject to
the provisions of this Indenture, the Corporation will cause the
Common Shares from time to time acquired pursuant to the Warrants
under this Indenture and the certificates representing such Common
Shares to be duly issued and delivered in accordance with the terms
hereof and of the Warrant Certificates. At all times prior to and
including the Expiry Time, while any of the Warrants are outstanding,
the Corporation shall ensure that its authorized capital shall be
sufficient, and shall reserve and allot and conditionally issue out of
its authorized capital a number of Common Shares as is sufficient, to
enable the Corporation to meet its obligation to issue Common Shares
in respect of the exercise of all Warrants outstanding hereunder from
time to time. All Common Shares acquired pursuant to exercise of the
Warrants shall be fully paid and non-assessable.
(b) To Pay Agent's Remuneration: That it will pay the Agent from time to
----------------------------
time reasonable remuneration for its services hereunder and will, upon
the Agent's request, pay to or reimburse the Agent for all reasonable
expenses, disbursements and advances made or incurred by the Agent in
the administration or execution of its obligations hereunder
(including the compensation and disbursements of its
<PAGE>
-10-
counsel and other advisors and assistants not regularly in its
employ), both before any default hereunder and thereafter until all
duties of the Agent hereunder have been finally and fully performed,
except any such expense, disbursement or advance that arises out of or
results from negligence, willful misconduct or bad faith of the Agent.
(c) To Execute Further Assurances: That it will do, execute, acknowledge
-----------------------------
and deliver or cause to be done, executed, acknowledged and delivered
all other acts, deeds and assurances in law as the Agent may
reasonably require for the better accomplishing and effecting the
intentions and provisions of this Indenture.
(d) Delivery of Financial Statements to Warrantholders: The Corporation
--------------------------------------------------
will send to the Warrantholders copies of all financial statements and
other material furnished to the holders of its Common Shares during
the term of this Indenture.
(e) Performance of Covenants by Agent: If the Corporation shall fail to
---------------------------------
perform any of its covenants contained in this Indenture, the Agent
may notify the Warrantholders of such failure on the part of the
Corporation or may itself perform any of the said covenants capable of
being performed by it, but, subject to Section 9.3, the Agent shall be
under no obligation to do so or to notify the Warrantholders. All
sums reasonably expended or advanced by the Agent in performance of
its rights provided for in this Subsection 3.1(e) shall be repayable
as provided in this Section 3.1. No such performance, expenditure or
advance by the Agent shall be deemed to relieve the Corporation of any
default hereunder or its continuing obligations hereunder.
(f) Performance of Indenture: 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.
(g) Corporate Existence: It will maintain its corporate existence and
--------------------
will carry on and conduct its business in accordance with good
business practice.
(h) Quotation From Canadian Dealing Network: It will use its reasonable
----------------------------------------
best efforts to maintain the quotation of the Common Shares on the
Canadian Dealing Network and to become or maintain its status as (as
the case may be) a "reporting issuer" not in default of the
requirements of the securities legislation and policies of each of the
Qualifying Jurisdictions.
(i) Action During Period of Notice: It will not take any other action
-------------------------------
which might deprive the Warrantholders of the opportunity of
exercising their rights pursuant to the Warrants held by such persons
during the period of notice required by section 4.6.
<PAGE>
-11-
3.2 Securities Qualification Requirements:
-------------------------------------
(a) If, in the opinion of counsel, any instrument (not including a
prospectus, except as required by Section 3.1) is required to be filed
with or any permission, order or ruling is required to be obtained
from any securities regulatory authority or any other action is
required under any Canadian federal or any provincial laws of the
Qualifying Provinces before any securities or property which a
Warrantholder is entitled to receive pursuant to the exercise of a
Warrant may properly and legally be delivered upon the due exercise of
a Warrant, the Corporation covenants that it will use its best efforts
to file such instrument, obtain such permission, order or ruling or
take all such other actions, at its expense, as is required or
appropriate in the circumstances.
(b) The Corporation, or if required by the Corporation, the Agent, will
give written notice of the issue of Common Shares pursuant to the
exercise of Warrants, in such detail as may be required, to the
securities regulatory authorities in the Qualifying Provinces if there
is therein any legislation, ruling or order requiring the giving of
any such notice in order that the subsequent disposition of the Common
Shares so issued will not be subject to the prospectus requirements of
such legislation, ruling or order (subject to any applicable hold
periods).
ARTICLE 4
ADJUSTMENT TO SUBSCRIPTION RIGHTS
---------------------------------
4.1 Adjustment to Subscription Rights: The Exercise Number shall be subject
---------------------------------
to adjustment from time to time in accordance with the following provisions:
(a) Stock Dividends, Subdivisions and Consolidations: If the Corporation
-------------------------------------------------
shall:
(i) issue Common Shares or securities exchangeable for or
convertible into Common Shares without further payment
pursuant to a stock dividend to all or substantially all of
the holders of the Common Shares (other than as Dividends
paid in the Ordinary Course);
(ii) make a distribution on its issued and outstanding Common
Shares payable in Common Shares or securities exchangeable
for or convertible into Common Shares without further
payment (other than as Dividends paid in the Ordinary
Course);
(iii) subdivide its issued and outstanding Common Shares into a
greater number of Common Shares; or
(iv) consolidate its issued and outstanding Common Shares into a
smaller number of Common Shares;
<PAGE>
-12-
(any such event being called a "Share Reorganization"), the Exercise
Number then in effect shall be adjusted effective immediately after
the record date on which the holders of Common Shares are determined
for the purposes of the Share Reorganization to the Exercise Number
determined by multiplying the Exercise Number then in effect by the
fraction, the numerator of which shall be the number of Common Shares
issued and outstanding after the completion of such Share
Reorganization (including, in the case where securities exchangeable
for or convertible into Common Shares are distributed, the number of
Common Shares that would be issued and outstanding had such securities
been exchanged for or converted into Common Shares on such record
date) and the denominator of which shall be the number of Common
Shares issued and outstanding on such record date.
(b) Rights Offering: If the Corporation shall distribute rights, options
----------------
or warrants exercisable within a period of forty-five (45) days after
the record date for such distribution to subscribe for or purchase
Common Shares or securities exchangeable for or convertible into
Common Shares at a price per share or at an exchange or conversion
value per share in the case of securities exchangeable or convertible
into Common Shares equal to or less than ninety-five percent (95%) of
the Weighted Average Price for Common Shares determined as of the
record date for such distribution, to all or substantially all of the
holders of the Common Shares (any such event being called a "Rights
Offering"), the Exercise Number shall be adjusted effective
immediately after the record date on which holders of Common Shares
are determined for the purposes of the Rights Offering to the Exercise
number determined by multiplying:
(i) the Exercise Number in effect on such record date; by
(ii) the fraction
(1) the numerator of which shall be the aggregate of
(a) the number of Common Shares issued and outstanding
on such record date, and
(b) the number of Common Shares offered pursuant to
the Rights Offering or the maximum number of
Common Shares for or into which the securities so
offered pursuant to the Rights Offering may be
exchanged or converted, as the case may be, and
(2) the denominator of which shall be the aggregate of
<PAGE>
-13-
(a) the number of Common Shares issued and outstanding
on such record date, and
(b) the number determined by dividing either:
(1) the product of
a) the number of Common Shares so offered;
and
b) the price at which each of such Common
Shares is offered, or
(2) the product of
a) the maximum number of Common Shares for
or into which the Securities so offered
pursuant to the Rights Offering may be
exchanged or converted; and
b) the exchange or conversion value of each
one of such securities so offered,
as the case may be, by the Weighted Average Price
of Common Shares determined as of such record
date.
To the extent that such options, rights or warrants are not
exercised prior to the expiry date thereof, the Exercise
Number shall be readjusted effective immediately after such
expiry date to the Exercise Number which would then have
been in effect based upon the number of Common Shares or
securities exchangeable for or convertible into Common
Shares actually delivered on the exercise of such options,
rights or warrants.
(c) Special Distributions: If the Corporation shall distribute to all or
----------------------
substantially all of the holders of the Common Shares:
(i) shares of any class other than Common Shares;
(ii) rights, options or warrants, other than rights, options or
warrants referred to in Subsection 4.1(b) and other than
rights, options or
<PAGE>
-14-
warrants exercisable within a period of forty-five (45) days
after the record date for such distribution to subscribe for
or purchase Common Shares or securities exchangeable for or
convertible into Common Shares at a price per share or at an
exchange or conversion value per share greater than ninety-
five percent (95%) of the Weighted Average Price for Common
Shares determined as of the record date for such
distribution;
(iii) evidences of indebtedness; or
(iv) any other assets, excluding Common Shares issued by way of
stock dividends and cash dividends paid out of earnings
including the value of any shares or other property
distributed in lieu of such cash dividends at the option of
shareholders;
and such issuance or distribution does not constitute a Dividend paid
in the Ordinary Course, a Share Reorganization or a Rights Offering
(any such event being called a "Special Distribution"), the Exercise
Number then in effect shall be adjusted effective immediately after
the record date at which the holders of Common Shares are determined
for the purpose of the Special Distribution to the Exercise Number
determined by multiplying the Exercise Number in effect on the record
date of the Special Distribution by:
(v) the fraction
(1) the numerator of which shall be the number of Common
Shares issued and outstanding on such record date
multiplied by the Weighted Average Price for Common
Shares determined as of such record date; and
(2) the denominator of which shall be the difference
between
(a) the product of
(1) the number of Common Shares issued and
outstanding on such record date, and
(2) the Weighted Average Price for Common Shares
determined as of such record date, and
(b) the fair value, as reasonably determined by the
directors of the Corporation, whose determination
shall be conclusive, to the holders of the Common
Shares of the shares, rights, options, warrants,
<PAGE>
-15-
evidences of indebtedness or other assets issued
or distributed in the Special Distribution.
(d) Other Reorganization: If and whenever there is a capital
---------------------
reorganization of the Corporation not otherwise provided for in this
Section 4.1 or a consolidation, merger or amalgamation of the
Corporation with or into another body corporate or a sale of all or
substantially all of the assets of the Corporation, (any such event
being called a "Capital Reorganization"), any Warrantholder who
exercises its right to subscribe for Common Shares pursuant to the
exercise of a Warrant after the effective date of such Capital
Reorganization shall be entitled to receive and shall accept, upon the
exercise of such Warrant, in lieu of or in addition to the number of
Common Shares to which the Warrantholder was theretofore entitled on
conversion, the aggregate number of Common Shares or other securities
of the Corporation or of the body corporate resulting from the Capital
Reorganization that the Warrantholder would have been entitled to
receive as a result of such Capital Reorganization if, on the
effective date thereof, the Warrantholder had been the registered
holder of the number of Common Shares to which the Warrantholder was
theretofore entitled upon exercise of such Warrant subject to
adjustment thereafter in accordance with provisions the same, as
nearly as may be possible, as those contained in Subsections
4.1(a),(b) and (c), provided that it shall be a condition precedent to
such Capital Reorganization that all necessary steps shall have been
taken so that the Warrantholder shall thereafter be entitled to
receive such number of such Common Shares or other securities of the
Corporation or of the body corporate resulting from the Capital
Reorganization.
(e) Reclassification: If the Corporation shall reclassify the issued and
-----------------
outstanding Common Shares (such event being called a
"Reclassification"), the Exercise Number shall be adjusted effective
immediately after the record date of such Reclassification so that
Warrantholders who exercise Warrants shall be entitled to receive the
securities that they would have received had such Warrants been
exercised immediately prior to such record date, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be
possible, as those contained in Subsections 4.1(a),(b) and (c).
4.2 Adjustment of Purchase Price: The Purchase Price in effect at any date
----------------------------
shall be subject to adjustment from time to time as follows:
(a) If and whenever at any time during the term hereof, the Corporation
shall complete a Share Reorganization, the Purchase Price shall be
adjusted effective immediately after the effective date or record
date, as the case may be, on which the holders of Common Shares are
determined for the purpose of the Share Reorganization by multiplying
the Purchase Price in effect immediately prior to such effective date
or record date by a fraction, the numerator of which shall be the
number of Common Shares outstanding on such effective date or record
date
<PAGE>
-16-
before giving effect to such Share Reorganization and the denominator
of which shall be the number of Common Shares outstanding immediately
after giving effect to such Share Reorganization.
(b) If and whenever at any time during the term hereof, the Corporation
shall fix a record date for a Rights Offering, the Purchase Price
shall be adjusted immediately after such record date so that it shall
equal the price determined by multiplying the Purchase Price in effect
on such record date by a fraction of which the numerator shall be the
total number of Common Shares outstanding on such record date plus a
number equal to the number determined by dividing the aggregate price
of the total number of additional Common Shares offered for
subscription or purchase, or the aggregate conversion or exchange
price of the convertible securities so offered, by such Weighted
Average Price per Common Share, and of which the denominator shall be
the total number of Common Shares outstanding on such record date plus
the total number of additional Common Shares offered for subscription
or purchase (or into which the convertible securities so offered are
convertible or exchangeable). If by the terms of the rights, options
or warrants referred to in this Section 4.2(b), there is more than one
purchase, conversion or exchange price per Common Share, the aggregate
price of the total number of additional Common Shares offered for
subscription or purchase, or the aggregate conversion or exchange
price of the convertible securities so offered, shall be calculated
for purposes of the exchange price per Common Share, as the case may
be. To the extent that any adjustment in Purchase Price occurs
pursuant to this Section 4.2(b) as a result of the fixing by the
Corporation of a record date for the distribution of rights, options
or warrants referred to in this Section 4.2(b), the Purchase Price
shall be readjusted immediately after the expiration of any relevant
exchange, conversion or exercise right to the Purchase Price which
would then be in effect based upon the number of Common Shares
actually issued and remaining issuable after such expiration, and
shall be further readjusted in such manner upon expiration of any
further such right.
(c) If and whenever at any time during the term hereof the Corporation
shall fix a record date for the issue or distribution to the holders
of all or substantially all the outstanding Common Shares of:
(i) securities of the Corporation including rights, options or
warrants to acquire shares or securities convertible into or
exchangeable for shares or property or assets and including
evidences of its indebtedness; or
(ii) any property or other assets;
<PAGE>
-17-
and if such issuance or distribution is not by way of a Share
Reorganization or an issuance of rights, options or warrants referred
to in Section 4.2(b) then, in each such case, the Purchase Price shall
be adjusted immediately after such record date so that it shall equal
the price determined by multiplying the Purchase Price in effect on
such date by a fraction, of which the numerator shall be the product
of the number of Common Shares outstanding on such record date and the
Weighted Average Price on such record date, less the aggregate fair
market value (as determined by the directors which determination shall
be conclusive) of such securities, property or other assets so issued
or distributed, and of which the denominator shall be the product of
the number of Common Shares outstanding on such record date and such
Weighted Average Price.
4.3 Adjustment Rules: The following rules and procedures shall be
----------------
applicable to adjustments of the Exercise Number made pursuant to Section 4.1:
(a) Subject to the following subsections of this Section 4.3, any
adjustment pursuant to Section 4.1 or Section 4.2 shall be made
successively whenever an event referred to therein shall occur. All
adjustments within this Article 4 are cumulative.
(b) No adjustment in the Exercise Number shall be required unless such
adjustment would result in a change of at least one one-hundredth of a
Common Share; provided, however, that any adjustments which, except
for the provisions of this Subsection 4.3(b), would otherwise have
been required to be made shall be carried forward and taken into
account in any subsequent adjustment with respect to the Exercise
Number.
(c) No adjustment in the Exercise Number shall be made in respect of any
event described in Section 4.1 or to the Purchase Price in respect of
any event described in Section 4.2 if the Warrantholders are entitled
to participate in such event on the same terms mutatis mutandis as if
they had exercised their Warrants prior to or on the effective date or
record date of such event, subject to the prior written consent of the
Canadian Dealing Network, or such stock exchange upon which the Common
Shares of the Corporation are then listed.
(d) No adjustment in the Exercise Number shall be made pursuant to Section
4.1 or to the Purchase Price in respect of any event described in
Section 4.2 in respect of the issue from time to time of Common Shares
to holders of Common Shares who exercise an option to receive
substantially equivalent dividends in Common Shares or securities
exchangeable for and convertible into Common Shares in lieu of
receiving cash dividends, and any such issue shall be deemed not to be
a Share Reorganization.
<PAGE>
-18-
(e) If a dispute shall at any time arise with respect to adjustments of
the Exercise Number, such dispute shall be conclusively determined by
the Corporation's auditors or if they are unable or unwilling to act,
by such other firm of independent chartered accountants as may be
selected by the directors of the Corporation. In the event any such
determination is made, the Corporation shall deliver a certificate to
the Agent describing such determination.
(f) In the absence of a resolution of the directors of the Corporation
fixing a record date at which the holders of Common Shares are
determined for a Share Reorganization, Rights Offering, Special
Distribution or Reclassification requiring such a record date to be so
fixed, the directors of the Corporation shall be deemed to have fixed
as the record date therefor the date on which such Share
Reorganization, Rights Offering, Special Distribution or
Reclassification is effected.
(g) In the event that the Corporation after the date of this Indenture
shall take any action affecting the Common Shares other than action
described in this Article 4, the directors of the Corporation may, but
shall not be required to, make any other adjustments to the number of
Common Shares which may be acquired upon exercise of the Warrants, to
the extent, if any, such directors deem appropriate, provided that no
such adjustment shall be made unless prior approval of any stock
exchange or quotation system on which the Common Shares are listed or
quoted for trading, or have been listed or quoted for trading within
the past six months, for trading, if required, has been obtained.
(h) In case the Corporation after the date of this Indenture shall take
any action affecting the Common Shares, other than an action described
in Section 4.1, which would have an adverse effect upon the rights of
the Warrantholders, the Exercise Number, subject to the prior approval
of any stock exchange or quotation system on which the Common Shares
are listed or quoted for trading shall be adjusted in such manner and
at such time as the directors of the Corporation may, acting
reasonably, determine to be equitable in the circumstances.
(i) Subject to Section 4.3 hereof, no adjustment shall be made in the
subscription rights attached to the Warrants if the issue of Common
Shares is being made pursuant to any stock option or stock purchase
plan in force from time to time for directors, officers or employees
of the Corporation or any other currently existing obligation of the
Corporation.
4.4 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 subscription rights arising pursuant to the exercise of any of the
Warrants, including the number of Common Shares which are to be issued upon the
exercise thereof, the Corporation shall take any corporate action
<PAGE>
-19-
which may, in the opinion of counsel, be necessary in order that the Corporation
shall have allotted and reserved for issue in its authorized capital and
enabling the Corporation to validly and legally issue as fully paid and non-
assessable all the Common Shares and may validly and legally deliver all other
securities or property which the holders of such Warrants are entitled to
receive on the full exercise thereof in accordance with the provisions hereof.
4.5 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 Section 4.1 hereof, or which may require an
adjustment or readjustment as provided in Subsections 4.3(g) and (h), deliver a
certificate of the Corporation to the Agent 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, which certificate and the amount of the
adjustment specified therein shall be verified by the auditors of the
Corporation upon whose verification the Agent shall be entitled to act and rely.
When so verified, the Corporation shall forthwith give written notice to the
Warrantholders specifying the event requiring such adjustment or readjustment
and the results thereof; provided that if the Corporation has given prior notice
under Section 4.6 hereof covering all the relevant facts in respect of such
event and if the Agent consents in writing, no such notice need be given under
this Section 4.5.
4.6 Notice of Special Matters: The Corporation covenants with the Agent
-------------------------
that so long as any Warrant remains outstanding it will give at least 14 days'
prior written notice in the manner provided for in Article 10 to the Agent and
to each Warrantholder of any event which requires an adjustment to the
subscription rights attaching to any of the Warrants pursuant to this Article 4.
The Corporation covenants and agrees that such notice shall contain the
particulars of such event in reasonable detail and, if determinable, the
required adjustment in the manner provided for in this Article 4. The
Corporation further covenants and agrees that it shall promptly, as soon as the
adjustment calculations are reasonably determinable, file a certificate of the
Corporation with the Agent showing how such adjustment shall be computed.
4.7 No Action after Notice: The Corporation covenants with the Agent that
----------------------
it will not close its transfer books or take any other corporate action which
might deprive a Warrantholder of the opportunity of exercising his right of
subscription pursuant thereto during the period of thirty (30) days after the
giving of the notices set forth in Sections 4.5 and 4.6 hereof.
4.8 Protection of Agent: The Agent:
-------------------
(a) shall not at any time be under any duty or responsibility to any
Warrantholder to determine whether any facts exist which may require
any adjustment contemplated by Section 4.1 hereof, 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) shall not 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
<PAGE>
-20-
which may at any time be issued or delivered upon the exercise of the
subscription rights attaching to any Warrant;
(c) shall not be responsible for any failure of the Corporation to make
any cash payment or to issue, transfer or deliver Common Shares or
certificates for the same upon the surrender of any Warrants for the
purpose of the exercise of such rights or to comply with any of the
covenants contained in this Article 4; and
(d) shall not incur any liability or responsibility whatever or be in any
way responsible for the consequence 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 agents or servants of the
Corporation.
ARTICLE 5
EXERCISE AND CANCELLATION OF WARRANTS
-------------------------------------
5.1 Exercise of Warrants: (1) Upon and subject to the provisions of this
--------------------
Article 5, any holder of a Warrant may exercise from time to time the right
thereby conferred on him to subscribe for Common Shares by surrendering to the
Agent after the date upon which the Warrants are issued and until the Expiry
Time at its principal office in the City of Toronto, the Warrant Certificate
evidencing the Warrants, together with a certified cheque or bank draft in an
amount equal to the applicable Purchase Price, multiplied by the number of
Common Shares to be received payable to or to the order of the Corporation and
the Exercise Form duly completed and executed by the holder or his executors or
administrators or other legal representatives or his or their attorney duly
appointed by an instrument in writing in form and manner satisfactory to the
Agent.
(2) The Exercise Form shall be signed as set out above and shall specify:
(a) the number of Common Shares which the Warrantholder wishes to
subscribe for upon the exercise of the Warrants (being not more than
those which he is entitled to subscribe for pursuant to the aggregate
number of the Warrants so surrendered); and
(b) the person or persons in whose name or names the Common Shares are to
be issued, his or their address or addresses and the number of Common
Shares to be issued to each such person if more than one is so
specified, provided that the Warrantholder shall only be entitled to
direct his entitlement to the Common Shares in a manner permitted by
applicable securities legislation.
(3) Such Warrant Certificate shall be deemed to be so surrendered only
upon delivery thereof to the Agent at the Agent's principal office in the City
of Toronto (at the address specified in the attachment to the Exercise Form) or
by mailing the same to the Agent at the
<PAGE>
-21-
Agent's principal office in the City of Toronto (at the address specified in the
attachment to the Exercise Form). Subject as hereinafter in this Section 5.1
provided, but notwithstanding anything else herein contained, the Warrants shall
be deemed to be validly exercised only upon actual receipt of the Warrant
Certificate(s), together with a certified cheque or bank draft in an amount
equal to the applicable Purchase Price, multiplied by the number of Common
Shares to be received payable to or to the order of the Corporation and the duly
completed Exercise Form attached to said Warrant Certificate(s) by the Agent at
the office referred to above (by way of delivery or mail respectively) at or
prior to the Expiry Time.
(4) The Exercise Form shall not be deemed to be duly completed if the name
and mailing address of the holder do not appear legibly on such Exercise Form or
such Exercise Form is not signed by the holder, his executors, administrators,
other legal representatives or such holder's attorney duly appointed.
(5) If any of the Common Shares in respect of which the Warrants are
exercised are to be issued to a person or persons other than the Warrantholder
in accordance with the provisions of Section 2.2, the Warrantholder shall pay to
the Agent all requisite stamp or security transfer taxes or other government
charges exigible in connection with the issue of such Common Shares to such
other person or persons or shall establish to the satisfaction of the Agent that
such taxes and charges have been paid.
(6) If at the time of the exercise of the Warrants, there remain trading
restrictions on the Common Shares acquired, due to applicable securities
legislation, the Corporation may, on the advice of counsel, endorse the
certificates evidencing such Common Shares accordingly.
5.2 Effect of Exercise of Warrants: (1) Upon valid exercise of the Warrants
------------------------------
as provided in Section 5.1, the Common Shares in respect of which the Warrants
are validly exercised shall be deemed to have been issued, and such person or
persons as are specified pursuant to Section 5.1 shall be deemed to have become
the holder or holders of record of such securities on the date of such exercise
(herein called the "Exercise Date") and shall be registered as such in the
registers maintained for the Common Shares. The Common Shares issued upon the
valid exercise of Warrants shall be entitled only to dividends declared in
favour of shareholders of record on and after the Exercise Date from which date
such shares will for all purposes be and be deemed to be issued and outstanding
as fully paid and non-assessable Common Shares.
(2) Upon valid exercise of the Warrants as aforesaid, the Agent shall
forthwith give written notice thereof to the Corporation.
(3) In the case of a Warrant which is exercised by a Warrantholder in
accordance with the provisions of Section 5.1, within five (5) Business Days
after the Exercise Date of such Warrant, the Corporation shall:
<PAGE>
-22-
(a) cause to be mailed to the person in whose name the Common Shares so
subscribed for are to be issued, as specified in the subscription
completed on the Warrant, at the address specified in such
subscription;
(b) if so specified in such subscription, cause to be delivered to such
person at the office of the Agent where such Warrant was surrendered;
or
(c) if no specification as contemplated by paragraphs 5.2(3) (a) or (b) is
provided, cause to be mailed to the person in whose name the Common
Shares are to be issued at the address of such person last appearing
on the register maintained by the Agent pursuant hereto or as such
person may otherwise notify the Agent in writing on or prior to the
Exercise Date,
a certificate or certificates for the Common Shares to which the Warrantholder
is entitled.
5.3 Postponement of Delivery of Certificates: The Corporation shall not be
----------------------------------------
required to deliver certificates in respect of Common Shares during the period
when the stock transfer books of the Corporation are closed by law and in the
event of a surrender of a Warrant for the subscription for Common Shares during
such period, the delivery of certificates may be postponed for a period not
exceeding five (5) Business Days after the date of the re-opening of the stock
transfer books.
5.4 Cancellation of Warrants: All Warrant Certificates evidencing Warrants
------------------------
exercised as provided in Section 5.1, shall be cancelled and destroyed by the
Agent and, if required by the Corporation in writing, the Agent shall furnish
the Corporation with a certificate as to the destruction.
5.5 Warrants Void after Expiry Time: After the Expiry Time no holder of a
-------------------------------
Warrant Certificate representing a Warrant which has not been validly exercised
as set forth herein has any rights either under this Indenture or the Warrant,
and the Warrants are void and of no value or effect. All provisions of this
Indenture are subject to this Section 5.5.
5.6 Fractions of Common Shares: (1) To the extent that the holder of a
--------------------------
Warrant is entitled to receive on the exercise or partial exercise thereof a
fraction of a Common Share, such right may only be exercised in respect of such
fraction in combination with another Warrant or other Warrants which in the
aggregate entitle the holder to receive a whole number of Common Shares. No
fractional Common Shares will be issued.
(2) If a holder is not able to, or elects not to, combine Warrants so as to
be entitled to acquire a whole number of Common Shares, the Corporation shall
make an appropriate cash adjustment. However, in respect of any holder, the
Corporation shall only be required to make such a cash adjustment once and for
one Warrant and no more. The amount of the cash adjustment with respect to the
Common Share shall be equal to the fraction of the Common Share to which the
holder would be entitled multiplied by the Weighted Average Price.
<PAGE>
-23-
5.7 Subscription for Less than Entitlement: A Warrantholder may subscribe
--------------------------------------
for a number of Common Shares less than the number which the Warrantholder is
entitled to purchase pursuant to the surrendered Warrant, in which event the
Warrantholder shall be entitled to receive (except after the Expiry Date) a new
Warrant Certificate evidencing the balance of the Common Shares which the
Warrantholder was entitled to subscribe for pursuant to the surrendered Warrant
and which were not then so subscribed for.
ARTICLE 6
NON-REDEMPTION
--------------
6.1 Non-Redemption of Warrants: The Warrants shall not be redeemable by the
--------------------------
Corporation. Any Warrants not exercised on or before the Expiry Time shall be
void and of no value.
ARTICLE 7
MEETINGS OF WARRANTHOLDERS
--------------------------
7.1 Convening of Meeting: At any time a meeting of Warrantholders may be
--------------------
convened by the Agent or the Corporation or by the holders of Warrants holding
not less than twenty-five percent (25%) of the aggregate number of Warrants then
outstanding, who shall serve the Agent with a requisition signed by such holders
and the Agent shall then be bound to convene a meeting of Warrantholders. In
the event that the Agent fails to convene the meeting after being duly required
to do so, the holders of the then outstanding Warrants representing no less than
twenty-five percent (25%) of the aggregate number of Warrants then outstanding
may themselves convene a meeting, the notice of which shall be signed by any
person as such Warrantholders may specify, provided that every such meeting
shall be held at the City of Toronto or such other place as the Agent may
approve and the Agent and the Corporation shall receive notice of such meeting,
as provided in Section 7.2. If a meeting is convened by the Warrantholders, the
Agent will be funded and indemnified against all costs, charges, expenses and
liabilities by the Warrantholders. If a meeting is convened by the Corporation,
the Agent will be indemnified against all costs, charges, expenses and
liabilities by the Corporation.
7.2 Notice: At least fifteen (15) days' prior notice of a meeting of
------
Warrantholders shall be given to all Warrantholders, the Agent and the
Corporation and the notice shall state the time, place and in general terms the
nature of the business to be transacted but it shall not be necessary to specify
the text of the resolutions to be considered. It shall not be necessary to
specify the nature of business to be transacted at an adjourned meeting.
7.3 Chairman: The chairman of the meeting of Warrantholders may be
--------
designated in writing by the Agent and need not be a Warrantholder. If no
person is so designated or if the person so designated is not present within
thirty (30) minutes after the time fixed for the holding
<PAGE>
-24-
of a meeting, the Warrantholders and proxyholders for Warrantholders present at
the meeting shall choose one of their number to be the chairman.
7.4 Quorum: A quorum consists of those Warrantholders, whether present or
------
represented by proxy, holding not less than twenty-five percent (25%) of the
aggregate number of Warrants then outstanding. If at a meeting, a quorum is not
present or represented by proxy within thirty (30) minutes after the time
appointed for the meeting, then the meeting, if called by or upon the
requisition of Warrantholders shall be dissolved, but in any other case after
the appointment of a chairman, the meeting shall stand adjourned to such day
being not less than five (5) Business Days later and to such place and time as
may be appointed by the chairman of the meeting. At the adjourned meeting,
those persons present in person and owning Warrants or representing by proxy
Warrantholders shall, in any event, constitute a quorum for the transaction of
business for which the original meeting was convened.
7.5 Show of Hands: Subject to Section 7.6, every question submitted to a
-------------
meeting, except one requiring an Extraordinary Resolution, shall be decided in
the first instance by a majority of hands on a show of hands, the outcome of
which will be declared by the chairman.
7.6 Poll: A poll shall be taken when requested by a Warrantholder acting in
----
person or by proxy and, when demanded on the election of a chairman or on the
question of adjournment, it shall be taken forthwith. If demanded on any other
question or on an Extraordinary Resolution, a poll shall be taken in such manner
and either at once or after an adjournment as the chairman may direct. The
result of a poll shall be the decision of the meeting at which the poll was
demanded. On a poll vote, each Warrantholder acting in person or by proxy shall
have one vote for each Warrant which he holds or represents. Votes may be given
in person or by proxy and the proxyholder need not be a Warrantholder. The
chairman of any meeting shall be entitled to vote in respect of any Warrants and
proxies held by him.
7.7 Regulations: (1) The Agent, or the Corporation with the approval of
-----------
the Agent, may from time to time make and from time to time vary such
regulations not contrary to the provisions of this Indenture as it shall think
fit providing for and governing:
(a the setting of the record date for a meeting for the purpose of
determining Warrantholders entitled to receive notice of and to vote
at a meeting;
(b voting by proxy, the form of instrument appointing proxyholders, the
manner in which proxies are to be executed and the production of the
authority of any persons signing on behalf of a Warrantholder;
(c the lodging of and means of forwarding the instruments appointing
proxyholders and the time before the holding of a meeting or adjourned
meeting by which the instruments appointing proxyholders are to be
deposited; and
(d any other matter relating to the conduct of meetings of
Warrantholders.
<PAGE>
-25-
(2) Any regulations so made shall be binding and effective and votes given
in accordance therewith shall be valid. The Agent may require Warrantholders to
provide proof of ownership of the Warrants in such manner as the Agent may
approve. Save as aforesaid, the only persons who shall be recognized at any
meeting as Warrantholders or entitled to vote or, except as provided in Section
7.12, be present at the meeting in respect thereof shall be persons who hold
Warrants or are duly appointed proxyholders for registered holders of Warrants.
7.8 Minutes: Minutes of all resolutions passed and proceedings taken at
-------
every meeting as aforesaid shall be made and duly entered in books to be from
time to time provided for that purpose by the Agent at the expense of the
Corporation and any such minutes as aforesaid, if signed by the chairman of the
meeting at which such resolutions were passed or proceedings taken, or by the
chairman of the next succeeding meeting of Warrantholders, 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 held and convened and all resolutions passed
thereat or proceedings taken to have been duly passed and taken.
7.9 Powers Exercisable by Extraordinary Resolution: (1) In addition to all
----------------------------------------------
other powers conferred upon the Special Warrantholders by any other provision of
this Indenture or by law, the Warrantholders shall have the power, in addition
to any other powers exercisable by Extraordinary Resolution that may be
enumerated herein, from time to time by Extraordinary Resolution:
(a to agree to or sanction any modification, abrogation, alteration or
compromise of the rights of the Warrantholders or the Agent in its
capacity as agent (subject to the Agent's prior written approval)
hereunder or on behalf of Warrantholders against the Corporation which
shall be agreed to by the Corporation whether such rights arise under
this Indenture or under the Warrants or otherwise;
(b to assent to any change in or omission from the provisions contained
in the Warrants and this Indenture or any ancillary or supplemental
instrument which may be agreed to by the Corporation and to authorize
the Agent to concur in and execute any ancillary or supplemental
agreement embodying the change or omission;
(c with the consent of the Corporation, to remove the Agent or its
successor in office and to appoint a new agent or agents to take the
place of the Agent so removed;
(d upon the Agent being furnished with funding and an indemnity, as it
may in its discretion determine, to require, direct or authorize the
Agent to enforce any of the covenants on the part of the Corporation
contained in this Indenture or the Warrants or to enforce any of the
rights of the Warrantholders in any manner
<PAGE>
-26-
specified in such Extraordinary Resolution or to refrain from
enforcing any such covenant or right;
(e to restrain any Warrantholder from instituting or continuing any suit
or proceedings against the Corporation for the enforcement of the
covenants on the part of the Corporation contained in this Indenture
or any of the rights conferred upon the Warrantholders by the Warrants
and this Indenture;
(f to direct any Warrantholder who, as such, has brought any suit, action
or proceeding to stay or discontinue or otherwise deal with the same
upon payment of the costs, charges and expenses reasonably and
properly incurred by such Warrantholder in connection therewith;
(g to waive and direct the Agent to waive any default on the part of the
Corporation in complying with any of the provisions of this Indenture
or the Warrants either unconditionally or upon any conditions
specified in such Extraordinary Resolution;
(h to assent to any compromise or arrangement with any creditor or
creditors or any class or classes of creditors, whether secured or
unsecured, and with holders of any shares or other securities of the
Corporation; and
(i to amend, alter or repeal any Extraordinary Resolution previously
passed or sanctioned by the Warrantholders.
(2) An Extraordinary Resolution of the Warrantholders is binding upon all
the Warrantholders whether present or not present at the meeting at which the
Extraordinary Resolution was passed or whether or not assented to in writing and
each Warrantholder, the Agent and the Corporation shall be bound to give effect
to the Extraordinary Resolution to the extent that the Extraordinary Resolution
applies to such party.
7.10 Meaning of "Extraordinary Resolution": (1) The expression
-------------------------------------
"Extraordinary Resolution" when used in this Indenture means a resolution
proposed to be passed as an extraordinary resolution at a meeting of
Warrantholders duly convened for the purpose and held in accordance with the
provisions of this Article 7 and attended by Warrantholders holding not less
than twenty-five percent (25%) of the Warrants outstanding and passed by not
less than sixty-six and two-thirds percent (66 2/3%) of the votes cast upon such
resolution.
(2) If, at any meeting called for the purpose of passing an Extraordinary
Resolution, Warrantholders holding at least twenty-five percent (25%) of the
then outstanding Warrants are not present in person or by proxy within thirty
(30) minutes after the time appointed for the meeting, then the meeting if
convened by Warrantholders or on a Warrantholder's request, shall be dissolved;
but in any other case it shall be adjourned to such day, being not less than
fifteen (15) or more than sixty (60) days later, and to such place and time as
may be appointed by the
<PAGE>
-27-
chairman. Not less than ten (10) days' prior notice shall be given of the time
and place of such adjourned meeting. Such notice shall state that at the
adjourned meeting the Warrantholders 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 convened or any other particulars. At the adjourned
meeting the Warrantholders 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 of this Section 7.10 shall be an Extraordinary
Resolution within the meaning of this Indenture notwithstanding that
Warrantholders holding at least twenty-five percent (25%) of the Warrants
outstanding are not present in person or by proxy at such adjourned meeting.
(3) All actions that may be taken and all powers that may be exercised by
the Warrantholders at a meeting as hereinbefore in this Article provided may
also be taken and exercised by holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the aggregate number of Warrants then outstanding by an
instrument in writing signed in one or more counterparts by such holders and the
expression "Extraordinary Resolution" when used in this Indenture shall include
an instrument so signed.
7.11 Powers Cumulative: It is hereby declared and agreed that any one or
-----------------
more of the powers or any combination of the powers in this Indenture stated to
be exercisable by the Warrantholders 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 Warrantholders to exercise the same or any other such
power or powers or combination of powers then or thereafter from time to time.
7.12 Corporation, Warrantholders and Agent May be Represented: The
--------------------------------------------------------
Corporation and the Agent, by their respective employees, officers and
directors, and the legal and financial advisors and auditors of the Corporation
and the Agent may attend any meeting of the Warrantholders, but they shall have
no vote as such. In addition, any Warrantholder is entitled to have his legal
or financial advisers present at any such meeting, but they shall have no vote
as such.
7.13 Binding Effect of Resolutions: Every resolution and every
-----------------------------
Extraordinary Resolution passed in accordance with the provisions of this
Article 7 at a meeting of Warrantholders shall be binding upon all the
Warrantholders, whether present at or absent from such meeting, and every
Extraordinary Resolution signed by Warrantholders in accordance with Section
7.10(3) shall be binding upon all the Warrantholders, whether signatories
thereto or not and each and every Warrantholder and the Agent (subject to the
provisions for indemnity herein contained) shall be bound to give effect
accordingly to every such resolution and Extraordinary Resolution. In the case
of an Extraordinary Resolution in writing, the Agent shall give notice in the
manner contemplated in Article 10 of the effect of the Extraordinary Resolution
in writing to all Warrantholders and the Corporation as soon as it is reasonably
practicable.
7.14 Holdings by the Corporation or Subsidiaries of the Corporation
--------------------------------------------------------------
Disregarded: In determining whether Warrantholders holding a sufficient
number of Warrants are present at a
<PAGE>
-28-
meeting of Warrantholders for the purpose of determining a quorum or have
concurred in any consent, waiver, resolution, Extraordinary Resolution or other
action under this Indenture, Warrants owned legally or beneficially by the
Corporation or any subsidiary of the Corporation shall be disregarded. The
Corporation shall provide to the Agent upon request a Certificate of the
Corporation detailing the exact registrations of any warrants owned legally or
beneficially by the Corporation or any subsidiary of the Corporation.
ARTICLE 8
SUPPLEMENTAL INDENTURES, MERGER, SUCCESSORS
-------------------------------------------
8.1 Provision for Supplemental Indentures for Certain Purposes: From time
-----------------------------------------------------------
to time the Corporation (when authorized by a resolution of its directors) and
the Agent may, subject to the provisions of these presents, and they shall, when
so required by any provision of this Indenture (other than this Section 8.1),
execute and deliver by their proper officers, deeds, agreements or instruments
supplemental hereto, which thereafter shall form part hereof, for any one or
more of the following purposes:
(a adding to the provisions hereof such additional covenants and
enforcement provisions as, in the opinion of counsel, are necessary or
advisable in the premises, provided that the same are not, in the
opinion of the Agent based on the advice of its counsel, prejudicial
to the interests of the Warrantholders;
(b giving effect to any Extraordinary Resolution passed as provided in
Article 7;
(c 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 Warrants or the Common Shares issuable upon the exercise thereof
on any stock exchange, provided that such provisions are not, in the
opinion of the Agent based on the advice of its counsel, prejudicial
to the interests of the Warrantholders;
(d making any modification in the form of the Warrant Certificate which
does not affect the substance of the Warrants;
(e evidencing any succession, or successive successions, of other bodies
corporate to the Corporation and the assumption by any successor of
the covenants of the Corporation herein and in the Warrant
Certificates contained as provided hereafter in this Article 8; and
(f for any other purpose not inconsistent with the terms of this
Indenture, including the correction or rectification of any
ambiguities, defective provisions, errors or omissions herein,
provided that, in the opinion of the Agent based on the advice
<PAGE>
-29-
of its counsel, the rights of the Agent and of the Warrantholders are
in no way prejudiced thereby.
8.2 Corporation May Consolidate, etc. on Certain Terms: Subject to
--------------------------------------------------
Subsection 4.1(d), nothing in this Indenture shall prevent any consolidation,
reorganization, arrangement, amalgamation or merger of the Corporation with or
into any other body corporate, or bodies corporate, or person, or a conveyance
or transfer of all or substantially all the properties and assets of the
Corporation as an entirety to any body corporate or person lawfully entitled to
acquire and operate the same, provided, however, that the body corporate or
person formed by such consolidation or amalgamation or arrangement or into which
such merger shall have been made or the person which acquires by conveyance or
transfer all or substantially all the properties and assets of the Corporation
as an entirety shall execute and deliver to the Agent prior to or
contemporaneously with such consolidation, reorganization, amalgamation,
arrangement, merger, conveyance or transfer, and as a condition precedent
thereto an agreement supplemental hereto wherein the due and punctual
performance and observance of all the covenants and conditions of this Indenture
to be performed or observed by the Corporation shall be assumed by such body
corporate or person on terms and conditions not adverse to the Warrantholders.
The Agent shall be entitled to receive and shall be fully protected in relying
upon opinions of counsel and such other advisors as it deems necessary, that any
such consolidation, reorganization, amalgamation, arrangement, merger,
conveyance or transfer and any supplemental agreement executed in connection
therewith, complies with the provisions of this Section 8.2.
8.3 Successor Body Corporate Substituted: In case the Corporation,
------------------------------------
pursuant to Section 8.2, shall be consolidated, amalgamated, reorganized,
arranged or merged with or into any other body corporate, bodies corporate or
person or shall convey or transfer all or substantially all of the properties
and assets of the Corporation as an entirety to another body corporate or
person, the successor body corporate or person formed by such consolidation,
reorganization, arrangement or amalgamation or into which the Corporation shall
have been merged or which shall have received a conveyance or transfer as
aforesaid shall succeed to and be substituted for the Corporation hereunder with
the same effect as nearly as may be possible as if it had been named herein as
the party of the First Part. Such changes may be made in the Warrants as may be
appropriate in view of such consolidation, reorganization, amalgamation, merger,
conveyance or transfer and as may be necessary to ensure that the Warrantholders
are not adversely affected by such consolidation, reorganization, amalgamation,
merger, conveyance or transfer. Such changes may be made in the Special
Warrants as may be appropriate in view of such consolidation, reorganization,
amalgamation, merger, conveyance or transfer and as may be necessary to ensure
that the Special Warrantholders are not adversely affected by such
consolidation, organization, amalgamation, merger, conveyance or transfer.
8.4 Amendments for Listing: Notwithstanding any of the terms of this
----------------------
Indenture to the contrary, the Agent and the Corporation shall make such
amendments to the provisions of this Indenture as in the opinion of counsel
would not prejudice the interests of Warrantholders and would be required to
comply with any and all requirements of the stock exchanges or quotation
<PAGE>
-30-
system on which the Common Shares may be listed in order for the Common Shares
to be listed or quoted for trading on such stock exchange or quoted for trading
on such quotation system. The Agent and the Corporation shall execute and
deliver by their proper officers all deeds, agreements or instruments
supplemental hereto for the foregoing purpose which are required in the opinion
of counsel and thereafter shall form part hereof. For greater certainty, no
resolution, approval or meeting of Warrantholders will be required for the Agent
and the Corporation to amend or supplement this Indenture as provided in this
Section 8.4.
ARTICLE 9
CONCERNING THE AGENT
--------------------
9.1 Trust Indenture Legislation:
---------------------------
(a) In this Article, the term "Applicable Legislation" means the provisions of
any statute of Canada or a province thereof and of regulations under any
such named or other statute relating to trust indentures and/or to the
rights, duties and obligations of warrant agents and of corporations under
trust indentures, to the extent that such provisions are at the time in
force and applicable to this Indenture.
(b) If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with a mandatory requirement of Applicable Legislation, such
mandatory requirement shall prevail.
(c) The Corporation and the Agent 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 benefit of Applicable Legislation.
9.2 Rights and Duties of Agent:
--------------------------
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Agent shall act honestly and in good faith
with a view to the best interests of the Warrantholders as a group and
shall exercise the degree of care, diligence and skill that a reasonably
prudent warrant Agent would exercise in comparable circumstances. No
provision of this Indenture shall be construed to relieve the Agent from
or require any other person to indemnify the Agent against liability for
its own negligence, wilful misconduct or bad faith.
(b) Subject only to subsection (a) of this Section 9.2, the Agent shall not be
bound to do or take any act, action or proceeding for the enforcement of
any of the obligations of the Corporation under this Indenture unless and
until it shall have received a Warrantholders' Request specifying the act,
action or proceeding which the Agent is requested to take. The obligation
of the Agent to commence or continue any act, action or proceeding for
<PAGE>
-31-
the purpose of enforcing any rights of the Agent or the Warrantholders
hereunder shall be conditional upon the Warrantholders furnishing, when
required by notice in writing by the Agent, sufficient funds to commence
or continue such act, action or proceeding and an indemnity reasonably
satisfactory to the Agent and its officers, directors, employees and
agents to protect and hold harmless the Agent and its officers, directors,
employees and agents against the costs, charges, 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 Agent to expend or risk its own funds or otherwise 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 Agent may, before commencing or at any time during the continuance of
any such act, action or proceeding, require the Warrantholders at whose
instance it is acting to deposit with the Agent the Warrants held by them,
for which Warrants the Agent shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the Agent of
liability or entitles it to rely upon any evidence submitted to it is
subject to the provisions of Applicable Legislation, and to the provisions
of this Section 9.2 and of Section 9.3.
(e) The Agent shall retain the right not to act and shall not be held liable
for refusing to act unless it has received clear and reasonable
documentation which complies with the terms of this Indenture. Such
documentation must not require the exercise of any discretion or
independent judgment. In the event that the Agent refuses to act because
any documentation received by it is not clear and reasonable, the Agent
shall immediately provide notice to the party who provided such
documentation advising such party of the Agent's refusal to act together
with a brief explanation of the reason for its refusal.
(f) In the event of any disagreement arising regarding the terms of this
Indenture, the Agent shall be entitled, at its option, to refuse to comply
with any or all demands whatsoever until the dispute is settled either by
agreement amongst the various parties or by a court of competent
jurisdiction.
(g) The Agent shall not be bound to give any notice or do or take any act,
action or proceeding by virtue of the powers conferred on it hereby unless
and until it shall have been required so to do under the terms hereof; nor
shall the Agent be required to take notice of any default hereunder,
unless and until notified in writing of such default, which notice shall
distinctly specify such default and in the absence of any such notice the
Agent may for all purposes of this Indenture conclusively assume that no
default has been made in the observance or performance of any of the
representations, warranties, covenants, agreements or conditions contained
herein. Any such notice shall in no way limit any discretion herein given
to the Agent to determine whether or not the Agent shall take action with
respect to any default.
<PAGE>
-32-
9.3 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 Agent
such additional evidence of compliance with any provision hereof in such
form as may be prescribed by Applicable Legislation, or as the Agent may
reasonably require by written notice to the Corporation.
(b) In the exercise of its rights and duties hereunder, the Agent may, if it
is acting in good faith, rely as to the truth of the statements and the
accuracy of the opinions expressed therein, upon statutory declarations,
opinions, reports, written requests, consents, orders of the Corporation,
certificates of the Corporation or other evidence furnished to the Agent,
provided that such evidence complies with Applicable Legislation.
(c) Whenever Applicable Legislation requires that evidence referred to in
subsection (a) of this Section 9.3 be in the form of a statutory
declaration, the Agent may accept such statutory declaration in lieu of a
certificate of the Corporation required by any provision hereof. Any such
statutory declaration may be made by one or more of the chairman,
president, vice-president, secretary or treasurer of the Corporation.
(d) The Agent may act and rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, letter, telegram, cablegram or other paper or
document believed by it to be genuine and to have been signed, sent, or
presented by or on behalf of the proper party or parties.
(e) Proof of the execution of an instrument in writing, including a
Warrantholders' Request, by any Warrantholder may be made by the
certificate of a notary public, or other officer with similar powers, that
the person signing such instrument acknowledged to him the execution
thereof, or by an affidavit of a witness to such execution or in any other
manner which the Agent may consider adequate and in respect of a corporate
Warrantholder shall include a certificate of incumbency of such
Warrantholder together with a certified copy of a resolution authorizing
the person who signed such instrument to sign such instrument.
(f) The Agent may employ or retain such counsel, accountants or other experts
or advisers as it may reasonably require for the purpose of determining and
discharging its duties hereunder, may act on and rely upon the advice or
opinion so obtained 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 on the part of any of them. The
cost of such service shall be added to and be part of the Agent's fees
hereunder.
9.4 Documents, Monies, etc. Held by Agent:
--------------------------------------
<PAGE>
-33-
Any securities, documents of title or other instruments that may at any
time be held by the Agent subject to the trusts hereof may be placed in the
deposit vaults of the Agent or of any Canadian chartered bank or trust company
or deposited for safekeeping with any such bank or trust company.
9.5 Action by Agent to Protect Interests:
-------------------------------------
Subject to the provisions of this Indenture and Applicable Legislation, the
Agent shall have the power to institute and to maintain such action and
proceedings as it may consider necessary or expedient to preserve, protect or
enforce its interests and the interests of the Warrantholders.
9.6 Agent Not Required to Give Security:
-----------------------------------
The Agent 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.
9.7 Protection of Agent:
--------------------
By way of supplement to the provisions of any law for the time being
relating to warrant agents, it is expressly declared and agreed as follows:
(a) The Agent shall not be liable for or by reason of any statements of fact
or recitals in this Indenture or in the Warrants (except the representation
contained in Sections 9.9 and 9.12 or in the certificate of the Agent on
the Warrants) or be required to verify the same.
(b) Nothing herein contained shall impose any obligation on the Agent 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.
(c) The Agent shall not be bound to give notice to any person of the execution
hereof.
(d) The Agent shall not incur any liability or responsibility whatsoever or be
in any way responsible for the consequence of any breach on the part of the
Corporation of any of the covenants herein contained or of any acts of any
directors, officers, employees, agents or servants of the Corporation.
(e) The Corporation hereby indemnifies and saves harmless the Agent and its
officers, directors, employees and agents from and against any and all
liabilities, losses, costs, claims, action or demands whatsoever which may
be brought against the Agent or which it may suffer or incur as a result
or arising out of the performance of its duties and obligations under this
Indenture, save only in the event of negligence or wilful misconduct of the
Agent or any of its officers, directors, employees or agents. It is
<PAGE>
-34-
understood and agreed that this indemnification shall survive the
termination of this Indenture or the resignation of the Agent.
9.8 Replacement of Agent:
---------------------
(a) The Agent may resign its trust and be discharged from all further duties
and liabilities hereunder by giving to the Corporation not less than 45
days' prior notice in writing or such shorter prior notice as the
Corporation may accept as sufficient. The Warrantholders by extraordinary
resolution shall have the power at any time to remove the existing Agent
and to appoint a new warrant agent. In the event of the Agent 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 warrant agent unless a new
warrant agent has already been appointed by the Warrantholders; failing
such appointment by the Corporation, the retiring Agent or any
Warrantholder may apply to a justice of the Ontario Court of Justice
(General Division) at the Corporation's expense, on such notice as such
justice may direct, for the appointment of a new warrant agent; but any new
warrant Agent so appointed by the Corporation or by the Court shall be
subject to removal as aforesaid by the Warrantholders. Any new warrant
agent appointed under any provision of this Section 9.8 shall be a
corporation authorized to carry on the business of a trust company in the
Province of Ontario and, if required by Applicable Legislation of any other
province, in such other province. On any such appointment the new warrant
agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as Agent
without any further assurance, conveyance, act or deed; but there shall be
immediately executed, at the expense of the Corporation, all such
conveyances or other instruments as may, in the opinion of counsel, be
necessary or advisable for the purpose of assuring the same to the new
warrant agent, provided that any resignation or removal of the Agent and
appointment of a successor warrant Agent shall not become effective until
the successor warrant agent shall have executed an appropriate instrument
accepting such appointment and, at the request of the Corporation, the
predecessor Agent, upon payment of its outstanding remuneration and
expenses, shall execute and deliver to the successor warrant agent an
appropriate instrument transferring to such successor warrant agent all
rights and powers of the Agent hereunder and all securities, documents of
title and other instruments, and all monies and properties, held by the
Agent hereunder.
(b) Upon the appointment of a successor warrant agent, the Corporation shall
promptly notify the Warrantholders thereof in the manner provided for in
Section 10.2.
(c) Any corporation into or with which the Agent may be merged or consolidated
or amalgamated, or any corporation succeeding to the trust business of the
Agent, shall be the successor to the Agent hereunder without any further
act on its part or of any of the parties hereto, provided that such
corporation would be eligible for appointment as a new warrant agent under
subsection (a) of this Section 9.8.
<PAGE>
-35-
(d) Any Warrants certified but not delivered by a predecessor warrant agent may
be certified by the successor warrant agent in the name of the predecessor
or successor warrant agent.
9.9 Conflict of Interest:
--------------------
(a) The Agent represents to the Corporation that at the time of execution and
delivery hereof no material conflict of interest exists in the Agent's
role as a fiduciary hereunder 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 a material conflict of interest, either
eliminate the same or resign its trust hereunder to a successor warrant
agent approved by the Corporation. If any such material conflict of
interest exists or hereafter shall exist, the validity and enforceability
of this Indenture and the Warrants shall not be affected in any manner
whatsoever by reason thereof.
(b) Subject to subsection (a) of this Section 9.9, the Agent, in its personal
or any other capacity, may buy, lend upon and deal in securities of the
Corporation and generally may contract and enter into financial
transactions with the Corporation or any subsidiary of the Corporation
without being liable to account for any profit made thereby.
9.10 Acceptance of Trusts:
--------------------
The Agent 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.
9.11 Agent Not to be Appointed Receiver:
----------------------------------
The Agent and any person related to the Agent shall not be appointed a
receiver or receiver and manager or liquidator of all or any part of the assets
or undertaking of the Corporation.
9.12 Authorization to Carry on Business:
----------------------------------
The Agent represents to the Corporation that it is duly authorized and
qualified to carry on the business of a trust company in each of the provinces
of Canada.
9.13 Liability of Agent:
-------------------
<PAGE>
-36-
The Agent shall not be liable or accountable for any loss or damage
whatsoever to any person caused by the performance or failure to perform by it
of its responsibilities under this agreement save only to the extent that such
loss or damage is attributable to the negligence, fraud or wilful misconduct of
the Agent.
ARTICLE 10
NOTICES
-------
10.1 Notice to Corporation: Unless and until the Corporation notifies the
---------------------
Agent of a change of address, any notice or communication required or permitted
to be given to the Corporation under the provisions of this Indenture shall be
valid and effective if delivered to the Corporation at 5915 Airport Road, Suite
330, Mississauga, Ontario, L4V 1T1, Attention: President, or sent by telecopier
to telecopier number (905) 672-5705 (and a copy by regular mail) or other means
of prepaid transmitted or recorded communication to such address. Any notice to
the Corporation as aforesaid shall be deemed to have been effectively given on
the earlier of:
(a the date of delivery, if delivered during normal business hours of the
Corporation (and, if not, on the next following Business Day); or
(b the Business Day immediately following the day of sending, if sent by
telecopier (with receipt confirmed).
10.2 Notice to Warrantholders: Unless and until a Warrantholder notifies the
------------------------
Corporation of a change of address, any notice or communication required or
permitted to be given to a Warrantholder under the provisions of this Indenture
shall be valid and effective if delivered to such holders at their post office
addresses appearing on the register to be kept by the Agent or sent by
telecopier (and a copy by regular mail) or other means of prepaid transmitted or
recorded communication to such address, or subject to the provisions of Section
10.4, if mailed by prepaid first class mail addressed to such holders at their
post office addresses appearing on the register to be kept by the Agent. Any
notice to a Warrantholder as aforesaid shall be deemed to have been effectively
given on the earlier of:
(a the date of delivery, if delivered during normal business hours (and,
if not, on the next following Business Day);
(b the Business Day immediately following the day of sending, if sent by
telecopier (with receipt confirmed); or
(c on the seventh (7th) Business Day after effectual posting in Canada.
10.3 Notice to Agent: (1) Unless and until the Agent is changed in
---------------
accordance with the provisions of this Indenture or the Agent notifies the
Corporation of a change of address, any notice or communication required or
permitted to be given to the Agent under the provisions of this Indenture,
except under Section 2.2, shall be valid and effective if delivered to the Agent
at
<PAGE>
-37-
393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7, or sent by
telecopier to telecopier number (416) 813-4555 (and a copy by regular mail) or
other means of prepaid transmitted or recorded communication to such address, or
subject to the provisions of Section 10.4, if mailed by prepaid registered mail
addressed to the Agent at 393 University Avenue, 5th Floor, Toronto, Ontario,
M5G 2M7. Any notice to the Agent as aforesaid shall be deemed to have been
effectively given on the earlier of:
(a the date of delivery, if delivered during normal business hours of the
Agent (and, if not, on the next following Business Day);
(b the Business Day immediately following the day of sending, if sent by
telecopier (with receipt confirmed); or
(c on the fifth (5th) Business Day after effectual posting in Canada.
(2) Surrender of a Warrant Certificate and evidence relating thereto
pursuant to Section 2.2 shall be valid and effective if delivered or mailed by
prepaid mail to 393 University Avenue, 5th Floor, Toronto, Ontario, M5G 2M7, and
shall be deemed to have been effectively surrendered on the date of delivery, if
delivered during normal business hours of the Agent (and, if not, on the next
following Business Day) or, if mailed, on the fifth (5th) Business Day after
effectual posting in Canada.
10.4 Mail Service Interruption: If by reason of strike, lockout or other
-------------------------
work stoppage, actual or threatened, of postal employees, any notice to be given
to the Agent or to the Corporation would be unreasonably delayed in reaching its
destination, such notice shall be valid and effective only if delivered to an
officer of the party to which it is addressed or if sent to such party, at the
appropriate address in accordance with Sections 10.1 or 10.3, as the case may
be, by cable, telegram, telecopier, telex or other means of prepaid transmitted
or recorded communication.
ARTICLE 11
POWER OF BOARD OF DIRECTORS
---------------------------
11.1 Board of Directors: In this Indenture, wherever the Corporation is
------------------
required or empowered to exercise any acts, all such acts may be exercised by
the directors of the Corporation or by those officers of the Corporation
authorized to exercise such acts.
ARTICLE 12
FORMAL EXECUTION AND EFFECTIVE DATE
-----------------------------------
12.1 Suits by Warrantholders: (1) No Warrantholder shall have any right to
-----------------------
institute any action, suit or proceeding at law or in equity for the purpose of
enforcing the execution of any
<PAGE>
-38-
obligations or power hereunder or for the appointment of a liquidator or
receiver or for a receiving order under the Bankruptcy and Insolvency Act
(Canada) or to have the Corporation wound up or to file or prove a claim in any
liquidation or bankruptcy proceedings or for any other remedy hereunder unless
(i) the Warrantholders by Extraordinary Resolution shall have made a request to
the Agent and the Agent shall have been afforded reasonable opportunity to
proceed or complete any action or suit for any such purpose whether or not in
its own name; (ii) the Warrantholders or any of them shall have furnished to the
Agent, when so requested by the Agent, sufficient funds and security and
indemnity satisfactory to it against the costs, expenses and liabilities to be
incurred therein or thereby; and (iii) the Agent shall have failed to act within
a reasonable time or where the Agent shall have failed to have actively pursued
any such act or proceeding.
(2) Subject to the provisions of this section 12.1 and Section 7.9, all or
any of the rights conferred upon a Warrantholder by the terms of a Warrant may
be enforced by such Warrantholder by appropriate legal proceedings without
prejudice to the right which is hereby conferred upon the Agent to proceed in
its own name to enforce each and all of the provisions herein contained for the
benefit of the Warrantholders from time to time.
12.2 Waiver of Default: (1) Upon the happening of any default hereunder,
-----------------
the Agent shall have power to waive any default hereunder upon such terms and
conditions as the Agent may deem advisable, if, in the Agent's opinion, the same
shall have been cured or adequate provision made therefor.
(2) Subject to the provisions of Section 7.9, no consent or waiver,
express or implied, by either party to or of any breach or default by the other
party in the performance by the other party of its obligations hereunder shall
be deemed or construed to be a consent or waiver to or of any other breach or
default in the performance of obligations hereunder by such party hereunder.
Failure on the part of either party to complain of any act or failure to act of
the other party or to declare the other party in default, irrespective of how
long such failure continues, shall not constitute a waiver by such party of its
rights hereunder.
12.3 Further Assurances: The parties hereto and each of them do hereby
------------------
covenant and agree to do such things and execute such further documents,
agreements and assurances as may be necessary or advisable from time to time in
order to carry out the terms and conditions of this Indenture in accordance with
their true intent.
12.4 Severability: If any term, covenant or condition of this Indenture or
------------
the application thereof to any party or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Indenture or application of
such term, covenant or condition to a party or circumstance other than those to
which it is held invalid or unenforceable shall not be affected thereby and each
remaining term, covenant or condition of this Indenture shall be valid and shall
be enforceable to the fullest extent permitted by law.
<PAGE>
-39-
12.5 Satisfaction and Discharge of Indenture: Upon the later of the date
---------------------------------------
when the Common Shares have been delivered to Warrantholders who have exercised
Warrants to the full extent of the rights attached to all Warrants theretofore
certified hereunder and the Expiry Date, this Indenture shall cease to be of
further effect and the Agent, on demand of and at the cost and expense of the
Agent and upon delivery to the Agent of a certificate of the Corporation stating
that all conditions precedent to the satisfaction and discharge of this
Indenture have been complied with and upon payment to the Agent of all
outstanding fees, the parties hereto shall execute proper instruments
acknowledging satisfaction of and discharging this Indenture.
12.6 Formal Date and Execution Date: For the purpose of convenience this
-------------------------------
Indenture may be referred to as bearing the formal date of October 3, 1997 which
shall be the date on which this Indenture shall become effective between the
parties hereto, irrespective of the actual date of execution hereof.
12.7 Counterparts: This Indenture may be executed in one or more
------------
counterparts, each of which so executed shall be deemed to be an original and
such counterparts together shall constitute one and the same instrument.
12.8 Enurement: This Indenture shall benefit and bind the parties to it and
---------
their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have executed this Indenture as of
the 3rd day of October, 1997.
INTERNET LIQUIDATORS
INTERNATIONAL INC.
Per:
CIBC MELLON TRUST COMPANY
Per:
Per:
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE WILL BE VOID AND OF NO VALUE UNLESS
EXERCISED AT OR PRIOR TO 5:00 P.M., TORONTO TIME ON JANUARY 3, 1999.
INTERNET LIQUIDATORS INTERNATIONAL INC.
(the "Corporation")
(Constituted pursuant to the laws of the Province of Ontario)
WARRANT CERTIFICATE NO. _______ _________ WARRANTS
THIS IS TO CERTIFY that________________________________________(the "holder") is
entitled to subscribe for, in the manner herein provided, subject to adjustment
in certain events and to the restrictions contained herein, at any time and from
time to time on or prior to 5:00 p.m. (Toronto time) on January 3, 1999 (the
"Expiry Time"), one Common Share in the capital of the Corporation for each
whole Warrant represented hereby at a price per share equal to $1.65, subject to
adjustment in certain events.
Such right to subscribe for Common Shares in the capital of the Corporation
may only be exercised by the registered holder hereof within the time
hereinbefore set out by:
(a duly completing in the manner indicated and executing the Exercise
Form attached hereto; and
(b surrendering to CIBC Mellon Trust Company ("Agent") as hereinafter set
forth this Warrant Certificate evidencing a minimum of one Warrant
together with payment by certified cheque or bank draft payable to or
to the order of the Corporation for each Common Share subscribed for,
subject to adjustment in the manner set forth in the Indenture.
This Warrant Certificate shall be validly exercised only upon delivery
thereof or by mailing the same to the Agent at its Stock and Bond Transfer
Department in its principal stock transfer offices in the City of Toronto (at
the address hereinafter indicated). The Exercise Form attached hereto shall not
be deemed to be duly completed if the name and mailing address of the holder do
not appear legibly on such Exercise Form or such Exercise Form is not signed by
the holder.
Upon due exercise of the Warrants as provided herein, the person or persons
in whose name or names the Common Shares are issuable, shall be deemed for all
purposes (except as provided in the Indenture hereinafter referred to) to be the
holder or holders of record of such Common Shares and the Corporation covenants
that it will (subject to and in accordance with the provisions of the aforesaid
Indenture) cause a certificate or certificates representing such Common Shares
to be delivered or mailed to such person or persons at the address or addresses
specified in such Exercise Form.
The holder of this Warrant Certificate may exercise any lesser number of
Common Shares than the aggregate number of Warrants evidenced by this Warrant
Certificate and, in such event, shall be entitled to receive, without charge, a
new Warrant Certificate representing the balance of the Warrants held by such
holder not then exercised.
No fractional Common Shares will be issued. To the extent that the holder
of a Warrant is entitled to receive on the exercise or partial exercise thereof
a fraction of a Common Share, such right may only be exercised in respect of
such fraction in combination with another Warrant or other Warrants which in the
aggregate entitle the holder to receive a whole number of Common Shares. If a
holder is not able to, or elects not to, combine Warrants
<PAGE>
-2-
so as to be entitled to acquire a whole number of Common Shares, the Corporation
shall make an appropriate cash adjustment. However, in respect of any holder,
the Corporation shall only be required to make such a cash adjustment once and
for one Warrant and no more. The amount of the cash adjustment with respect to
the Common Shares shall be equal to the fraction of the Common Share to which
the holder would be entitled multiplied by the Weighted Average Price (as
defined in the Warrant Indenture (as hereinafter defined)).
The Warrants represented by this certificate are issued under and pursuant
to a Warrant Indenture (the "Indenture") made as of October 3, 1997 between the
Corporation and the Agent (which expression shall include any successor agent
appointed under the Indenture), to which Indenture (and any amendments thereto
and instruments supplemental thereto) reference is hereby made for a full
description of the rights of the holders of the Warrants and the terms and
conditions upon which such Warrants are, or are to be, issued and held, all to
the same effect as if the provisions of the Indenture and all amendments thereto
and instruments supplemental thereto were herein set forth and to all of which
provisions the holder of these Warrants by acceptance hereof assents. All
capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Indenture.
In the event of any conflict or inconsistency between the provisions of the
Indenture (and any amendments thereto and instruments supplemental thereto) and
the provisions of this Warrant Certificate, except those that are necessary by
context, the provisions of the Indenture (and any amendments thereto and
instruments supplemental thereto) shall prevail. The terms and provisions of
the Indenture (and any amendments thereto and instruments supplemental thereto)
are incorporated herein by reference.
The holding of the Warrants evidenced by this Warrant Certificate shall not
constitute the holder hereof a shareholder of the Corporation or entitle such
holder to any right or interest in respect thereof except as herein and in the
Indenture expressly provided.
The Warrants evidenced by this Warrant Certificate are not transferable
except as set forth in Section 2.2 of the Indenture which makes reference to the
fact that a person who furnishes evidence to the reasonable satisfaction of the
Agent that he is:
(a a Warrantholder;
(b an executor, administrator, heir or legal representative of the heirs
of the estate of a deceased registered holder hereof,
(c) a guardian, committee, trustee, curator or tutor representing a
registered holder who is an infant, an incompetent person or a missing
person,
(d) a liquidator of, or a trustee in bankruptcy for, a holder hereof, or
(e) a transferee of a Warrantholder,
may, as set forth in the Indenture, by surrendering such evidence together with
the Warrant Certificate in question to the Agent and subject to such reasonable
requirements with respect to the payment by the holder of the costs associated
with the transfer as the Agent may prescribe and all applicable securities
legislation and requirements of regulatory authorities, become noted upon the
register of Warrantholders.
If any of the Common Shares in respect of which the Warrants are exercised
are to be issued to a person or persons other than the holder (as aforesaid),
the holder shall pay to the Agent all requisite stamp transfer taxes or other
governmental charges exigible in connection with the issue of such Common Shares
to such other person or persons or shall establish to the satisfaction of the
Agent that such taxes and charges have been paid or are not exigible.
<PAGE>
-3-
This Warrant Certificate shall not be valid for any purpose whatever unless
and until it has been countersigned by or on behalf of the Agent.
Time shall be of the essence hereof. The Warrants and the Indenture (and
any amendments thereto and instruments supplemental thereto) shall be governed
by, performed, construed and enforced in accordance with the laws of the
Province of Ontario and the laws of Canada applicable therein and shall be
treated in all respects as Ontario contracts.
In the event that the Warrants represented by the within certificate are
acquired prior to the date on which the Corporation obtains a receipt for a
(final) prospectus qualifying the distribution of the Warrants from the
securities regulatory authority in the jurisdiction in which the Warrantholder
is resident, the Warrants and the Common Shares underlying them may be subject
to statutory hold periods during which these securities may not be resold in
such provinces except pursuant to an applicable exemption from the prospectus
and registration requirements of applicable securities legislation. In addition,
any Warrants that are exercised or Common Shares received on such exercise prior
to the issuance of a receipt for the (final) prospectus by the securities
regulatory authority in the jurisdiction in which the Warrantholder is resident
may be subject to statutory resale restrictions.
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to
be signed by its duly authorized officer as of October 3, 1997
INTERNET LIQUIDATORS
INTERNATIONAL INC..
Per:______________________c/s
Countersigned
CIBC MELLON TRUST COMPANY
Per:
----------------------------------
Authorized Signing Officer
<PAGE>
EXERCISE INSTRUCTIONS TO WARRANTHOLDER
The registered holder hereof may exercise his right to subscribe for Common
Shares of INTERNET LIQUIDATORS INTERNATIONAL INC. (the "Corporation") by
completing the Exercise Form and surrendering this Warrant Certificate
(evidencing a minimum of one Warrant) and the appropriate amount per Common
Share subscribed for by way of certified cheque or recognized bank draft payable
to or to the order of the Corporation and the duly completed Exercise Form to
CIBC Mellon Trust Company by delivering or mailing it to CIBC Mellon Trust
Company at its principal stock transfer offices in the City of Toronto at its
Stock and Bond Transfer Department as follows:
In the City of Toronto: 393 University Avenue
5th Floor
Toronto, Ontario
M5G 2M7
If by hand or courier: 393 University Avenue
Lower Level
Toronto, Ontario
M5G 2M7
If not exercised at or prior to the Expiry Time, the Warrants evidenced by
this Certificate will be cancelled and become absolutely void.
For your own protection, it would be prudent to forward all documentation
to the Agent by registered mail.
Subject to adjustment in certain events as described in the Indenture, the
maximum number of Common Shares which you may acquire is one Common Share for
every whole Warrant set out on the face of this Warrant Certificate (provided
that the required subscription proceeds are paid for each one Common Share)
unless you are otherwise notified by the Corporation.
<PAGE>
EXERCISE FORM
TO: INTERNET LIQUIDATORS INTERNATIONAL INC.
The undersigned hereby exercises the right to subscribe for _________
Common Shares in the capital of INTERNET LIQUIDATORS INTERNATIONAL INC. (or such
number of other securities or property to which such Warrants entitle the
undersigned in lieu thereof or in addition thereto under the provisions of the
Indenture mentioned in the within Warrant Certificate) at a price per share of
$1.65 (subject to adjustment in certain events) according to the terms of the
Indenture mentioned in the within Warrant Certificate and encloses the necessary
subscription monies per Common Share, by way of certified cheque or bank draft
(or the adjusted dollar amount per share at which the undersigned is entitled to
purchase such shares or other securities or property under the provisions of the
Indenture). If any of the Common Shares are to be issued to a person or persons
other than the holder in those circumstances as set forth in the within Warrant
Certificate, the holder must pay to CIBC Mellon Trust Company all requisite
stamp or security transfer taxes or other governmental charges related thereto.
Such Common Shares should be delivered to the following address in the name of
the person(s) listed below.
(Print clearly)
Name:
---------------------------------------------------------------------------
Address in Full:
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Number of Warrants Exercised:
---------------------------------------------------
Number of Common Shares Subscribed
for (equal to the Number of Warrants
Exercised rounded down to the nearest
whole number of shares):
--------------------------------------------------------
Total Amount of Subscription
Funds Enclosed:
-----------------------------------------------------------------
DATED this day of , 19 .
Signature of Warrantholder
Name of Warrantholder
(As registered on Warrant Certificate)
Print Full Address
<PAGE>
TRANSFER FORM
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
- --------------------------------------------------------------------------------
(Please print or typewrite name and address of assignee)
- --------------------------------------------------------------------------------
________________________ Warrant(s) represented by the within certificate,
constitute and appoint
and do(es) hereby irrevocably
________________________the attorney of the undersigned to transfer the said
Warrant(s) on the register of Warrants maintained by the Agent with full power
of substitution hereunder.
DATED this ________ day of _______________ , 199__.
Signature of Warrantholder
- -------------------
Signature Guarantee Name of Warrantholder (please print)
The signature of the Warrantholder to this assignment must correspond
exactly with the name of the Warrantholder as set forth on the face of this
Warrant certificate in every particular, without alteration or enlargement or
any change whatsoever and the signature must be guaranteed by a Canadian
chartered bank or by a trust company or by a member firm of any Canadian stock
exchange, any of whose signature must be on file with the Agent.
<PAGE>
EXHIBIT 3.15
BID.COM INTERNATIONAL INC.
SUBSCRIPTION AGREEMENT FOR A
SERIES B SPECIAL WARRANT FOR 1,500,000 COMMON SHARES
AND A WARRANT FOR A SHARE PURCHASE WARRANT
FOR UP TO 100,000 COMMON SHARES
OF
BID.COM INTERNATIONAL INC.
TO: BID.COM INTERNATIONAL INC.
1. Subscription
The undersigned Rogers Media Inc. (the "Purchaser") hereby irrevocably
agrees to subscribe for and agrees to purchase, on and subject to the terms and
conditions set forth herein from Bid.Com International Inc. (the "Corporation")
a Series B Special Warrant for 1,500,000 common shares in the capital of the
Corporation (the "Special Warrant") at a price of $1,875,000 and a warrant
("Warrant") for an underlying share purchase warrant (the "Common Share
Warrant") exercisable for up to 100,000 common shares in the capital of the
Corporation as set forth in section 2. Certain terms used but not defined in
this Agreement shall have the meaning attributed thereto in Exhibit "A".
2. Description of the Special Warrant and Warrant
The Special Warrant and the Warrant shall be created and issued with
the rights, privileges, conditions and restrictions as set out in the Special
Warrant Certificate and the Warrant Certificate (in each case, as defined
below), respectively.
The specific attributes of the Special Warrant will provide, among
other things, that the holder of the Special Warrant shall be entitled to
receive, subject to adjustments and additions as set out in the Special Warrant,
without payment of any consideration therefor, 1,500,000 common shares in the
capital of the Corporation upon the earlier of: (i) the issuance of a receipt
for a (final) prospectus of the Corporation (the "Prospectus") in Ontario
qualifying the Common Shares issuable upon deemed exercise of the Special
Warrant and the Common Share Warrant; and (ii) 5:00 p.m. (Toronto time) on the
5th Business Day following the day that is 130 days following the Closing Date
(defined below) (the "Qualification Deadline").
The Warrant will provide, among other things, that the holder of the
Warrant shall be entitled to receive, without payment of any consideration
therefor, the Common Share Warrant until the earlier of (i) 5:00 p.m. (Toronto
Time) on the date which is five Business Days after the date on which a receipt
for the Prospectus is issued to the Corporation by the Ontario Securities
Commission (the "OSC"); and (ii) 5:00 p.m. (Toronto Time) on the date which is
the earlier of July 31, 1999 and the date which is ten Business Days following
the date on which a notice is provided to the holder confirming the filing of a
registration statement or preliminary
<PAGE>
-2-
prospectus in respect of an initial public offering of the common shares of the
Corporation in the United States of America for proceeds of at least $7,000,000
(Cdn.).
The Common Share Warrant will provide, among other things, that the
holder of the Common Share Warrant shall be entitled to subscribe for all or any
part of a total of 100,000 Common Shares at a subscription price of $1.40 per
share exercisable at any time up to the earlier of 5:00 p.m. (Toronto time):
(i) on July 31, 1999; and (ii) the 10th business day following the date on which
the Corporation delivers a notice to the Purchaser confirming it has filed a
registration statement or preliminary prospectus for an initial public offering
of shares of the Corporation in the United States for proceeds of at least
$7,000,000.
In this Agreement, the Common Shares issuable on the conversion of the
Special Warrant and the Common Share Warrant are referred to collectively as the
"Underlying Securities".
In the event that the Corporation is unable to obtain a receipt for
the Prospectus from the OSC, the Special Warrant, the Warrant, the Common Share
Warrant, and the Underlying Securities may be subject to statutory resale
restrictions under the applicable securities legislation of Ontario.
100% of the gross proceeds from the private placement of the Special
Warrant and the Warrant shall be paid to the Corporation on the Closing Date (as
defined below).
All dollar amounts referred to herein are in Canadian dollars.
3. Payment
The aggregate amount payable by the Purchaser in respect of the
Special Warrant and the Warrant (the "Subscription Price") must accompany this
Subscription Agreement and shall be made by certified cheque or bank draft drawn
on a Canadian chartered bank, and payable to the Corporation.
4. Conditions of Closing
As a condition of Closing (defined below):
(a) the Corporation must obtain the approval of The Toronto Stock Exchange
(the "TSE") in respect of the issue of the Special Warrant, the
Warrant, the Common Share Warrant and the Underlying Securities and in
respect of the listing of the Underlying Securities on the TSE. The
Purchaser agrees to promptly execute and deliver the TSE Private
Placement Questionnaire and Undertaking and all such other documents
and other instruments as the TSE may require;
(b) execution and delivery of the E-Commerce Agreement, the AOL Agreement
and the Toronto Star Agreement;
<PAGE>
-3-
(c) the Purchaser shall receive a favourable opinion from counsel for the
Corporation as to matters the Purchaser may reasonably request.
5. Closing
Delivery and payment for the Special Warrant and the Warrant will be
completed (the "Closing") at the offices of counsel to the Corporation, Gowling,
Strathy & Henderson, Suite 4900, Commerce Court West, Toronto, Ontario, M5L 1J3
at 11:00 am. (Toronto time) (the "Closing Time") on or before July 29, 1998 (the
"Closing Date"). This executed Subscription Agreement is open for acceptance in
whole or in part by the Corporation at any time prior to the Closing Time.
Confirmation of acceptance will be forwarded to the Purchaser promptly after
acceptance has been made.
Certificates representing the Special Warrant (the "Special Warrant
Certificate") and a certificate evidencing the Warrant (the "Warrant
Certificate") will be available for delivery against payment of the Subscription
Price in the manner specified above.
6. Representations, Warranties and Covenants of the Purchaser
The Purchaser hereby represents, warrants and covenants to and with
the Corporation (which representations, warranties and covenants shall survive
Closing) that:
(A) The distribution of the Special Warrant and the Warrant is being
effected pursuant to the exemption from prospectus and registration
requirements contained in Section 72(1)(d) and 35(1)5 of the
Securities Act (Ontario) (the "Securities Act").
(B) the Purchaser hereby acknowledges that no prospectus has been filed by
the Corporation with any securities commission in any jurisdiction in
connection with the issuance of the Special Warrant or the Warrant and
the issuance is exempt from the prospectus and registration
requirements available under the provisions of applicable securities
legislation and applicable securities regulations (the "Securities
Legislation") and as a result:
(i) the Purchaser is restricted from using most of the civil
remedies available under the Securities Legislation;
(ii) the Purchaser may not receive information that would
otherwise be required to be provided to it under the
Securities Legislation; and
(iii) the Corporation is relieved from certain obligations that
would otherwise apply under the Securities Legislation; and
(C) the Purchaser is capable of assessing the proposed investment as a
result of the Purchaser's financial or investment experience or as a
result of advice received
<PAGE>
-4-
from a registered person other than the Corporation or an affiliate
thereof, and is able to bear the economic loss of its investment.
7. Reliance Upon Representations, Warranties and Covenants
The Purchaser acknowledges that the representations and warranties and
covenants contained in this Agreement are made with the intent that they may be
relied upon by the Corporation and counsel to, among other things, determine its
eligibility or (if applicable) the eligibility of others on whose behalf it is
contracting hereunder to purchase the Special Warrant and Warrant. The Purchaser
further agrees that by accepting the Special Warrant and Warrant, the Purchaser
shall be representing and warranting that the foregoing representations and
warranties are true as at the Closing Time with the same force and effect as if
they had been made by the Purchaser at the Closing Time and that they shall
survive the purchase by the Purchaser of the Special Warrant and Warrant and
shall continue in full force and effect notwithstanding any subsequent
disposition by it of the Special Warrant, the Warrant, the Common Share Warrant
or the Underlying Securities, as the case may be.
8. Representations and Warranties of the Corporation
The Corporation hereby represents, warrants and covenants to the Purchaser
(which representations, warranties and covenants shall survive the issuance of
the Common Shares) as follows and acknowledges that the Purchaser is relying
upon such representations and warranties in entering into this Agreement and
completing the transactions contemplated hereby:
(a) the Corporation is a corporation amalgamated in Ontario and existing
pursuant to the Business Corporations Act (Ontario) (the "Act"), is an
offering corporation within the meaning of such term in the Act, and
is in compliance with all applicable filing and reporting requirements
of the Act;
(b) the issued and outstanding Common Shares of the Corporation are listed
and posted for trading on the TSE and the Corporation is in all
respects in compliance with its listing agreement with the TSE and the
bylaws and policies of the TSE applicable to the Corporation;
(c) the Corporation is a reporting issuer within the meaning of such term
in the Securities Act, is not on the list of defaulting reporting
issuers maintained under the Securities Act, and is in compliance with
all filing and reporting requirements of the Securities Act; and
(d) as provided in Schedule I hereto.
9. Covenants of the Corporation
(a) The Corporation undertakes to file or cause to be filed, at its sole
expense, all forms or undertakings required to be filed by the
Corporation in connection with this transaction so that the
distribution of the Special Warrant and Warrant may
<PAGE>
-5-
lawfully occur without the necessity of filing a prospectus or
offering memorandum as described in the Regulation made under the
Securities Act.
(b) The Corporation will use its best commercial efforts to (a) qualify
the distribution of the Common Share Warrant, and the Underlying
Securities issuable upon the deemed exercise of the Special Warrant
and the exercise of the Common Share Warrant by filing and obtaining a
receipt for the Prospectus in accordance with securities legislation
in Ontario on or before the day that is 130 days following the Closing
Date; and (b) obtain a listing of the Underlying Securities as soon as
practicable.
(c) The Corporation shall not declare or pay any dividend or make any
distribution in respect of the Common Shares.
(d) On or prior to the Closing Date, the Corporation shall deliver to the
Purchaser a copy of all correspondence with the TSE, the OSC or any
other Governmental Agency (as defined in Exhibit "A") relating to the
issuance of the Special Warrant, the Warrant, the Common Share Warrant
and the Underlying Securities or to the listing of the Underlying
Securities on the TSE.
(e) The Corporation covenants and agrees that all Underlying Securities
issuable upon the deemed exercise of the Special Warrant and the
exercise of the Common Share Warrant will, upon issuance, be fully
paid and non-assessable and free from all taxes, liens and charges
with respect to the issue thereof.
(f) The Corporation covenants and agrees to use all reasonable efforts to:
(i) preserve and maintain its corporate existence; and
(ii) preserve and maintain its status as a reporting issuer, not
in default in the Province of Ontario or any other
jurisdiction in which it becomes a reporting issuer.
(g) The Corporation shall, so long as the Special Warrant or the Warrant
or the Common Share Warrant are outstanding, at all times ensure that
there are sufficient number of Common Shares authorized to be issued
upon the exercise or deemed exercise thereof to enable the Special
Warrant, the Warrant and Common Share Warrant to be exercised or
deemed to be exercised upon the basis and upon the terms and
conditions herein provided; provided that nothing herein contained
shall affect or restrict the right of the Corporation to issue Common
Shares from time to time.
10. Costs
<PAGE>
-6-
The Purchaser acknowledges and agrees that all costs and expenses
incurred by the Purchaser (including any fees and disbursements of any special
counsel retained by the Purchaser) relating to the purchase and sale of the
Special Warrant and Warrant to the Purchaser shall be borne by the Purchaser.
The Corporation shall be responsible for all costs associated with the issue of
the Underlying Securities and the Common Share Warrant. The Corporation will
also be responsible for all costs of qualifying the Common Share Warrant and the
Common Shares issuable upon deemed exercise of the Special Warrant for sale to
the public including the filing of a prospectus, any printing costs and costs of
transfer agent.
11. Governing Law
This Agreement is governed by the laws of the Province of Ontario and
the federal laws of Canada applicable therein. The Purchaser irrevocably attorns
to the jurisdiction of the courts of the Province of Ontario.
12. Survival
This Agreement, including without limitation the representations,
warranties and covenants contained herein, shall survive and continue in full
force and effect and be binding upon the parties hereto notwithstanding the
completion of the purchase of the Special Warrant and the Warrant by the
Purchaser pursuant hereto and any subsequent disposition by the Purchaser of the
Special Warrant, the Warrant, the Common Share Warrant or the Underlying
Securities.
13. Assignment
This Agreement is not transferable or assignable by the parties
hereto.
14. Counterparts
This Agreement may be executed in counterparts each of which shall be
deemed to be an original and all of which shall constitute one and the same
document.
<PAGE>
-7-
15. Schedules and Exhibits
Schedule I (Representations and Warranties) and Exhibit "A" to
Schedule I (Definitions) form part of this Agreement.
16. Subscription Particulars
Subscription. One Warrant for a Common Share Warrant to acquire up to 100,000
Common Shares and a Special Warrant for 1,500,000 Common Shares, the aggregate
price being $1,875,000.
Registration. The Underlying Securities are to be registered in the name of:
Rogers Media Inc.
----------------------
Delivery. This certificate representing the Underlying Securities are to be
delivered to:
(name)
(address)
(contact name and number)
DATED July 29, 1998
Rogers Media Inc.
------------------
Name of Purchaser (please type or print)
By:
(Address of Purchaser)
<PAGE>
-8-
17. Acceptance
----------
The above subscription is hereby accepted and agreed to by the
Corporation.
DATED July 29, 1998.
BID.COM INTERNATIONAL INC.
By:
------------------------------------
Authorized Signing Officer
<PAGE>
SCHEDULE I
----------
SCHEDULE I
REPRESENTATIONS AND WARRANTIES
1.1 Representations and Warranties of the Corporation. The Corporation hereby
represents and warrants to the Purchaser as follows and acknowledges that the
Purchaser is relying upon such representations and warranties in entering into
this Agreement and completing the transactions contemplated hereby. The
definitions contained in the main body of the Agreement and Exhibit A hereto
form part of this Schedule I.
1.1.1 Corporate Matters
(1) The Corporation and each of the Subsidiaries is a corporation duly
incorporated, organized and validly existing in good standing under the
laws of its jurisdiction of incorporation. None of the Corporation or the
Subsidiaries (i) is an insolvent person within the meaning of The
Bankruptcy Act (Canada), or (ii) has made any assignment for the benefit of
its creditors or a proposal in bankruptcy. No proceedings have been taken
or authorized by any of the Corporation, any Subsidiary or, to the best of
the Corporation's knowledge, by any other Person with respect to the
bankruptcy, insolvency, liquidation, dissolution or winding up of the
Corporation or any of the Subsidiaries.
(2) The Corporation has all necessary power and capacity to execute and
deliver, and to observe and perform its covenants and obligations under
this Agreement and the Closing Documents to which it is a party. The
Corporation has taken all corporate action and caused all necessary
shareholder action to authorize the execution and delivery of, and the
observance and performance of its covenants and obligations under, this
Agreement and the Closing Documents to which it is a party including,
without limitation, the issuance and delivery of the Special Warrant, the
Warrant, the Common Share Warrant and the issue of the Underlying
Securities.
(3) The Corporation and the Subsidiaries have all necessary power and authority
to own or lease the Assets and to carry on the Business as carried on. The
Corporation and the Subsidiaries possess all Licences material to the
conduct of the Business. Neither the nature of the Business nor the
location or character of any of the Assets requires any of the Corporation
or the Subsidiaries to be registered, licensed or otherwise qualified as an
extra-provincial or foreign corporation or to be in good standing in any
jurisdiction other than jurisdictions where it is duly registered, licensed
or otherwise qualified and in good standing for such purpose.
(4) This Agreement has been, and each Closing Document to which the Corporation
is a party will on Closing be, duly executed and delivered by the
Corporation and this Agreement constitutes, and each Closing Document to
which the Corporation is a party will on Closing constitute, a valid and
binding obligation of the Corporation enforceable against the Corporation
in accordance with its terms.
<PAGE>
-2-
(5) A true copy of the Articles and by-laws of the Corporation each as amended
to date and currently in effect have been delivered to the Purchaser by the
Corporation. The Articles and by-laws of the Corporation constitute all of
the constating documents and by-laws of the Corporation, are complete and
correct and are in full force and effect and no amendments are being made
to same.
1.1.2 Authorized and Issued Capital of the Corporation. The authorized capital
of the Corporation consists of an unlimited number of Common Shares, of which
approximately 22,000,000 common shares are outstanding as fully paid and non-
assessable shares, an unlimited number of preference shares issuable in series,
and an unlimited number of 7% cumulative preference shares. No preference
shares are outstanding. Except as listed in Schedule D, no other Voting
Securities, or Rights of the Corporation have been issued or are outstanding.
1.1.3 Options. Except as listed in Schedule D, no Person other than the
Purchaser has any oral or written agreement, option, warrant, right, privilege
or any other right capable of becoming any of the foregoing (whether legal,
equitable, contractual or otherwise), for the purchase, subscription or issuance
of any Voting Securities, securities convertible into voting securities, or
Rights of the Corporation. True and complete copies of the agreements and other
Rights disclosed in Schedule D have been provided to the Purchaser except for
the Authority Agreement with Yorkton Securities Inc. dated July 9, 1998. The
Corporation has no agreement or obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital stock of
the Corporation have been offered, issued and sold by the Corporation in
compliance with Applicable Law. There are no pre-emptive rights, rights of
first refusal, put or call rights or obligations or anti-dilution rights with
respect to the issuance, sale or redemption of the Corporation's capital stock,
other than rights to which the Purchaser is entitled as set forth in this
Agreement and the Closing Documents.
1.1.4 Subsidiaries. The Corporation is the registered and beneficial owner of
all of the issued and outstanding shares of each Subsidiary with good and valid
title thereto, free and clear of all encumbrances. Neither the Corporation nor
any Subsidiary holds or has agreed to acquire any shares, equity securities or
other securities convertible into equity securities of, or ownership interests
in, any Person. None of the Corporation or the Subsidiaries is or has agreed to
become a partner, member, owner, proprietor or equity investor of or in any
partnership, joint venture or other management or business association or to
acquire or lease any other business operation.
1.1.5 Insurance. Each of the Corporation and the Subsidiaries maintains valid
policies of insurance with respect to its properties and business of the kinds
and in the amounts not less than is customarily obtained by corporations of
established reputation engaged in the same or similar business and similarly
situated. There is no default under any such policy, nor, to the knowledge of
the Corporation, has any event occurred which with notice, lapse of time or both
would constitute a material default thereunder.
<PAGE>
-3-
1.1.6 Financial Statements. The Audited Financial Statements and the Interim
Financial Statements, true and complete copies of which have been provided to
the Purchaser are attached as Schedule B:
(1) have been prepared from and in accordance with the books and records of the
Corporation and its Subsidiaries in accordance with Generally Accepted
Accounting Principles (except as disclosed in the notes thereto) applied on
a basis consistent with that of the preceding periods;
(2) present fairly the assets, liabilities (whether accrued, absolute,
contingent or otherwise) and financial condition of the Corporation and the
Subsidiaries and the results of the operations of the Corporation and the
Subsidiaries as at the date thereof and for the periods covered thereby;
and
(3) contain or reflect adequate reserves for all known or reasonably
anticipated liabilities and obligations of the Corporation and the
Subsidiaries of any nature, whether absolute, contingent or otherwise, as
at the date thereof.
No information has come to the attention of the Corporation that would render
the Audited Financial Statements or the Interim Financial Statements incomplete
or inaccurate in any material respect.
1.1.7 Undisclosed Liabilities. None of the Corporation or the Subsidiaries has
any known or reasonably anticipated liabilities (whether accrued, absolute,
contingent or otherwise) of any kind and whether due or to become due, except:
(1) liabilities disclosed or provided for in the Audited Financial Statements;
and
(2) liabilities incurred in the ordinary course from and after the Financial
Disclosure Date which are consistent with past practice, are not, in the
aggregate, material and adverse to the Business, Assets, financial
condition or results of operations of the Corporation and the Subsidiaries,
and do not violate any covenant or obligation contained in this Agreement
or constitute a breach of any representation or warranty made in or
pursuant to this Agreement.
1.1.8 Absence of Changes. Since the Financial Disclosure Date;
(1) The Corporation and each of the Subsidiaries has conducted the Business in
the ordinary course, has not incurred any debt, obligation or liability out
of the ordinary course or of an unusual or extraordinary nature and has
used its best efforts to preserve the Business and the Assets;
(2) the Corporation has not declared or paid any dividend or made any
distribution in respect of any of its shares or repurchased, redeemed or
otherwise acquired any of its securities;
<PAGE>
-4-
(3) there has not been any change in the condition of the Business or the
Assets or the financial condition or results of operations of any of the
Corporation, the Subsidiaries or the Business other than changes in the
ordinary course, and such changes have not, either individually or in the
aggregate, been materially adverse or have had or may be reasonably
expected to have, either before or after the Closing Time, a material
adverse effect on the Business, the Assets or the future prospects of the
Corporation, any of the Subsidiaries or the Business; and
(4) to the best of the Corporation's knowledge, there has not been any change
in, or creation of, any Applicable Law, any revocation of any Licence or
any damage, destruction, loss, labour dispute or other event, development
or condition of any character (whether or not covered by insurance)
materially and adversely affecting the Corporation, any Subsidiary, the
Business or the Assets or the future prospects of any of the Corporation,
the Subsidiaries or the Business.
1.1.9 Tax Matters. The Corporation and each of the Subsidiaries has filed with
all appropriate Governmental Agencies all Tax Returns within the times and in
the manner prescribed by law and all tax returns are correct and complete in all
material respects and no material fact has been omitted therefrom. The
Corporation and each Subsidiary has paid all Taxes due and payable and has paid
all installments, has collected or withheld all amounts required to be collected
or withheld by it and has made all other remittances required to be made on
account of Taxes payable by it. No Tax Return has been reassessed nor has there
been any notice of reassessment by any taxing authority and there are no
actions, audits, assessments, reassessments, suits, appeals, proceedings,
investigations or claims now pending or, to the best of the Corporation's
knowledge, threatened against the Corporation or any Subsidiary in respect of
Taxes or governmental charges by any Governmental Agency relating to claims for
additional Taxes or assessments with reference to any of the Corporation, the
Subsidiaries, the Assets or the Business. There are no outstanding waivers of
any limitation period or agreements providing for an extension of time during
which any governmental agency may issue an assessment or re-assessment with
respect to any Taxes owed by the Corporation or any Subsidiary. The provision
for Taxes reflected in the Financial Statements is adequate for all Tax
liabilities, whether or not yet due and payable and whether or not disputed or
under appeal, for the periods covered by the Financial Statements and for all
prior periods and none of the Corporation or the Subsidiaries has any liability
for any Tax in respect thereof of any nature other than those described in the
Financial Statements and those arising in the ordinary course since the
Financial Disclosure Date.
1.1.10 Absence of Conflicting Agreements. None of the execution and delivery
of, or the observance and performance by the Corporation of any covenant or
obligation under this Agreement or any Closing Document to which it is a party
including the issuance of the Special Warrant, the Warrant, the Common Share
Warrant or the Underlying Securities or the Closing, contravenes or results in,
or will contravene or result in, a material violation of or a material default
under (with or without the giving of notice or lapse of time, or both), or in
the acceleration of any material obligation under:
<PAGE>
-5-
(1) any Applicable Law;
(2) any Licence held by or for the Corporation, a Subsidiary or the Business;
(3) the articles, by-laws, directors' or shareholders' resolutions of the
Corporation or any Subsidiary; or
(4) any other agreement, lease, mortgage, security document, obligation or
instrument to which the Corporation or any Subsidiary is a party, or by
which either is bound.
The representation and warranty in Section 1.1.10(b) shall not apply to Generic
Software.
1.1.11 Consents, Approvals, Etc. Subject to those Required Filings identified
in Section 1.1.18, no consent, approval, Licence, Order or authorization,
registration, declaration or filing with any Governmental Agency or other Person
is required by the Corporation or any Subsidiary, or with respect to the
Business, in connection with (a) the Closing or (b) the execution and delivery
by the Corporation of, and the observance and performance by the Corporation of
its obligations under, this Agreement and the Closing Documents to which it is a
party.
1.1.12 Restrictions on Business. Other than statutory provisions and
restrictions of general application to the Business, the Corporation or the
Subsidiaries, none of the Corporation or any Subsidiary is a party to any
agreement, lease, mortgage, security document, obligation or instrument, or
subject to any restriction in its articles or by-laws or directors' or
shareholders' resolutions or subject to any restriction imposed by any
Governmental Agency or subject to any Applicable Law which could materially
restrict or interfere with the conduct of the Business or which could materially
limit or restrict or otherwise adversely affect the Assets or the financial
condition of the Corporation on a consolidated basis.
1.1.13 Compliance with Applicable Law. Each of the Corporation and the
Subsidiaries has conducted and is conducting the Business in compliance with all
Applicable Law, and is not in breach of any Applicable Law except for breaches
which in the aggregate are not material to the Corporation and the Subsidiaries.
1.1.14 Litigation. Except as disclosed in Schedule E, there is no claim,
demand, suit, action, cause of action, dispute, proceeding, litigation,
investigation, grievance, arbitration, governmental proceeding or other
proceeding including appeals and applications for review, in progress against or
relating to the Corporation or any Subsidiary or affecting the Common Shares,
the Special Warrant, the Warrant, the Assets or the Business which, if
determined adversely, would materially and adversely affect any of the
Corporation, any Subsidiary, the Special Warrant, the Warrant, the Business or
the Assets or the validity of the Agreement, any of the Common Shares or any of
the Closing Documents, nor are any of the same pending or to the best of the
knowledge of the Corporation threatened. There is not at present outstanding
against the Corporation or any Subsidiary any Order that materially and
adversely affects the
<PAGE>
-6-
Corporation, any Subsidiary, the Business or the Assets in any way or that in
any way relates to this Agreement or the transactions contemplated hereby.
1.1.15 Title to Properties. Except as disclosed in the Audited Financial
Statements or the Interim Financial Statements, the Corporation and the
Subsidiaries have good and marketable title to all of the Assets, free and clear
of all Encumbrances. There is no agreement, option or other right or privilege
outstanding in favour of any person for the purchase from the Corporation or a
Subsidiary of the Business or any of the Assets, except in the ordinary course.
Neither the Corporation nor any Subsidiary owns or has agreed or otherwise
become committed to acquire real property.
1.1.16 No Expropriation. None of the Corporation or any Subsidiary has
received any notice of expropriation of any of the Assets. The Corporation is
not aware of any expropriation proceeding, pending or threatened against or
affecting any of the Assets.
1.1.17 Licences. The only Licences necessary or desirable for the operation of
the Business and the ownership of the Assets are listed in Schedule F and are in
full force and effect unamended. the Corporation or each Subsidiary, as the
case may be, is in compliance in all material respects with all the terms and
conditions relating to such Licences and there are no proceedings in progress,
or to the best of the knowledge of the Corporation, pending or threatened, which
may result in revocation, cancellation, suspension or any adverse modification
of any of such Licences. No Licence is void or voidable as a result of the
completion of the transactions contemplated hereby or by the Closing Documents
or the exercise or the deemed exercise of the Special Warrant or the Warrant or
the Common Share Warrant nor is any consent or approval of any Person required
to assure the continued validity and effectiveness of any Licence in connection
with the purchase of the Special Warrant or the Warrant, this Agreement, any
Closing Document or by the exercise of the Common Share Warrant or the
transactions contemplated hereby or thereby.
1.1.18 Securities Legislation. The Corporation is a "reporting issuer" in
Ontario and is not in default under applicable securities legislation in such
province. In particular, without limiting the foregoing, the Corporation is in
compliance with its obligations to make timely disclosure of all material
changes relating to it and since the date hereof (other than in respect of
material change reports filed on a confidential basis and thereafter made public
or material change reports filed on a confidential basis and in respect of which
the material change never came to fruition) no such disclosure has been made on
a confidential basis and there is no material change relating to the Corporation
which has occurred and with respect to which the requisite material change
statement has not been filed, except to the extent that this Agreement
constitutes a material change. The Corporation is not in default of any
requirements of such securities legislation, and the issuance of the Special
Warrant, the Warrant, the Common Share Warrant and the Underlying Securities to
the Purchaser will be made in compliance with all applicable Canadian securities
legislation. Subject to the filing of (i) a Form 27, Material Change Report
(ii) Form 20, Report of a Trade under clause 72(1)(d) and (iii) a press release
following the Closing (together, the "Required Filings"), the issuance of the
Special Warrant, the Warrant, the Common Share Warrant and Underlying Securities
to the Purchaser will not result in any
<PAGE>
-7-
contravention of any applicable Canadian securities legislation or the
regulations thereunder (subject to filings required on Warrant exercise).
The issuance of the Special Warrant and the Warrant is exempt from the
registration and prospectus requirements of securities legislation of the
Province of Ontario and no prospectus will be required and no other document
must be filed, proceeding taken or approval obtained in Ontario to permit the
offering, issue, sale and delivery of the Special Warrant and the Warrant to the
Purchaser or for the exercise of the Warrant other than the Required Filings.
1.1.19 Environmental Matters. To the best of the Corporation's knowledge:
(1) The Corporation, each Subsidiary, the Business and the Assets are in full
compliance with Applicable Law in respect of environmental matters and are
not the subject of any remedial or control action or Order, or any
investigation or evaluation as to whether any remedial or control action or
Order is needed to respond to an actual or threatened release, discharge,
deposit, emission or spill of any hazardous substance, pollutant or
contaminant into the environment or any facility or structure;
(2) Since the date of lease by the Corporation or a Subsidiary, no premises
leased by the Corporation or any Subsidiary have been or are being used as
a landfill or waste disposal site, nor has any hazardous substance or
contaminant been deposited in or disposed of on, in or at such leased
premises.
(3) none of the Corporation or the Subsidiaries is or may be liable to any
Person as a result of an actual or alleged release, discharge, deposit,
emission or spill of any hazardous substance, contaminant or pollutant into
the environment or any facility or structure, nor has there been any
release, discharge, deposit, emission or spill of any hazardous substance,
contaminant or pollutant into the environment or into any facility or
structure, which is the subject of or, after the giving of notice or the
lapse of time would give rise to, any claim, demand, suit, action, cause of
action, dispute, proceeding or Order relating to the violation of
Applicable Law in respect of environmental matters, nor is there any basis
for any thereof being commenced; and
(4) the Corporation and each Subsidiary has complied in all material respects
with all environmental reporting and inspection requirements of all
Governmental Agencies having jurisdiction over it. All pollution control
equipment operated as part of the Business is effective in meeting
applicable emissions limits and effluent pre-treatment standards.
1.1.20 Significant Shareholders. Except as set forth in Schedule G there are
no loans, leases, licences, guarantees, contracts, transactions, understandings
or other arrangements or any nature between the Corporation or any Subsidiary
and any officer, director, of the Corporation or person not dealing with it at
arm's length (within the meaning of The Income Tax Act (Canada)) or affiliate of
the foregoing persons. All persons owning ten percent (10%) or more of the
presently outstanding Common Shares to the knowledge of the Corporation, are
listed as Schedule G.
<PAGE>
-8-
1.1.21 Material Contracts. Except as set forth in Schedule H and otherwise
disclosed in this Agreement neither the Corporation nor any Subsidiary is a
party or subject to or bound by:
(1) any contract, lease or agreement creating any obligation of the Corporation
or any Subsidiary to pay to any third party $200,000 or more with respect
to any single such contract or agreement, except for purchase orders
entered into in the ordinary course the existing contracts with America
OnLine, Inc. and the Agreement and the E-Commerce Agreement;
(2) any contract or agreement for the sale, license, lease or disposition of
products in excess of $200,000;
(3) any contract containing covenants directly or explicitly limiting the
freedom of the Corporation or any Subsidiary to compete in any line of
business or with any person or entity, except for the existing contracts
with America OnLine, Inc., Toronto Star Newspapers Limited and the E-
Commerce Agreement;
(4) any license agreement (as licensor or licensee) other than Generic
Software;
(5) any contract or agreement or the purchase of any leasehold improvements,
equipment or fixed assets for a price in excess of $200,000;
(6) any indenture, mortgage, promissory note, loan agreement, guaranty or other
agreement or commitment for borrowing in excess of $200,000 or any pledge
or security arrangement except as disclosed in Schedule H;
(7) any material joint venture, partnership, manufacturing, development or
supply agreement;
(8) any employment contracts, or agreements with officers, directors, employees
or stockholders of the Corporation or any Subsidiary or persons or
organizations related to or affiliated with any such persons;
(9) any stock redemption or purchase agreements or other agreements affecting
or relating to the capital stock of the Corporation or any Subsidiary,
including without limitation any agreement relating to the capital stock of
the Corporation or any Subsidiary, including without limitation any
agreement relating to anti-dilution rights, registration rights, voting
arrangements, operating covenants or similar provisions;
(10) any pension, profit sharing, retirement or stock option plans;
(11) any royalty, dividend or similar arrangement based on the sales volume of
the Corporation or any Subsidiary;
(12) any acquisition, merger or similar agreement; or
<PAGE>
-9-
(13) any other contract not executed in the ordinary course.
All of such agreements and contracts are valid, binding and in full force and
effect. Neither the Corporation nor any Subsidiary, nor, to the knowledge of the
Corporation, any other party is in material default under any of such agreements
or contracts (nor, to the knowledge of the Corporation, has any event occurred
which with notice, lapse of time or both would constitute a material default
thereunder), except to the extent that any such default would not have a
material effect on the assets, liabilities, properties, business or prospects of
the Corporation or any Subsidiary, and the Corporation or any Subsidiary, has
not received notice of any alleged default under any such contract, or
agreement.
There is no written contract currently under negotiation by the Corporation
which has not been disclosed to the Purchaser:
(i) as to which the Corporation believes negotiations are substantially
complete; and
(ii) which, when entered into, could reasonably be expected to have a
material affect on the condition (financial or otherwise), business,
property, results of operations, assets or liabilities of the
Corporation or the Subsidiary taken as a whole.
1.1.22 Intellectual Property Rights.
(1) Rights
Schedule J contains a true and complete list of all Intellectual Property
Rights which have been registered, or for which applications for
registration have been filed in any jurisdiction.
(2) Ownership
Except as set forth in Schedule I or "Permitted Encumbrances", and except
for Generic Software, the Corporation is or at Closing will be the
exclusive owner of the Technology and all right, title and interest in and
to the Technology, free and clear of all Encumbrances, other than those
Encumbrances arising in the ordinary course of Corporation's Business, and
the Corporation has no knowledge of any claim of adverse ownership in any
Technology. Except as previously disclosed to the Purchaser, the
Corporation has not:
(1) granted any third party a license or other right to any of the
Intellectual Property Rights; or
(2) made any contract or arrangement whereby it may be liable to pay any
royalty or other compensation for the use of Intellectual Property
Rights.
(3) Validity
<PAGE>
-10-
The Intellectual Property Rights are in good standing and to the best of
the Corporation's knowledge have not been used or enforced or failed to be
used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of any of the Intellectual Property
Rights. All registrations and filings necessary to preserve the rights of
the Corporation in and to the Intellectual Property Rights have been made.
(4) Complete
The Technology is sufficient and complete to enable the Corporation to
carry on the Business as currently carried on and to perform its
obligations under this Agreement and any related Closing Documents
including the E-Commerce Agreement.
(5) Infringements by Purchaser
The representations, warranties and covenants contained in Section 9.1 of
the E-Commerce Agreement, together with all defined terms used therein (for
the purpose only of those representation, warranty and covenant), are
hereby incorporated by reference herein and shall be deemed to form part of
this Agreement; provided that references therein to "perform its
obligations hereunder" shall be substituted by "carry on the Business" and
references to "the performance of this Agreement" shall be substituted by
"operation of the Business".
(6) Licenses and Covenants Not to Sue
The representations, warranties and covenants contained in Section 9.1 of
the E-Commerce Agreement, together with all defined terms used therein (for
the purpose only of those representation, warranty and covenant), are
hereby incorporated by reference herein and shall be deemed to form part of
this Agreement.
(7) Third Party Infringements
There are no infringements of, passing-off related to, or other
interference with the Technology by third parties of which the Corporation
has received notice (formal or informal) or is otherwise aware.
(8) Protection of Confidentiality
The Corporation and each Subsidiary has taken commercially reasonable
precautions and made commercially reasonable efforts to protect its trade
secrets and secure the confidentiality of its customer lists, and other
proprietary information.
1.1.23 Major Suppliers and Customers. To the knowledge of the Corporation, no
major supplier or customer has any intention to change its relationship with the
Corporation or the
<PAGE>
-11-
Subsidiaries. There has been no material interruption to or discontinuity in
customer or supplier arrangements or relationships referred to in this Section.
1.1.24 Year 2000 Compliance. The representations, warranties and covenants
contained in section 9.9 of the E-Commerce Agreement, together with all defined
terms used therein (for the purpose only of those representation, warranty and
covenant), are hereby incorporated by reference herein and shall be deemed to
form part of this Agreement.
1.1.25 Material Change Reports. Since the Financial Disclosure Date, other
than in respect of material change reports filed on a confidential basis and in
respect of which the material change so reported did not come to fruition and
other than this Agreement:
(1) there has not been any material change in the assets, liabilities or
obligations (absolute, accrued, contingent or otherwise) of the Corporation
or its Subsidiaries which requires disclosure under applicable securities
legislation and that has not been publicly disclosed;
(2) there has not been any material change in the capital stock or long-term
debt of the Corporation or its Subsidiaries which requires disclosure under
applicable securities legislation and that has not been publicly disclosed;
and
(3) there has not been any material change in the business, business prospects,
condition (financial or otherwise) or results of the operations of the
Corporation or its Subsidiaries which requires disclosure under applicable
securities legislation and that has not been publicly disclosed.
1.1.26 Information Record. No portion of the Corporation's Information Record
contained a misrepresentation as at its date of public dissemination.
1.1.27 Reportable Disagreement. There has never been any reportable
disagreement (within the meaning of National Policy Statement No. 31 of the
Canadian Securities Administrators) with the present or any former auditor of
the Corporation.
1.1.28 TSE. The Corporation shall use its best efforts exercised in a
commercially reasonable manner to ensure that the Common Shares will continue to
be listed on the TSE following the issue of the Underlying Securities.
1.1.29 Employees. None of the employees of the Corporation or any Subsidiary
is represented by any labour union, and, to the best of the Corporation's
knowledge, there is no labour strike or other labour trouble pending or
threatened with respect to the Corporation or any Subsidiary (including, without
limitation, any organizational drive). The Corporation has no written employment
agreement with any employees who are also directors except as disclosed in
Schedule H hereto. No payments have been made to officers or directors except
in ordinary course and at regular rates payable to them, as approved by the
Corporation's Compensation Committee.
<PAGE>
-12-
1.1.30 Disclosure. No representation or warranty of the Corporation in this
Agreement contains any untrue statement of a material fact or omits to state any
material fact necessary to make any such representation or warranty not
misleading to a prospective buyer of the Common Shares, the Special Warrant or
the Warrant seeking full information as to the Business and the Assets. Without
limiting the scope of the foregoing, none of the Corporation or any Subsidiary
is aware of any change, event or occurrence related to the Business that has
taken place or is pending that has, or in the future would have, a material
adverse effect on the value of the Common Shares, the Special Warrant, the
Warrant, the Common Share Warrant, the Assets or the Business which is not the
result of general industry trends.
1.2 Qualification of Representations and Warranties. The representations or
warranties made by a Party under as to the enforceability of these agreements
against such Party are subject to the following qualifications:
(1) specific performance, injunctive relief and other equitable remedies are
discretionary and, in particular, may not be available where damages are
considered an adequate remedy; and
(2) enforcement may be limited by bankruptcy, insolvency, liquidation,
reorganization, reconstruction and other similar laws generally affecting
enforceability of creditors' rights.
1.3 Survival of the Corporation's Representations, Warranties, Covenants and
Agreements. All representations, warranties, covenants and agreements made by
the Corporation in or pursuant to this Agreement shall survive the Closing as
follows:
(1) the representations and warranties set forth in Sections 1.1.1 to 1.1.4
inclusive, 1.1.9, 1.1.20, 1.1.22, 1.1.24, and 1.1.27 shall survive the
Closing and continue without time limit;
(2) all of the other representations and warranties contained in this Agreement
or in any Closing Document shall survive only for a period equal to the
later of the first anniversary of the Closing Date and the end of the
expiration of any applicable hold period mandated by any securities
regulatory authority exercising jurisdiction in respect of the Underlying
Securities from the Closing Time. After such period, the Corporation shall
not have any further liability hereunder with respect to such
representations and warranties except with respect to claims properly made
within such period; and
(3) the covenants and agreements of the Corporation contained in this Agreement
shall survive the Closing and continue in accordance with Applicable Law.
<PAGE>
EXHIBIT A
---------
EXHIBIT "A"
DEFINITIONS
In this Agreement, unless the subject matter or context is inconsistent
therewith:
"Act" means the Business Corporations Act (Ontario) as amended or restated and
any successor legislation of comparable effect;
"Agreement" means this subscription agreement and all exhibits and schedules
annexed to this Agreement as the same may be amended from time to time in
accordance with the provisions hereof or thereof; "hereof", "hereto" and
"hereunder" and similar expressions mean and refer to this Agreement and not to
any particular article or section; except where the context specifically
requires, "Article", "Section", "Exhibit" or "Schedule" means and refers to the
specified article, section, exhibit or schedule of this Agreement;
"AOL Agreement" means the letter agreement dated as of July 29, 1998 among
America Online, Inc. and the Purchaser;
"Applicable Law" means any domestic or foreign statute, law, ordinance, rule,
regulation, regulatory policy or guideline, by-law (zoning or otherwise) or
Order that applies to the Corporation, the Subsidiaries, the Business, the way
the Business is carried on or to the Common Shares, the Special Warrant or the
Warrant;
"Articles" means the articles of amalgamation of the Corporation dated January
9, 1997;
"Assets" means all of the assets and undertaking of the Corporation and the
Subsidiaries, both tangible and intangible, including goodwill;
"Audited Financial Statements" means the audited consolidated balance sheet of
the Corporation and the Subsidiaries as at December 31, 1997 and the audited
consolidated statement of loss of the Corporation and its Subsidiaries for the
year ended December 31, 1997.
"Business" means collectively the businesses carried on by the Corporation and
the Subsidiaries including the maintenance of an internet website under the URL
www.bid.com which offers consumer products for sale via credit card transactions
through an auction format;
"Business Day" means any day of the week other than a Saturday, Sunday or
statutory holiday or any other day on which banks are generally closed in
Toronto, Ontario;
"Closing Documents" means any document delivered at or subsequent to the Closing
Time as provided in or pursuant to, this Agreement or the E-Commerce Agreement;
"Common Shares" means common shares in the capital of the Corporation;
<PAGE>
-2-
"E-Commerce Agreement" means the E-Commerce and Promotion Services Agreement
dated as of July 28, 1998 between the Purchaser and the Corporation.
"Encumbrance" means any encumbrance of any kind whatever and includes a security
interest, mortgage, lien, hypothec, pledge, hypothecation, assignment, charge,
trust or deemed trust (whether contractual, statutory or otherwise arising),
adverse claim, or any other option, right or claim of others of any kind
whatever affecting the Assets, the Common Shares, the Special Warrant or the
Warrant, as applicable and any restrictive covenant or other agreement,
restriction or limitation (registered or unregistered) on the Assets, the Common
Shares, the Special Warrant or Warrant, as applicable;
"Financial Disclosure Date" means December 31, 1997;
"Generally Accepted Accounting Principles" means generally accepted accounting
principles from time to time approved by the Canadian Institute of Chartered
Accountants, or any successor institute, applicable as at the date on which any
calculation or determination is required to be made in accordance with generally
accepted accounting principles, and where the Canadian Institute of Chartered
Accountants includes a recommendation in its Handbook concerning the treatment
of any accounting matter, such recommendation shall be regarded as the only
generally accepted accounting principle applicable to the circumstances that it
covers;
"Generic Software" means off-the-shelf software which is readily substitutable
by the Business with minimum cost or interruption to the Business;
"Governmental Agency" means any domestic or foreign government whether federal,
provincial, state or municipal and any governmental agency, authority,
commission or instrumentality of any kind whatever;
"Information Record" means any statement contained in any press release,
material change report, financial statement or other document of the Corporation
or any Subsidiary which has been or is publicly disseminated pursuant to any
applicable securities laws prior to the Closing Time;
"Intellectual Property Rights" means: (A) any and all proprietary rights of the
Corporation or any Subsidiary provided under (i) patent law, (ii) copyright law,
(iii) trade-mark law, (iv) design patent or industrial design law, (v) semi-
conductor chip or mask work law, or (vi) any, other statutory provision or
common law principle applicable to the Corporation, the Subsidiaries, the
Business or Assets which may provide a right in either (a) ideas, formulae,
algorithms, concepts, inventions or know-how generally, including trade law, or
(b) the expression or use of such ideas, formulae, algorithm, concepts
inventions or know-how; and (B) any and all applications, registrations,
license, sub-licenses, franchise agreements or any other evidence of a right in
any of the foregoing;
<PAGE>
-3-
"Interim Financial Statements" means the unaudited consolidated balance sheet of
the Corporation and its Subsidiaries as at March 31, 1998 and the unaudited
consolidated statement of loss of the Corporation and its Subsidiaries for the 3
month period ended March 31, 1998;
"Licence" means any licence, permit, approval, right, privilege, concession or
franchise;
"Order" means any order (draft or otherwise), judgment, injunction, decree,
award or writ of any, court, tribunal, arbitrator, Governmental Agency or other
Person;
"ordinary course" when used in relation to the conduct by the Corporation and
the Subsidiaries of the Business means any transaction which constitutes an
ordinary day-to-day business activity of the Corporation and the Subsidiaries
conducted in a commercially reasonable and businesslike manner consistent with
the past practices of the Corporation and the Subsidiaries;
"Permitted Encumbrances" means inchoate liens and all statutory liens, charges,
obligations and encumbrances not required by law to be registered;
"Parties" means the Corporation and the Purchaser collectively, and "Party"
means any one of them;
"Person" shall be broadly interpreted and includes an individual, body
corporate, partnership, joint venture, trust, association, unincorporated
organization, the Crown, any Governmental Agency or any other entity recognized
by law;
"Regulatory Filings" means all material and reports filed, or required to be
filed, with applicable securities regulatory authorities and any stock exchange
on which the securities of the relevant body corporate are listed;
"Rights" means any options, rights, warrants or subscription privileges issued
or granted by the Corporation (whether or not currently exercisable or
exercisable on conditions) to purchase Voting Securities, Common Shares or any
other equity securities of the Corporation;
"Subsidiaries" means the bodies corporate listed in Schedule C, and "Subsidiary"
means any one of them;
"Taxes" means all federal, provincial, local, foreign or other taxes, imposts,
rates, levies, assessments and Government fees or dues lawfully levied, assessed
or imposed against the Corporation or the Subsidiaries or in respect of the
Business, including income, premium, sales, excise, use, property, capital,
goods and services, business transfer and value added taxes and custom and
import duties and includes all interest, fines and penalties with respect
thereto;
"Tax Returns" means all reports and returns filed or required to be filed by the
Corporation or the Subsidiaries in respect of Taxes;
"Technical Information" means all right, title and interest in and to all know-
how of the Corporation including
<PAGE>
-4-
1) all information of a scientific, technical or business nature
whether in oral, written, graphic, machine readable, electronic or
physical form; and
2) all patterns, plans, designs, research data, research plans, trade
secrets and other proprietary know-how, processes, formulas,
drawings, technology, computer software and related manuals,
unpatented blue prints, flow sheets, equipment and parts lists,
instructions, manuals, records and procedures;
"Technology" means the Intellectual Property Rights and the Technical
Information;
"Toronto Star Agreement" means the letter agreement dated July 22, 1998 among
Toronto Star Newspapers Limited and the Purchaser;
"Voting Securities" means the Common Shares of the Corporation and all other
securities of the Corporation of any kind or class having power to vote for the
election of directors either under all circumstances or in certain circumstances
or in certain events (whether such circumstances or events exist or have
occurred).
"Warrant" means the warrant to purchase 100,000 Common Shares to be issued
hereunder to the Purchaser.
<PAGE>
Exhibit 3.16
E-Commerce and Promotion Services Agreement
THIS AGREEMENT is made as of the 28th day of July, 1998 (the "Effective Date")
by and between BID.COM INTERNATIONAL INC. ("BID.COM"), a corporation having a
principal place of business at 5915 Airport Road, Suite 330, Mississauga,
Ontario, L4V 1T1 and ROGERS MEDIA INC. ("Rogers"), a corporation having a place
of business at 156 Front Street West, Suite 400, Toronto, Ontario M5J 2L6.
BACKGROUND:
1. BID.COM has developed, and has all necessary rights in, certain electronic
auction software, technology and services (collectively, the "BID.COM
Technology", as that term is more fully defined below).
2. BID.COM uses the BID.COM Technology to operate an on-line auction service
over the Internet provided at BID.COM's Web site found at the URL "www.bid.com"
(the "E-Commerce Service", as that term is more fully defined below).
3. As more particularly described in this Agreement, BID.COM and Rogers wish
to enter into an exclusive relationship whereby, in part, BID.COM shall operate
the Canadian E-Commerce Service (defined below) in the Territory in accordance
with the provisions of this Agreement, and Rogers shall have exclusive
responsibility for the promotion of the Canadian E-Commerce Service.
4. BID.COM possesses all necessary intellectual property rights and other
rights to enter into the relationship with Rogers described herein.
NOW THEREFORE, in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the parties agree as follows:
ARTICLE ONE
INTERPRETATION
1.1 Definitions. In this Agreement, unless the context otherwise requires,
------------
each capitalized term shall have the meaning indicated below.
(1) "Above the Fold" means, in respect of a hyperlink, the ability of a user
using a screen resolution of 640 by 480 pixels to view a hyperlink without
having to scroll down the applicable Web page;
(2) "Affiliate" means any person, corporation, or entity that controls, is
controlled by or is under common control with a party, as the context
indicates;
<PAGE>
(3) "Agreement" means this E-Commerce and Promotion Services Agreement and all
schedules annexed to this Agreement as the same may be amended from time to
time in accordance with the provisions hereof;
(4) "BID.COM Marks" means the trade-marks, trade names, service marks, design
marks, logos and other distinctive brand elements set out in Schedule "M"
to this Agreement (as amended from time to time) owned by BID.COM or its
Affiliates and used in association with the E-Commerce Service or the
BID.COM Site (whether registered or not);
(5) "BID.COM Site" means the Web site at which BID.COM operates the E-Commerce
Service, currently found at the URL "www.bid.com";
(6) "BID.COM Technology" means: (i) all software (including cybermall
software), hardware, firmware, trade secrets, and know-how used and/or
developed by BID.COM or its Affiliates prior to and during the Term of this
Agreement (and including all Intellectual Property Rights therein); and
(ii) all Third Party Technology. BID.COM Technology includes, without
limitation, all technology used to create, modify, operate, distribute,
update, maintain and permit Internet access to the BID.COM Site, the E-
Commerce Service and any other on-line auction services developed or
offered by BID.COM, and all updates, modifications, revisions, additions,
customizations and enhancements to the BID.COM Technology. The BID.COM
Technology is more particularly described in Schedule "A", as may be
amended and updated from time to time;
(7) "Canadian BID.COM Site" means the pages of the BID.COM Site through which
BID.COM operates the Canadian E-Commerce Service;
(8) "Canadian E-Commerce Service" means an auction E-Commerce Service operated
by BID.COM which sells products and services to retail customers who
provide a billing address in the Territory (including, without limitation,
"small office home office" customers ("SOHO"));
(9) "Confidential Information" means all information relating to either party
or to such party's business, products, sales, customers, trade secrets,
technology or financial position to which access is obtained or granted
hereunder, which is treated by the disclosing party as being confidential
provided, however, that Confidential Information of the disclosing party
shall not include any data or information which the receiving party can
demonstrate:
(i) is or becomes publicly available through no fault of the receiving
party;
(ii) is already in the rightful possession of the receiving party prior
to its receipt from the other party;
(iii) is independently developed by the receiving party;
(iv) is rightfully obtained by the receiving party from a third party not
subject to an obligation of confidentiality;
2
<PAGE>
(v) is disclosed with the written consent of the disclosing party whose
information it is; or
(vi) is disclosed pursuant to court order or other legal compulsion,
provided the receiving party gives the disclosing party prompt
notice of any such requirement to afford the disclosing party an
opportunity to obtain a protective order;
(10) "Contra" means the provision of advertising and sponsorship space on the
Canadian BID.COM Site to desired advertisers in return for the provision by such
advertisers of useful content, promotion and advertising services, products, and
other services for the Canadian E-Commerce Service;
(11) "Customer Profile" means all information and data relating to a customer of
the Canadian E-Commerce Service, including, without limitation: (i) name,
address, e-mail address, telephone number, and any other personal or demographic
information relating to such customer; (ii) all information and data relating to
the purchase of goods and services by such customer; and (iii) any other
information relating to such customer's behavior collected while such customer
accesses the Canadian E-Commerce Service;
(12) "Customer Service Standards" means the customer service performance
standards to which BID.COM shall adhere in operating the Canadian E-Commerce
Service hereunder, as set out in detail in Schedule "C" to this Agreement;
(13) "E-Commerce Service" means the on-line auction services and any storefront
on-line commerce services provided by or on behalf of BID.COM or its Affiliates
on the Internet using the BID.COM Technology, at the BID.COM Site, or any other
comparable on-line auction service which BID.COM or its Affiliates may directly
or indirectly provide now or at some future time during the Term, using the
BID.COM Technology or otherwise, which is similar in functionality and quality
to the current services. Without limiting the generality of the foregoing,
the E-Commerce Service includes, without limitation, the Canadian E-Commerce
Service and the U.S. E-Commerce Service;
(14) "Evaluation Period" means: (i) the period commencing on the Effective Date
hereof and ending three years after the Effective Date; and (ii) each subsequent
contiguous three year period following the previous Evaluation Period;
(15) "Intellectual Property Rights" means (A) any and all proprietary rights
provided under (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv)
design patent or industrial design law, (v) semi-conductor chip or mask work
law, or (vi) any other statutory provision or common law principle applicable to
this Agreement or the BID.COM Technology, including trade secret law, which may
provide a right in either (a) ideas, formulae, algorithms, concepts, inventions
or know-how generally, or (b) the expression or use of such ideas, formulae,
algorithms, concepts, inventions or know-how; and (B) any and all applications,
registrations, licenses, sub-licenses, franchises, agreements or any other
evidence of a right in any of the foregoing;
3
<PAGE>
(16) "Net E-Commerce Revenue" means the sum of:
(i) revenue earned by BID.COM in connection with the operation of the
Canadian E-Commerce Service (including all shipping costs paid by
such retail customer to BID.COM), net of sales, use, goods and
services, and other similar taxes imposed by any federal, provincial,
municipal or other governmental authority; and
(ii) revenue earned by BID.COM in connection with the purchase of products
and services offered for sale by BID.COM to retail customers in the
Territory as part of BID.COM's database marketing operations, and not
through the Canadian E-Commerce Service (including all shipping costs
paid by such retail customer to BID.COM), net of sales, use, goods
and services, and other similar taxes imposed by any federal,
provincial, municipal or other governmental authority,
less cost of goods or services sold (as invoiced by the supplier of such
products or services, but net of all taxes invoiced by such supplier), credit
card transaction fees paid to or deducted by third parties, duties, the cost of
shipping, and credits for returned goods, services or bad debts (including
shipping and restocking costs, if applicable), calculated in accordance with
generally accepted accounting principles applied in Canada on a consistent
basis;
(17) "Net Promotional Revenue" means revenue earned by Rogers from sales of
advertising and sponsorship for the Canadian BID.COM Site, net of all taxes
collected by Rogers on such revenue (including, without limitation, goods and
services tax), agency commissions and bad debts. Net Promotional Revenue shall
be calculated in accordance with generally accepted accounting principles
applied in Canada on a consistent basis, provided that Net Promotional Revenue
shall not include any value attributed by the parties to Contra;
(18) "New Canadian Auction" means: (i) any business-to-business or other form of
on-line auction in which both a buyer and a seller are located in the Territory;
or (ii) any other business-to-business or other form of on-line auction in
respect of which Rogers presents to BID.COM an analysis demonstrating that the
business case in support of the operation of such on-line auction in the
Territory is no less favourable than the business case supporting other on-line
auction opportunities in which BID.COM has engaged in the Territory during the
Term;
(19) "Reasonable Best Efforts" means that a party shall comply with the
obligation to which the covenant to use Reasonable Best Efforts applies in all
cases where such party has the ultimate discretion, control and ability to do
so, and that such party shall use commercially reasonable efforts to comply with
such obligation in cases where such party does not have such ultimate
discretion, control and ability;
(20) "Rogers E-Commerce Portal" means an e-commerce Web site marketed by Rogers
which aggregates an array of e-commerce content and services on-line;
(21) "Rogers New Media" means the division of Rogers which develops and operates
businesses on the Internet and which derives revenues from the sale of Internet
advertising, Internet sponsorships, Internet subscriptions and from the
completion of transactions on-line;
4
<PAGE>
(22) "Rogers's Requirements" means the statement of the technical, operational,
performance, process and functional specifications and capabilities of the
BID.COM Technology, the Canadian BID.COM Site and the Canadian E-Commerce
Service, as described in Schedule "B";
(23) "Source Code Materials" means:
(i) a complete copy of the source code version of all software required to
allow Rogers to independently operate, maintain and support the Canadian
E-Commerce Service and the Canadian BID.COM Site in accordance with
Rogers's Requirements, appropriately labeled to denote the version or
release thereof, and the currency date thereof, in each of:
(a) machine-readable form on machine-readable storage medium suitable for
long term storage and compatible with the software as then being used
by Rogers and which, when compiled, will produce the object code
version of the software; and
(b) human-readable form with annotations in English on bond paper suitable
for long term archival storage; and
(ii) a complete copy, in English, on bond paper, suitable for long term
archival storage, and appropriately labeled to describe the contents
thereof, of all applicable documentation and other explanatory materials
including programmer's notes, technical or otherwise, for the software as
may be required by Rogers, using a competent computer programmer
possessing ordinary skills and experience, to further develop, maintain
and operate such software without further recourse to BID.COM including,
but not necessarily limited to, general flow-charts, input and output
layouts, field descriptions, volumes and sort sequence, data dictionary,
file layouts, processing requirements and calculation formula and the
details of all algorithms;
(24) "Term" shall have the meaning ascribed thereto in Section 7.1;
(25) "Territory" means Canada as presently constituted;
(26) "Third Party Technology" means all software (including cybermall software),
hardware, firmware, trade secrets, and know-how licensed by BID.COM from
third parties prior to and during the Term of this Agreement (and including
all Intellectual Property Rights therein) including, without limitation,
all third party technology used to create, modify, operate, distribute,
update, maintain and permit Internet access to the BID.COM Site, the E-
Commerce Service and any other on-line auction services developed or
offered by BID.COM, and all updates, enhancements, modifications,
revisions, additions, customizations and enhancements to the BID.COM
Technology. The Third Party Technology is more particularly described in
Schedule "A";
(27) "Torstar" means Toronto Star Newspapers Limited;
5
<PAGE>
(28) "Transition Plan" means the process, procedures, time periods, and
obligations of the parties upon termination or expiration of this Agreement, as
set out in detail in Schedule "L" hereto; and
(29) "U.S. E-Commerce Service" means an auction E-Commerce Service operated by
BID.COM which sells products and services only to retail customers who provide a
billing address in the United States (including, without limitation, SOHO
customers).
1.2 Schedules. The following are the schedules attached to and forming part
---------
of this Agreement:
Schedule "A" - BID.COM Technology (including Third Party Technology)
Schedule "B" - Rogers's Requirements
Schedule "C" - Customer Service Standards
Schedule "D" - Response Times
Schedule "E" - Source Code Trust Agreement
Schedule "F" - Site Activity Reporting Requirements
Schedule "G" - Prohibited Products and Services
Schedule "H" - Prohibited Rogers Assignees
Schedule "I" - Net E-Commerce Revenue Reports
Schedule "J" - Net Promotional Revenue Reports
Schedule "K" - Rogers Performance Metrics
Schedule "L" - Transition Plan
Schedule "M" - BID.COM Marks
Schedule "N" - Torstar Letter
Schedule "O" - AOL Letter
ARTICLE TWO
OPERATION OF CANADIAN E-COMMERCE SERVICE
2.1 Operation of Canadian E-Commerce Service. BID.COM shall operate the
-----------------------------------------
Canadian E-Commerce Service in accordance with the provisions of this Agreement.
Except for those obligations which Rogers shall perform set out in Article 3
hereof, BID.COM shall be responsible for all aspects of operating the Canadian
E-Commerce Service. Without limiting the generality of the foregoing, BID.COM
shall, at its expense:
(i) have sole responsibility for supplying the inventory of products and
services which will be offered as part of the Canadian E-Commerce Service.
At Rogers's request, BID.COM agrees to use commercially reasonable efforts
to offer products and services supplied by Rogers as part of the Canadian
E-Commerce Service. Rogers acknowledges and agrees that BID.COM shall
maintain ultimate discretion with respect to the choice of products and
services which will be included as part of the Canadian E-Commerce Service;
provided, however, that BID.COM shall not offer any of the prohibited
products or services identified in Schedule "G" hereto without the prior
written consent of Rogers;
6
<PAGE>
(ii) comply with Rogers's Requirements attached as Schedule "B" hereto;
(iii) comply with the Customer Service Standards attached as Schedule "C"
hereto;
(iv) support and maintain the Canadian E-Commerce Service, the BID.COM
Technology and the BID.COM Site in accordance with Schedule "D" hereto;
(v) use commercially reasonable efforts to upgrade, enhance, and improve the
Canadian E-Commerce Service, the BID.COM Technology and the BID.COM
Site;
(vi) be responsible for the fulfillment of all purchases of products and
services sold through the Canadian E-Commerce Service;
(vii) be responsible for the processing of all credit card purchases of
products and services through the Canadian E-Commerce Service;
(viii) comply with the site activity reporting requirements set out in
Schedule "F" hereto;
(ix) during each of the first three years of the Term, pay a minimum cash
amount of [Confidential Information filed separately with the SEC]
annually to Rogers to purchase the equivalent rate card value of
advertising for the Canadian E-Commerce Service on a selection of media
properties owned by Rogers and its Affiliates. Rogers will provide a
report to BID.COM within thirty (30) days of the end of each calendar
quarter during which BID.COM is obligated to make payment pursuant to
this subsection 2.1(ix) summarizing the advertising purchased by Rogers
pursuant to this subsection 2.1(ix). Unless otherwise mutually agreed by
the parties in writing, BID.COM shall pay this amount in four (4) equal
installments on the last day of each calendar quarter during the Term.
The parties agree that Rogers shall not include the cash amount paid by
BID.COM to Rogers pursuant to this subsection 2.1(ix) in the calculation
of whether Rogers has fulfilled the performance metric set out in
paragraph K.1(3)(i) of Schedule "K" hereto;
(x) provide a complete list of all Customer Profiles to Rogers within thirty
(30) days of the Effective Date, and thereafter provide Rogers with an
updated list of all Customer Profiles on a calendar monthly basis; and
(xi) work exclusively with Rogers to negotiate exclusive national
arrangements with suppliers to supply products and services for the
Canadian E-Commerce Service.
2.2 Equal Treatment. BID.COM represents, warrants and covenants that at
----------------
all times during the Term, it will perform its obligations set out in Section
2.1 and otherwise ensure that the Canadian E-Commerce Service is competitive to
the U.S. E-Commerce Service. Without limiting the generality of the foregoing,
BID.COM shall ensure that, unless Rogers otherwise agrees:
7
<PAGE>
(i) the BID.COM Technology used in the operation of the Canadian E-Commerce
Service shall at all times be identical to the BID.COM Technology used
in the U.S. E-Commerce Service;
(ii) all updates, enhancements, modifications, improvements, and new features
owned by BID.COM or any Affiliate of BID.COM and incorporated into the
U.S. E-Commerce Service during the Term (including, without limitation,
new GUIs, branding and other creative material incorporated into the
U.S. E-Commerce Service) are incorporated into the Canadian E-Commerce
Service. For updates, enhancements, modifications, improvements, and new
features incorporated into the U.S. E-Commerce Service during the Term
but not owned by BID.COM or any Affiliate of BID.COM ("Third Party
Enhancements"), BID.COM shall use Reasonable Best Efforts to obtain all
rights necessary to incorporate such Third Party Enhancements into the
Canadian E-Commerce Service. BID.COM shall comply with the obligations
set out in this subsection 2.2(ii) as soon as commercially practicable,
provided that the time for performance of BID.COM's obligations set out
in this subsection 2.2(ii) shall not exceed ninety (90) days without the
prior written consent of Rogers, which consent will not be unreasonably
withheld;
(iii) the Customer Service Standards to which BID.COM adheres in its operation
of the Canadian E-Commerce Service are equal to the Customer Service
Standards to which BID.COM adheres in its operation of the U.S. E-
Commerce Service;
(iv) BID.COM supports and maintains the Canadian E-Commerce Service at a
level and with a priority that is equal to the level at which it
maintains the U.S. E-Commerce Service;
(v) the products and services offered as part of the Canadian E-Commerce
Service are comparable to the products and services offered as part of
the U.S. E-Commerce Service with respect to quality and proportionate
quantity (based on the relative volume of traffic on the Canadian E-
Commerce Service and the U.S. E-Commerce Service). In addition, unless
otherwise mutually agreed in accordance with the process set out in
Article 10 of this Agreement, BID.COM shall offer a minimum of five (5)
categories of products and services as part of the Canadian E-Commerce
Service, and shall ensure that the selection of products and services
offered as part of the Canadian E-Commerce Service is competitive to the
selection of products and services available through any comparable
Canadian on-line auction; and
(vi) the database of Customer Profiles is equal in quality, accuracy,
completeness and integrity to the database of customer profiles for the
U.S. E-Commerce Service.
2.3 Exclusivity to Rogers.
----------------------
(i) During the Term hereof, neither BID.COM nor any Affiliate of BID.COM
may, directly or indirectly, use, operate, distribute, sell, licence,
market, promote, offer, or grant to any third party any right to use,
operate, distribute, sell, licence, market, promote, or offer:
8
<PAGE>
(a) all or any part of the BID.COM Technology, the BID.COM Site or the E-
Commerce Service in the Territory;
(b) any BID.COM Mark or any trade-mark confusingly similar to any BID.COM Mark
in the Territory, provided that BID.COM may use the BID.COM Marks to the
extent permitted by and in accordance with the specifications set out in
the marketing strategy and trade-mark guidelines for such use mutually
agreed to by the parties; or
(c) any business-to-retail consumer on-line auction service in which either or
both of the participating businesses and the participating consumers are
located in the Territory,
except as expressly contemplated in this Agreement, without the prior written
consent of Rogers, which consent will not be unreasonably withheld. For
greater certainty, the parties acknowledge that nothing in this subsection
2.3(i) shall preclude BID.COM from using or operating the BID.COM
Technology, the BID.COM Site or the E-Commerce Service in the Territory in
connection with BID.COM's operations outside of the Territory.
(ii) Exceptions. Notwithstanding the foregoing, Rogers acknowledges that
Rogers's rights of exclusivity in this Section 2.3 shall be subject to the
existing contractual arrangement between BID.COM and Torstar, as amended by
Schedule "N" hereto. BID.COM represents, warrants and covenants that:
(a) the performance by BID.COM and Rogers of their respective rights and
obligations as set out in this Agreement shall not contravene, breach
or infringe any rights granted by BID.COM to Torstar;
(b) BID.COM has not granted any right to Torstar to use any BID.COM Marks;
(c) the rights granted to Torstar are restricted to the right to sell
products and services offered by charitable organizations, community
organizations and retail stores with operations in Ontario to retail
customers with a billing address inside of Ontario;
(d) BID.COM shall not, directly or indirectly, extend, enhance, expand or
enlarge the scope of the rights granted to Torstar without Rogers's
prior written consent; and
(e) the services provided by BID.COM to Torstar during the Term hereof
shall be restricted to the licence, operation, support and maintenance
of the BID.COM Technology. Without limiting the generality of the
foregoing, BID.COM covenants that, during the Term, it shall not
assist Torstar with the marketing of Torstar's on-line auction nor
with the sourcing of products and services for sale through Torstar's
on-line auction.
9
<PAGE>
(iii) America Online, Inc. Rogers acknowledges that BID.COM has entered into
an agreement with America Online, Inc. ("AOL") dated November 1, 1997 (the
"AOL Agreement"). BID.COM represents, warrants and covenants that:
(a) the terms and conditions set out in the AOL Agreement do not apply to
the Canadian E-Commerce Service or the Canadian BID.COM Site;
(b) the rights granted to AOL in the AOL Agreement do not include any
rights in the Territory, except to the extent that AOL may, in the
exercise of its rights set out in the AOL Agreement, engage in
activity in the Territory in connection with AOL's operations outside
of the Territory;
(c) BID.COM has not granted to AOL any right to sell advertisements or
sponsorship for the Canadian BID.COM Site;
(d) BID.COM has not granted to AOL any right to use the BID.COM
Technology to establish, operate or maintain an on-line auction
service for purchasers with a billing address in Canada;
(e) the letter attached as Schedule "O" hereto has been executed by an
executive of AOL with authority to bind AOL; and
(f) BID.COM shall not renew, amend or enter into any new agreement with
AOL which relates to the use, operation, distribution, sale, licence,
marketing, promotion, or other offer of the BID.COM Technology,
the E-Commerce Service, the BID.COM Marks or the BID.COM Site in the
Territory without Rogers's prior written consent.
(iv) Non-Profit Support. Notwithstanding the foregoing, Rogers acknowledges that
BID.COM currently provides assistance to the following organizations in the
hosting, production and promotion of their Web sites: Recording Artists
Against Drinking and Driving, Students Against Drinking and Driving,
Ontario Community Council on Impaired Driving, Association of Campus
Hospitality Managers, and BACCHUS and their affiliates (collectively, the
"Charities"). Rogers agrees that such assistance shall not constitute a
breach of BID.COM's obligations of exclusivity to Rogers hereunder.
BID.COM agrees that it shall consult with Rogers prior to expanding the
scope of the services it provides for the Charities and prior to providing
similar services for any other registered charities.
2.4 Right to Participate in Additional On-Line Auction Initiatives. During the
---------------------------------------------------------------
Term, BID.COM shall make available to Rogers, and Rogers shall have the first
right to participate in, any New Canadian Auction on an exclusive basis as
follows:
(i) BID.COM shall provide written notice to Rogers specifying the major terms
and conditions which BID.COM proposes shall apply to Rogers's right to
participate with
10
<PAGE>
BID.COM in the operation of such New Canadian Auction. The terms
proposed by BID.COM shall be reasonable, consistent with this Agreement
and consistent with industry standards;
(ii) Rogers shall provide written notice to BID.COM of whether or not it
wishes to exercise its right to participate with BID.COM in the
operation of such New Canadian Auction within fourteen (14) days of the
date Rogers receives the notice referred to in subsection 2.4(i). If
Rogers does not respond to BID.COM within such fourteen (14) day period,
Rogers shall be deemed to have rejected its option to participate in
such New Canadian Auction pursuant to subsection 2.4(v) and BID.COM
shall be governed by the provisions of subsection 2.4(vi);
(iii) if Rogers provides written notice to BID.COM that it wishes to exercise
its right to participate with BID.COM in the operation of such New
Canadian Auction in accordance with subsection 2.4(ii), then, for a
period of up to sixty (60) days following the date upon which Rogers
receives the notice referred to in subsection 2.4(i), Rogers and BID.COM
shall negotiate exclusively respecting the terms upon which Rogers shall
be entitled to participate with BID.COM in the operation of such New
Canadian Auction. The parties may extend this sixty (60) day exclusive
negotiating period upon mutual agreement;
(iv) if Rogers and BID.COM agree in writing upon terms and conditions
pursuant to which Rogers shall participate with BID.COM in the operation
of such New Canadian Auction, then BID.COM shall grant to Rogers such
exclusive rights;
(v) if Rogers and BID.COM fail to agree in writing upon terms and conditions
pursuant to which Rogers shall participate with BID.COM in the operation
of such New Canadian Auction, or if Rogers notifies BID.COM in writing
that it does not wish to exercise its right to participate with BID.COM
in the operation of such New Canadian Auction, then Rogers shall be
deemed to have rejected its option; and
(vi) if Rogers is deemed to have rejected its option to participate with
BID.COM in the operation of such New Canadian Auction in accordance with
subsection 2.4(v), BID.COM may either: (1) operate such New Canadian
Auction on its own; or (2) grant the right to participate in the
operation of such New Canadian Auction to a third party on terms and
conditions no more favourable than those offered to Rogers, provided
that BID.COM may not grant such rights to a third party later than one
hundred and eighty (180) days after the date that Rogers is deemed to
have rejected its option to participate with BID.COM in the operation of
such New Canadian Auction without Rogers's prior written consent. If
BID.COM wishes to grant to a third party the right to participate with
BID.COM on an exclusive basis in the operation of such New Canadian
Auction on terms and conditions which are more favourable than those
offered to Rogers, BID.COM must first offer such more favourable terms
to Rogers on an exclusive basis, and the parties shall again attempt to
negotiate the right to participate with BID.COM on an exclusive basis in
the operation of such New Canadian Auction in accordance with the
procedure provided in this Section 2.4.
11
<PAGE>
ARTICLE THREE
PROMOTION OF CANADIAN E-COMMERCE SERVICE
3.1 Promotion and Advertising of the Canadian E-Commerce Service. BID.COM
-------------------------------------------------------------
grants to Rogers the exclusive, worldwide right to advertise and promote the
Canadian E-Commerce Service. Rogers will have responsibility for the purchase of
all advertising and promotional activity in connection with the Canadian E-
Commerce Service in both electronic and traditional media. Rogers shall, at its
expense, use Reasonable Best Efforts to prominently display the BID.COM Marks
and to prominently advertise the Canadian E-Commerce Service on Rogers's
national media properties (including, but not limited to, Yahoo! Canada). Such
Reasonable Best Efforts shall include efforts to:
(i) facilitate the integration of the Canadian E-Commerce Service with
Rogers's media properties and other communications products and
services;
(ii) display a user interface to the Canadian E-Commerce Service Above the
Fold on the home page of the Rogers E-Commerce Portal, and frequently
and prominently display the BID.COM Marks Above the Fold on other Rogers
on-line properties;
(iii) point such key words as "auction" and "online auction" only to the
Canadian E-Commerce Service; and
(iv) thread advertisements for the Canadian E-Commerce Service throughout the
Rogers E-Commerce Portal and on other Web sites operated by Rogers.
The equivalent rate card value of the performance by Rogers of the covenants set
out in this Section 3.1 shall be included in the calculation of Rogers's actual
performance for the purpose of evaluating whether Rogers has achieved the
performance metrics set out in Schedule "K".
3.2 Sale of Advertising for the Canadian E-Commerce Service.
--------------------------------------------------------
(i) Right to Sell Advertising. BID.COM grants to Rogers the exclusive right to
sell all advertising and sponsorship for the Canadian E-Commerce Service.
Rogers shall be responsible for generating advertising and sponsorship
revenues from the Canadian BID.COM Site, including the sale of banner
advertisements on the Canadian BID.COM Site and the sale of sponsorships to
specific auctions within the Canadian E-Commerce Service. Notwithstanding
the foregoing, Rogers agrees that, if BID.COM requests that Rogers sell
advertising to advertisers or advertising sales agents in order to assist
BID.COM with the merchandising of the Canadian E-Commerce Service, Rogers
will reasonably consider and pursue such advertising opportunities. Any
revenue earned by Rogers from advertising sales made by Rogers as a result
of such requests by BID.COM shall be included in the calculation of Net
Promotional Revenue.
12
<PAGE>
(ii) Contra and Free Advertising. Rogers shall be entitled to place Contra and
free advertising on the Canadian BID.COM Site in its sole discretion,
provided that the total amount of free advertising and Contra allocated in
each year during the Term may not exceed:
(a) [Confidential Information filed separately with the SEC] of the total
advertising inventory available on the Canadian BID.COM Site during each
year of the first Evaluation Period; and
(b) [Confidential Information filed separately with the SEC] of the total
advertising inventory available on the Canadian BID.COM Site during each
subsequent year,
without the prior consent of BID.COM. For the purposes of this subsection,
the first "year" shall commence on the Effective Date and each subsequent
year shall commence on each anniversary of the Effective Date.
3.3 Rogers E-Commerce Portal. Rogers shall have the right, in its
-------------------------
sole discretion, to create, operate, distribute, and promote user interfaces to
the Canadian E-Commerce Service from the Rogers E-Commerce Portal.
3.4 Licence of BID.COM Marks. BID.COM grants to Rogers an exclusive, worldwide
-------------------------
right to use, copy, display, and distribute the BID.COM Marks in connection with
the advertising, marketing and promotion of the Canadian E-Commerce Service and
in connection with the operation of the Rogers E-Commerce Portal in accordance
with the terms of this Agreement. Such use shall include the right to use the
BID.COM Marks as part of a co-brand with a trade-mark, trade name, design mark,
logo or tag line owned or licenced by Rogers (a "Rogers Co-brand"). BID.COM
shall have opportunity to contribute to the selection of any such Rogers Co-
brand; provided, however, that Rogers shall maintain ultimate discretion with
respect to the choice of any Rogers Co-brand.
3.5 Exclusivity to BID.COM.
-----------------------
(i) During the Term of this Agreement, Rogers agrees that:
(a) except as otherwise permitted in accordance with subsections 3.5(ii)
and 3.5(iii) below, the Canadian E-Commerce Service shall be the only
on-line auction service displayed on the home page of the Rogers E-
Commerce Portal; and
(b) Rogers New Media shall use Reasonable Best Efforts not to actively
solicit advertising from or actively promote an on-line auction
technology or Web site competitive to the Canadian E-Commerce Service
or the BID.COM Technology (a "BID.COM Competitor"). Without limiting
the generality of the foregoing, in the event that any Rogers media
property independently receives advertising from a BID.COM Competitor,
at BID.COM's request, Rogers will place advertising for the
Canadian E-Commerce Service in Rogers's media properties to provide
13
<PAGE>
advertising exposure comparable to that provided to such BID.COM
Competitor. The cost of such advertising shall be included in the
calculation of the amount spent by Rogers in order to meet the
performance metric set out in paragraph K.1(3)(i) of Schedule "K". The
amount deemed to be spent by Rogers pursuant to this paragraph
3.5(i)(b) shall be equal to [Confidential Information filed separately
with the SEC] of Rogers's standard rate card price.
(ii) Exceptions. Notwithstanding the foregoing, BID.COM acknowledges that
Rogers shall have the unrestricted right to advertise, market, promote,
and operate an on-line auction which is limited to the sale of products
and services offered by charitable organizations, community organizations
and retail stores with operations in Ontario to customers with a billing
address inside of Ontario (a "Local Auction") using technology other than
the BID.COM Technology. At Rogers's request, BID.COM will provide services
to assist Rogers to build, implement and operate such Local Auction on
terms and conditions to be mutually agreed.
(iii) Nothing in this Agreement shall restrict, inhibit or otherwise interfere
with:
(a) the ability of Rogers (including, without limitation, Rogers New
Media) or any Affiliate of Rogers to sell advertising to any third
party including, without limitation, a BID.COM Competitor;
(b) the ability of Rogers (including, without limitation, Rogers New
Media) to advertise, distribute, offer, market or promote the on-line
activities of any Affiliate of Rogers (including, without limitation,
The Shopping Channel), on the home page of the Rogers E-Commerce
Portal or otherwise; or
(c) the ability of any Affiliate of Rogers (including, without
limitation, The Shopping Channel), to engage in on-line activities
which may be competitive to those of BID.COM, use technology which
may be competitive to the BID.COM Technology, or enter into any
commercial arrangement with any BID.COM Competitor.
ARTICLE FOUR
ADDITIONAL SERVICES
4.1 Future Rogers Initiatives. During the Term of this Agreement, Rogers
--------------------------
agrees to use commercially reasonable efforts to facilitate the use of the
BID.COM Technology by Rogers and its Affiliates in connection with any future
Rogers on-line auction initiatives. BID.COM will licence the BID.COM Technology
and provide related services to Rogers and its Affiliates [Confidential
Information filed separately with the SEC].
4.2 Rogers-Specific Enhancements. If Rogers requests the inclusion of specific
-----------------------------
functionality or customization changes to the BID.COM Technology (a "Rogers-
Specific Enhancement"), BID.COM will use commercially reasonable efforts to
assist Rogers in the
14
<PAGE>
development of such Rogers-Specific Enhancements. Ownership of Rogers-Specific
Enhancements shall be determined in accordance with Section 6.3 hereof.
ARTICLE FIVE
PAYMENT TERMS
5.1 Allocation of Revenue.
----------------------
(i) BID.COM shall pay Rogers fifty percent (50%) of the Net E-Commerce
Revenue. BID.COM shall invoice and collect all Net E-Commerce Revenue. Net
E-Commerce Revenue shall be aggregated on a calendar quarterly basis, and
BID.COM shall pay Rogers fifty percent (50%) of the Net E-Commerce Revenue
within thirty (30) days of the end of each calendar quarter. For greater
certainty, BID.COM agrees that it shall not deduct any portion of the Net
E-Commerce Revenue payable by BID.COM to a third party (including, without
limitation, any portion payable to Torstar or to AOL) from the calculation
of the total Net E-Commerce Revenue of which BID.COM shall pay Rogers
fifty percent (50%). BID.COM shall complete a Net E-Commerce Revenue
Report in the form attached hereto as Schedule "I" for each applicable
payment period and shall remit each such report along with each payment
due hereunder.
(ii) Rogers shall pay BID.COM fifty percent (50%) of the Net Promotional
Revenue. Rogers shall invoice and collect all Net Promotional Revenue. Net
Promotional Revenue shall be aggregated on a calendar quarterly basis, and
Rogers shall pay BID.COM fifty percent (50%) of the Net Promotional
Revenue within thirty (30) days of the end of each calendar quarter.
Rogers shall complete a Net Promotional Revenue Report in the form
attached hereto as Schedule "J" for each applicable payment period and
shall remit each such report along with each payment due hereunder.
5.2 Audit. Rogers shall keep accurate books and records of all revenues
------
received by Rogers and all information regarding deductions made to calculate
Net Promotional Revenues. BID.COM shall keep accurate books and records of all
revenues received by BID.COM and all information regarding deductions made to
calculate Net E-Commerce Revenues. Each party has the right, acting reasonably,
to audit the books and records of the other party during normal business hours
in respect of financial obligations under this Agreement. If such audit
discloses underpayment by the other party, the other party shall pay such
underpayment forthwith, together with interest from the date the payment was due
until such amount is paid. If an audit discloses an underpayment of 5% or more,
the party in default shall reimburse the other party on demand for the
reasonable out of pocket costs incurred in conducting such audit.
5.3 Most Favoured Terms. BID.COM represents, warrants, and covenants that:
--------------------
15
<PAGE>
(i) the prices, terms and conditions contained in this Agreement are at least
as favourable as the prices, terms and conditions made available by
BID.COM to any other party who has entered into a commercial transaction
with BID.COM relating to the operation of a business-to-retail customer E-
Commerce Service in the Territory; and
(ii) between the Effective Date and August 31, 1998, BID.COM shall not grant to
any third party prices, terms or conditions more favourable than those
contained in the Share Subscription Agreement between BID.COM and Rogers
dated July 28, 1998 (the "Share Subscription Agreement").
Without limiting the generality of the foregoing, in the event that BID.COM
enters into a similar commercial transaction with a third party relating to the
operation of a business-to-retail customer E-Commerce Service in the Territory
on prices, terms or conditions that are more favourable than the prices, terms
and conditions made available to Rogers hereunder, or grants to any third party
prices, terms or conditions more favourable than those contained in the Share
Subscription Agreement between the Effective Date and August 31, 1998, then
BID.COM agrees to make such more favourable prices, terms or conditions
available to Rogers. Rogers may, in its sole discretion, retain an independent
third party auditor to audit the books and records of BID.COM in order to verify
BID.COM's compliance with this representation, warranty and covenant.
ARTICLE SIX
OWNERSHIP RIGHTS
6.1 Rogers Intellectual Property and Customer Profiles.
---------------------------------------------------
(i) Rogers Intellectual Property. Notwithstanding Section 6.2 hereof, Rogers
and BID.COM each agree that all right, title and interest in all content,
technology, software, and other intellectual property owned or created
entirely by Rogers, its licensors or its assignees, including, without
limitation, all Intellectual Property Rights therein, and all
modifications, revisions, additions, customizations and enhancements made
by Rogers hereunder related thereto, shall be owned by Rogers (and its
licensors, as the case may be).
(ii) Customer Profiles. BID.COM acknowledges that ownership of the Customer
Profiles shall at all times remain with Rogers, and BID.COM assigns all
right, title and interest in and to such Customer Profiles to Rogers.
Except as otherwise expressly permitted hereunder, BID.COM shall not use
any Customer Profiles other than in the performance of its obligations
under this Agreement. Notwithstanding the foregoing, Rogers acknowledges
and agrees that BID.COM shall have the unrestricted right to retain and
use information: (a) received by BID.COM from customers of the Canadian E-
Commerce Service prior to the Effective Date; or (b) provided to BID.COM
during the Term by customers of the Canadian E-Commerce Service as a
result of a special voluntary registration process with BID.COM, and not
as a result of the purchase by such customer of products or services from
the Canadian E-Commerce Service.
16
<PAGE>
6.2 BID.COM Intellectual Property, BID.COM Marks and BID.COM URL.
-------------------------------------------------------------
(i) BID.COM Intellectual Property. Subject to Sections 6.1 and 6.3 hereof,
Rogers acknowledges that ownership of the BID.COM Technology, the BID.COM
Site and any customization or enhancements as used in the Canadian E-
Commerce Service shall remain with BID.COM.
(ii) BID.COM Marks and BID.COM URL. Rogers acknowledges that ownership of
the BID.COM Marks and the BID.COM URL shall remain with BID.COM.
6.3 Rogers-Specific Enhancements. If Rogers requests that BID.COM develop a
-----------------------------
Rogers-Specific Enhancement, the parties will mutually agree in writing to terms
and conditions respecting the development of such Rogers-Specific Enhancement,
including, without limitation, terms and conditions relating to each parties'
respective ownership and exploitation rights in such Rogers-Specific
Enhancement. The parties acknowledge and agree that their respective ownership
and exploitation rights in each Rogers-Specific Enhancement shall be determined
in accordance with the following principles:
(i) if a Rogers-Specific Enhancement can be used as a severable, standalone
component, then Rogers shall own all right, title and interest in and to
such Rogers-Specific Enhancement, and BID.COM shall be granted perpetual,
royalty-free license rights to use and reproduce such Rogers-Specific
Enhancement internally, provided that BID.COM may not transfer or license
such Rogers-Specific Enhancement to any third party (other than its
Affiliates) without the prior written consent of Rogers;
(ii) if a Rogers-Specific Enhancement is integrated into the BID.COM
Technology, the BID.COM Site or the Canadian E-Commerce Service in such a
way that it cannot reasonably be used as a severable, standalone
component, then BID.COM shall own all right, title and interest in and to
such Rogers-Specific Enhancement, and Rogers shall be granted perpetual,
royalty-free license rights to use and reproduce such Rogers-Specific
Enhancement internally, provided that Rogers may not transfer or license
such Rogers-Specific Enhancement to any third party (other than its
Affiliates) without the prior written consent of BID.COM; and
(iii) notwithstanding anything else in this Agreement, BID.COM shall not use
any Rogers-Specific Enhancement to provide services or technology to any
competitor to Rogers, nor sub-licence any Rogers-Specific Enhancement to
any competitor to Rogers, without the prior written consent of Rogers.
ARTICLE SEVEN
TERM, TERMINATION AND TRANSITION
17
<PAGE>
7.1 Term. This Agreement shall commence on the Effective Date and shall
-----
continue unless and until terminated in accordance with the provisions hereof.
7.2 Reporting. Within thirty (30) days of: (i) the one-year anniversary of the
----------
Effective Date; and (ii) each one-year anniversary thereafter, Rogers shall
provide a report to BID.COM summarizing Rogers's performance statistics based on
the categories of performance metrics set out in Schedule "K" hereto.
7.3 Termination by BID.COM. If, during any Evaluation Period, Rogers fails to
-----------------------
meet the performance requirements set out in Schedule "K", BID.COM may, at its
option, elect to terminate this Agreement upon thirty (30) days written notice
to Rogers, provided that, to be effective, BID.COM must exercise the option to
terminate set out in this Section 7.3 within sixty (60) days of receipt by
BID.COM of the report provided by Rogers pursuant to Section 7.2 hereof.
7.4 Termination by Rogers. Rogers may terminate this Agreement at any time
----------------------
upon ninety (90) days advance written notice to BID.COM. In the event that
Rogers terminates this Agreement other than as a result of a breach by BID.COM
of this Agreement, the following terms shall apply in addition to those set out
in Schedule "L":
(i) BID.COM shall have a perpetual, non-exclusive license to use all Customer
Profiles; and
(ii) at BID.COM's request, Rogers shall maintain the user interface for the
Canadian E-Commerce Service on the Rogers E-Commerce Portal for a period
of up to ninety (90) days from the effective date of such termination.
7.5 Transition. Upon the termination of this Agreement, the parties shall
-----------
comply with the applicable portion of the Transition Plan, and each party will
bear its respective costs incurred in respect of such transition.
7.6 Survival. Except as otherwise provided herein, the terms of Article 1,
---------
Section 5.2, Section 5.3, Article 6, Article 7, Article 9, and Article 11 shall
survive any termination or expiry of this Agreement and shall continue in force
thereafter for the period contemplated by the Agreement. Other provisions of
this Agreement which, by the nature of the rights or obligations set out
therein, might reasonably be expected to be intended to so survive, shall
survive termination or expiry of this Agreement until they are satisfied or by
their nature expire.
ARTICLE EIGHT
APPOINTMENT TO BOARD OF DIRECTORS
BID.COM hereby covenants with Rogers to use its Reasonable Best Efforts to
forthwith cause one nominee of Rogers to be appointed to the board of directors
of BID.COM to hold office as a director until the next annual meeting of the
shareholders of BID.COM and to recommend that a
18
<PAGE>
nominee of Rogers be elected as a director at each annual meeting of the
shareholders of BID.COM during the Term of this Agreement.
ARTICLE NINE
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
9.1 Warranty and Indemnity re: Authority, Title and Proprietary Rights.
--------------------------------------------------------------------
(i) BID.COM represents, warrants and covenants that it has all Intellectual
Property Rights and other rights necessary to perform its obligations
hereunder including, without limitation, the right to operate the BID.COM
Technology, the BID.COM Site and the Canadian E-Commerce Service, and that
the execution and performance of the terms of this Agreement by BID.COM and
Rogers shall not in any manner interfere with, infringe, breach,
contravene, harm, or damage any rights or interests of any other person,
including without limitation any Intellectual Property Rights, moral rights
(or the equivalent or comparable rights in any other jurisdiction),
personality rights, confidentiality rights, equitable rights or statutory
rights whatsoever.
(ii) BID.COM agrees to defend, indemnify and hold harmless Rogers, its
Affiliates, and their respective officers, directors, employees and agents
from all losses, claims, damages or liabilities, including court costs and
legal fees, incurred in connection with or arising out of any claim
asserted against Rogers based upon a contention that the E-Commerce
Service, the BID.COM Technology, the BID.COM Site, the BID.COM Marks, the
Customer Profiles, or any portion thereof infringe the Intellectual
Property Rights of any third party provided that:
(a) Rogers or its Affiliates promptly notify BID.COM in writing of the
claim and of all material developments in connection with such claim
and provides all assistance otherwise reasonably requested by BID.COM;
(b) BID.COM has the right to control, at its own expense, the defence and
all related settlement negotiations (Rogers has the right to
participate at its own expense);
(c) Rogers or its Affiliates do not pay or settle any such claim without
the express written consent of BID.COM; and
(d) the claim in respect of which indemnity is sought does not arise out
of or in connection with any unauthorized use of the BID.COM
Technology by Rogers.
In addition, if the E-Commerce Service, the BID.COM Technology, the BID.COM
Site, the BID.COM Marks, the Customer Profiles, or any portion thereof is
held to constitute an infringement of another person's rights, and use
thereof is enjoined, or BID.COM
19
<PAGE>
enters into a settlement of the claim which includes an agreement to refrain
from the use thereof, BID.COM shall, at its election and expense, either:
(1) procure the right to use the infringing element thereof;
(2) procure the right to an element which performs the same function
without any material loss of functionality; or
(3) replace or modify the element thereof so that the infringing portion
is no longer infringing and still performs the same function without
any material loss of functionality;
and shall make every reasonable effort to correct the situation with
minimal effect upon the operations of Rogers and its Affiliates.
9.2 General Limitation on Liability. UNDER NO CIRCUMSTANCES WILL EITHER
--------------------------------
PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL,
SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH OF THE AGREEMENT, THE USE OR
INABILITY TO USE THE BID.COM TECHNOLOGY, THE BID.COM SITE, THE BID.COM MARKS,
THE CUSTOMER PROFILES, OR THE CANADIAN E-COMMERCE SERVICE, OR ARISING FROM ANY
OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE
OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES");
PROVIDED THAT BID.COM WILL REMAIN LIABLE TO ROGERS TO THE EXTENT ANY DISCLAIMED
DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT
TO SUBSECTION 9.1(ii) ABOVE. EXCEPT AS PROVIDED IN SUBSECTION 9.1(ii), NEITHER
PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN [Confidential Information
filed separately with the SEC] PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR
THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY.
9.3 Requirements of the Canadian E-Commerce Service. BID.COM represents,
------------------------------------------------
warrants and covenants that the Canadian E-Commerce Service, the BID.COM
Technology and the BID.COM Site shall perform in conformance with Rogers's
Requirements therefor, provided that BID.COM shall have no liability for
performance failures due to events or causes beyond its reasonable control or
due to changes made by Rogers without the prior written approval of BID.COM.
9.4 Disabling Device. BID.COM represents, warrants and covenants that the
-----------------
BID.COM Site, any software, BID.COM Technology, Customer Profiles and other
deliverables provided hereunder shall not contain any virus, clock, timer,
counter, bomb, trojan horse, worm, or other limiting or disabling code, design
or routine that would cause the BID.COM Site, any software, BID.COM Technology,
Customer Profiles or other deliverables to be made inoperable or otherwise
rendered incapable of performing in accordance with Rogers's Requirements or
20
<PAGE>
otherwise limit or restrict Rogers's or its Affiliates' ability to use same
after the lapse or occurrence of any triggering prompt.
9.5 Media. BID.COM represents and warrants that the media on which any
------
BID.COM Technology, Customer Profiles or other software is provided shall be
compatible to the greatest extent possible with the majority of industry
standard browsers and that the media, as supplied by BID.COM, shall be free from
defects and computer viruses.
9.6 Representations and Warranties re: Services. BID.COM agrees that it shall
--------------------------------------------
perform all of its obligations hereunder in a timely fashion and in a
professional manner by personnel appropriately trained in the performance of
such obligations. Response times shall be as outlined in Schedule "D". If
BID.COM does not meet the response time requirements for a severity (1) or
severity (2) event and such failure is not due to an event beyond the reasonable
control of BID.COM, Rogers shall have the right to insist that its own engineers
and designers assist BID.COM's personnel at BID.COM's premises to rectify the
problem and BID.COM shall co-operate fully in this process.
9.7 Provision of Source Code Materials. Rogers may subscribe, at its own
-----------------------------------
expense, to the existing Source Code Escrow Agreement attached as Schedule "E"
and deposited with Data Securities International, Inc. (the "Escrow Agreement").
BID.COM shall deposit updated Source Code Materials as required by Section 1.7
of the Escrow Agreement. In addition to the requirements set out in Section 1.7
of the Escrow Agreement, BID.COM shall deposit updated, current Source Code
Materials with Data Securities International, Inc. on a calendar quarterly
basis. The parties agree that in addition to the "Release Conditions" specified
in Section 4.1 of the Escrow Agreement, a further Release Condition shall exist
if BID.COM is in continuing material breach of this Agreement. Upon the release
of the Source Code Materials to Rogers in accordance with the Escrow Agreement,
Rogers shall have a perpetual, worldwide, royalty-fee licence to use, copy, and
modify the Source Code Materials and to permit third parties to use, copy and
modify the Source Code Materials for purposes solely related to the use,
operation and distribution of the Canadian E-Commerce Service and the Canadian
BID.COM Site by Rogers in the Territory and in accordance with the provisions of
this Agreement.
9.8 Confidentiality. Each party (hereinafter in this Section, the "Receiving
----------------
Party") covenants with the other party (hereinafter in this Section, the
"Disclosing Party") that it shall keep confidential the Confidential Information
of the Disclosing Party to which the Receiving Party obtains access as a
consequence of entering into this Agreement and that it will take all reasonable
precautions to protect such Confidential Information from any use, disclosure or
copying except as expressly authorized by this Agreement. The Receiving Party
shall implement such procedures as the Disclosing Party may reasonably require
from time to time to improve the security of the Confidential Information of the
Disclosing Party in its possession. This Section shall survive the termination
of the Agreement. Upon termination of this Agreement, the Receiving Party shall,
at the choice of the Disclosing Party, either return to the Disclosing Party or
destroy all copies or partial copies of Confidential Information of the
Disclosing Party in any
21
<PAGE>
form which is in the possession of the Receiving Party or under its control, and
certify that all such Confidential Information has been returned or otherwise
destroyed.
9.9 Year 2000 Compliance. BID.COM represents, warrants and covenants that
---------------------
all BID.COM Technology other than the Third Party Technology, the Canadian E-
Commerce Service, the BID.COM Site, and all other software, hardware, firmware,
and other technology used by BID.COM in performing its obligations hereunder
shall be able to accurately process date data including, but not limited to,
calculating, comparing, and sequencing from, into, and between the twentieth and
twenty-first centuries, including leap year calculations, and are fully capable
of operating as required to accommodate the year 2000 and beyond (the "Year 2000
Warranty"). With respect to the Third Party Technology, BID.COM represents,
warrants and covenants that it shall make appropriate inquiries to satisfy
itself that such Third Party Technology shall comply with the Year 2000
Warranty. BID.COM shall use Reasonable Best Efforts to repair or replace any
Third Party Technology which does not comply with the Year 2000 Warranty to the
extent necessary to ensure that the Canadian E-Commerce Service and the BID.COM
Site comply with the Year 2000 Warranty.
9.10 Compliance With Laws. Each party represents, warrants and covenants that
---------------------
its performance of this Agreement shall comply with (and shall neither
contravene, breach nor infringe) any laws or regulations of Canada or any laws
or regulations of any province or territory of Canada (including, without
limitation, all laws respecting the protection of personal information).
9.11 Limitation on Warranties. Except for those warranties otherwise provided
-------------------------
herein, neither party makes any warranties or representations, and there are no
conditions, express or implied, in fact or in law, including without limitation,
the implied warranties or conditions of merchantable quality and fitness for a
particular purpose and those arising by statute or otherwise in law or from a
course of dealing or usage of trade.
ARTICLE TEN
CONTRACT MANAGEMENT AND DISPUTE RESOLUTION
10.1 Contract Governance. The parties agree to utilize the process set out in
--------------------
this Article 10 to consult and render decisions relating to this Agreement,
including, but not limited to, the following matters:
(i) the number, frequency and cost of loss leader promotions;
(ii) the use by BID.COM of the BID.COM Marks in the Territory;
(iii) the co-ordination of BID.COM's investor relations and public relations
strategies;
22
<PAGE>
(iv) the compliance by BID.COM with the covenant set out in subsection 2.2(v)
of this Agreement;
(v) the sale by Rogers of advertising to advertisers and advertising agents
identified by BID.COM in order to assist BID.COM with its merchandising
of the Canadian E-Commerce Service;
(vi) the overall operating plans, business plans, budgets and revenue
strategies for the Canadian E-Commerce Service, including the relative
emphasis to be placed on Net Promotional Revenue earnings and Net E-
Commerce Revenue earnings;
(vii) the terms and conditions relating to the introduction and operation of
New Canadian Auctions;
(viii) the development and ownership of Rogers-Specific Enhancements; and
(ix) the effectiveness of Rogers's advertising sales, marketing and
promotional activities.
Unless otherwise mutually agreed, the parties shall meet to discuss the above
issues no less frequently than once every calendar quarter. Unless otherwise
agreed, all decisions relating to the above matters shall require the mutual
written agreement of the parties.
10.2 Contacts and Contact Meetings. The parties agree that each shall
------------------------------
designate no more than two (2) principal contacts for day-to-day liaison and
management of the relationship during the Term ("Contacts"). Unless otherwise
mutually agreed, the Contacts shall meet on a regular basis in person or by
telephone, but in any event no less than once per month, in order to review the
parties' respective performance under this Agreement, discuss relevant issues,
and resolve or, upon mutual agreement, escalate issues as necessary. The
Contacts shall not have any authority or right to either amend or revise this
Agreement, nor to waive any obligations, duties or responsibilities of either
party under this Agreement. Each party shall pay its own costs associated with
its respective Contacts.
10.3 Joint Management Committee. BID.COM and Rogers shall form a management
---------------------------
committee (the "Committee") composed of two or more senior representatives of
BID.COM and two or more senior representatives of Rogers who shall, from time to
time, meet to review and discuss matters related to this Agreement. The number
of representatives of Rogers and BID.COM on the Committee shall at all times be
equal. The Committee in its discretion may invite the participation of the
Contacts or others in its deliberations. The Committee shall have the right to
implement the Agreement and make decisions of an interpretive nature (including
without limitation decisions regarding issues to be put before the Committee as
set forth herein), but the Committee shall not have the authority or right to
either amend or revise this Agreement, or to waive any obligations, duties or
responsibilities of either party under this Agreement. Each party shall pay its
own costs associated with its respective Committee representatives.
23
<PAGE>
10.4 Dispute Resolution and Applicable Law. BID.COM and Rogers expressly agree
--------------------------------------
to the following exclusive internal dispute escalation provisions governing all
performance and disputes under this Agreement:
(i) In the event that BID.COM and Rogers cannot resolve a dispute under the
Agreement in the normal course of performance (including through recourse
to the Contacts), then each party's designated Committee members shall
confer immediately and use reasonable efforts to resolve the dispute
within fifteen (15) days of their initial conference. No dispute shall be
considered resolved until both parties have agreed to the resolution in
writing. The designated Committee members shall mutually agree on the
methods by which they attempt to resolve any dispute such as, for example,
telephone and/or video conferences, e-mail and fax communications, and/or
face to face meetings. The costs under this subsection 10.4(i) shall be
shared equally by the parties.
(ii) In the event that each party's designated Committee members cannot resolve
a dispute under the Agreement as specified in subsection 10.4(i) above,
then each party's respective Presidents (or an equivalent or higher
position) having responsibility for this Agreement shall confer
immediately and use reasonable efforts to resolve the dispute within
fifteen (15) days of their initial conference. No dispute shall be
considered resolved until both parties have agreed to the resolution in
writing. The respective Presidents (or equivalents) shall mutually agree
on the methods by which they attempt to resolve any dispute such as, for
example, telephone and/or video conferences, e-mail and fax
communications, and/or face to face meetings. The costs under this
subsection 10.4(ii) shall be shared equally by the parties.
(iii) In the event that each party's respective Presidents (or equivalents)
cannot resolve a dispute under the Agreement as specified in subsection
10.4(ii) above, then the parties shall each be free to submit the dispute
to arbitration in accordance with Section 10.5 hereof.
10.5 Arbitration. Other than with respect to one party's violation or alleged
------------
violation of the other party's (or its licensors') Intellectual Property Rights
or a breach of the confidentiality provisions of this Agreement, any dispute,
disagreement, controversy or claim arising out of or relating to this Agreement
that cannot be resolved by the parties pursuant to the provisions of Section
10.4 including, without limitation, any dispute relating to its application,
interpretation, performance, breach, termination, enforcement or damages, or
remedies arising out of the breach of or non-compliance therewith, shall be
finally determined by arbitration before a single arbitrator to be commenced and
conducted in the English language in Toronto in accordance with the Arbitration
Act (Ontario). All arbitration proceedings shall be conducted in private and all
documentation and information pertaining to any arbitration shall be
Confidential Information. The parties hereto agree that:
(i) subject to mutual agreement between the parties to the contrary, the
arbitrator shall be a person who is legally trained and trained as a
professional arbitrator and who has a minimum of five (5) years experience
in the Internet and electronic commerce;
24
<PAGE>
(ii) the parties shall agree on the identity of the arbitrator within ten (10)
days of notice of reference to arbitration and in default thereof, either
party may apply to a Judge of the Supreme Court of Ontario, General
Division, to appoint an arbitrator with the foregoing qualifications;
(iii) the parties shall be required to make written submissions to the
arbitrator within seven (7) days of appointment and shall not be entitled
to make verbal representations or further submissions unless so requested
by the arbitrator. Any party who does not comply with the foregoing time
period shall not be entitled to make any submissions without the written
approval of the other party;
(iv) the arbitrator shall be required to render his decision in writing within
ten (10) days of the period mentioned in subsection 10.5(iii);
(v) neither of the parties shall apply to the Courts of Ontario or any other
jurisdiction to attempt to enjoin, delay, impede or otherwise interfere
with or limit the scope of the arbitration or the powers of the
arbitrator provided for in the Arbitration Act (Ontario);
(vi) the award of the arbitrator shall be a final and conclusive award and
judgment with respect to all matters properly before the arbitral
tribunal in accordance with the Arbitration Act (Ontario) and neither
party shall appeal such award in any manner whatever to any court,
tribunal or other authority; and
(vii) the award of the arbitral tribunal may be entered and enforced by any
court in any jurisdiction having jurisdiction over the parties hereto or
the subject matter of the award or the properties or assets of either of
the parties hereto.
Notwithstanding the submission of any dispute to arbitration under this
Agreement, the parties shall continue to cooperate and act in good faith to
perform their respective obligations under this Agreement during any such
arbitration.
ARTICLE ELEVEN
GENERAL
11.1 Notice. Any notice or other communication (a "Notice") required or
-------
permitted to be given or made hereunder shall be in writing and shall be well
and sufficiently given or made if:
(i) delivered in person during normal business hours on a business day and left
with a receptionist or other responsible employee of the relevant party at
the applicable address set forth below;
(ii) sent by prepaid first class mail; or
25
<PAGE>
(iii) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic
Transmission"), charges prepaid and confirmed by prepaid first class
mail;
in the case of a Notice to Rogers addressed to it at:
Rogers Media Inc.
156 Front Street West
Suite 400
Toronto, Ontario
M5J 2L6
Attention: Mr. Mike Abramsky
President, New Media
Fax No.: (416) 340-6541
with a copy to:
Rogers Communications Inc.
333 Bloor Street East
10th Floor
Toronto, Ontario
Attention: David P. Miller
Vice President, General Counsel
Fax No.: (416) 935- 3548
and in the case of a Notice to BID.COM addressed to it at:
BID.COM International Inc.
5915 Airport Road.,
Suite 330
Mississauga, Ontario
L4V 1T1
Attention: Paul Godin
Fax No.: (905) 672-7514
with a copy to:
26
<PAGE>
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 11.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth business day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a business day and, if not, then on the
first business day after the sending thereof.
Either party may from time to time change its address for notice by giving
Notice to the other party in accordance with the provisions of this Section
11.1.
11.2 Assignment. Except as otherwise permitted by this Section 11.2, neither
-----------
party may assign its rights and obligations under this Agreement, in whole or
in part, without the prior consent in writing of the other party, and any
purported assignment made without that consent is void and of no effect (save
and except for an assignment as an incident of security taken in a normal course
financing transaction). Notwithstanding the foregoing, Rogers may assign its
rights and obligations under this Agreement, in whole or in part, to: (i) any
Affiliate; or (ii) a joint venture in which Rogers has an interest with any
party or parties other than those listed in Schedule "H" hereto, without the
prior written consent of BID.COM, provided that such assignee shall agree to be
bound by the terms and conditions of this Agreement to the extent that such
terms and conditions are assigned to such assignee.
11.3 Binding on Successors. This Agreement shall enure to the benefit of and be
----------------------
binding upon the parties and their respective successors and permitted assigns.
11.4 Further Assurances. Each party agrees that upon the written request of the
-------------------
other party, it will do all such acts and execute all such further documents,
conveyances, deeds, assignments, transfers and the like, and will cause the
doing of all such acts and will cause the execution of all such further
documents as are within its power to cause the doing or execution of, as any
other
27
<PAGE>
party hereto may from time to time reasonably request be done and/or executed as
may be necessary or desirable to give effect to this Agreement.
11.5 Independent Contractors. It is understood and agreed that in giving effect
------------------------
to this Agreement, no party shall be or be deemed a partner, agent or employee
of another party for any purpose and that their relationship to each other shall
be that of independent contractors. Nothing in this Agreement shall constitute
a partnership or a joint venture between the parties. No party shall have the
right to enter into contracts or pledge the credit of or incur expenses of
liabilities on behalf of the other party.
11.6 Waiver. A waiver by a party hereto of any of its rights hereunder or of
-------
the performance by the other party of any of its obligations hereunder shall be
without prejudice to all of the other rights hereunder of the party so waiving
and shall not constitute a waiver of any such other rights or, in any other
instance, of the rights so waived, or a waiver of the performance by the other
party of any of its other obligations hereunder or of the performance, in any
other instance, of the obligations so waived. No waiver shall be effective or
binding upon a party unless the same shall be expressed in writing and executed
by the party to be bound.
11.7 Entire Agreement. This Agreement, and any agreements and other documents
-----------------
to be delivered pursuant to it, constitutes the entire agreement between the
parties pertaining to the subject matter hereof and supersedes all prior
agreements, understandings, negotiations and discussions, oral or written
between the parties. The execution of this Agreement has not been induced by,
nor do either of the parties rely upon or regard as material, any
representations, warranties, conditions, other agreements or acknowledgments not
expressly made in this Agreement or in the agreements and other documents to be
delivered pursuant hereto.
11.8 Currency. Unless otherwise indicated, all dollar amounts referred to in
---------
this Agreement are in Canadian funds.
11.9 Invalidity. If in any jurisdiction a provision contained in this Agreement
-----------
is found by a court of competent jurisdiction to be invalid, illegal or
unenforceable in any respect, the validity, legality or enforceability of the
remaining provisions contained herein, or of such provision in any other
jurisdiction shall not be affected or impaired thereby.
11.10 No Announcement. Except as required by applicable law, neither party
----------------
shall, in any manner, disclose, advertise or publish the terms of, or any
information concerning, this Agreement without the prior written consent of the
other party.
11.11 Regulatory Requirements. Notwithstanding any provisions herein to the
------------------------
contrary, the obligations, duties and covenants of Rogers shall be subject to
all present and future laws and regulations in Canada concerning
telecommunications content and access, the rulings or decisions of the Canadian
Radio-television and Telecommunications Commission ("CRTC"), and all policies or
rules that are either promulgated or formally adopted by the CRTC. Any act or
omission of Rogers that is inconsistent with the provisions of this Agreement in
order to make such act or omission consistent with any such laws, regulations,
rulings, decisions, policies or
28
<PAGE>
rules shall not constitute Rogers in breach, infringement or contravention of
this Agreement, provided that Rogers promptly gives BID.COM notice of the need
to conform such act or omission to law. If any such laws, regulations, rulings,
decisions, policies or rules require that the parties make a material change to
the terms and conditions of this Agreement, the parties will use commercially
reasonable efforts to negotiate a mutually acceptable amendment to this
Agreement. If the parties are unable to negotiate a mutually acceptable
amendment, then this Agreement shall terminate and neither party shall have any
liability to the other, other than liability for payment obligations which have
accrued prior to the effective date of such termination.
11.12 Compliance With Law. Each party shall, in the performance of this
--------------------
Agreement, fully comply with, and abide by, all laws, regulations, regulatory
rulings or directives, court orders, and decisions of administrative tribunals
of competent jurisdiction, that may, in any manner or extent, concern, govern,
or affect either party's respective performance of, and obligations under, this
Agreement.
11.13 Interpretation. This Agreement has been negotiated by the parties hereto
---------------
and their respective counsel and shall be fairly interpreted in accordance with
its terms and without any rules of construction relating to which party drafted
the Agreement being applied in favor or against either party.
11.14 Effective Date. This Agreement shall not become a valid and binding
---------------
contract unless and until each party has duly executed and delivered two copies
of this Agreement. For greater certainty, there shall be no agreement, whether
oral, written, express, implied or otherwise notwithstanding any performance
between the parties concerning the subject matter of this document, including,
without limitation, by course of conduct, doctrine of part performance, or
otherwise.
11.15 Amendment. No amendment of any provision of this Agreement shall be
----------
effective unless such amendment is embodied in a written agreement which is: (i)
expressly stated to be intended to amend this Agreement; and (ii) executed by
two authorized signing officers of Rogers and an authorized officer of BID.COM.
For greater certainty, the parties acknowledge and agree that no
representations, warranties, conditions, covenants or other statements or
commitments, whether made orally, in writing, by course of conduct or otherwise,
and whether made prior to the Effective Date of this Agreement or thereafter,
shall be binding on either of the parties.
11.16 Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein and shall be treated, in all respects, as an Ontario
contract. The parties hereby: (i) irrevocably submit to the exclusive
jurisdiction of the courts of Ontario in respect of the subject matter hereof;
(ii) consent to service of process being effected upon the other party by
registered mail sent to the address set forth in Section 11.1 hereof; (iii)
agree not to seek, request, claim or pursue trial by jury; and (iv) agree not to
seek, request, claim or pursue any right, claim, or entitlement to any punitive
or exemplary damages whatsoever.
29
<PAGE>
IN WITNESS WHEREOF this Agreement is executed by the parties as of the Effective
Date.
BID.COM INTERNATIONAL INC.
By:_____________________________ By:______________________________
(Duly Authorized Officer) (Duly Authorized Officer)
ROGERS MEDIA INC.
By:_____________________________ By:______________________________
(Duly Authorized Officer) (Duly Authorized Officer)
30
<PAGE>
SCHEDULE "A"
BID.COM Technology (including Third Party Technology)
<TABLE>
<CAPTION>
ILI Bid.com Modules
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Databases: [Confidential Information filed
separately with the SEC]
Business Services: [Confidential Information filed
separately with the SEC]
Data Services: [Confidential Information filed
separately with the SEC]
Dynamic Export: [Confidential Information filed
separately with the SEC]
Order Processing
Administrator: [Confidential Information filed
Credit Card: separately with the SEC]
Order Business Services:
Utilities:
Category Builder: [Confidential Information filed
AdrotatorGenerator separately with the SEC]
AssetMgmt:
DB Services:
Notification:
Supporting S/W: [Confidential Information filed
separately with the SEC]
Web: [Confidential Information filed
separately with the SEC]
ILI Bid.com Modules (Dutch)
- --------------------------
Business Services: [Confidential Information filed
separately with the SEC]
Data Services: [Confidential Information filed
separately with the SEC]
Dutch Server: [Confidential Information filed
separately with the SEC]
Dutch Client: [Confidential Information filed
separately with the SEC]
Internet Web: [Confidential Information filed
separately with the SEC]
Admin Web: [Confidential Information filed
separately with the SEC]
</TABLE>
<PAGE>
Top Bid Auction
---------------
[Confidential Information filed separately with the SEC]
<PAGE>
Dutch Auction
-------------
[Confidential Information filed separately with the SEC]
<PAGE>
Bid.Com Commerce Site
List Of Third Party Tools Incorporated Into
Application
[Confidential Information filed separately with the SEC]
<PAGE>
SCHEDULE "B"
Rogers's Requirements
B.1 Preparation and Delivery of Rogers's Requirements. Rogers and BID.COM
covenant and agree to negotiate in good faith to execute an amendment to this
Agreement (the "Amendment") with thirty (30) days of the Effective Date in order
to complete this Schedule "B" in a manner acceptable to both parties. The
Amendment shall contain detailed performance requirements and specifications for
the Canadian BID.COM Site, the Canadian E-Commerce Service and the BID.COM
Technology. Without limiting the generality of the foregoing, the Amendment
shall include:
(a) performance metrics relating to the quality of the user experience on the
Canadian BID.COM Site;
(b) a description of the required functional capabilities and performance
specifications for the Canadian E-Commerce Service and the BID.COM
Technology;
(c) minimum availability and up-time requirements for the Canadian BID.COM Site
and the Canadian E-Commerce Service;
(d) technical and operational requirements relating to the serving of
advertisements for the Canadian BID.COM Site; and
(e) other technical, operational and functional specifications mutually agreed
by the parties.
B.2 Escalation. In the event that the Amendment has not been executed within
thirty (30) days of the Effective Date, the Committee shall review disputes and
use its good faith efforts to complete the Amendment within an additional thirty
(30) day period. If the Amendment has not been completed within such additional
thirty (30) day period, outstanding disputes or issues relating to the Amendment
shall be submitted to dispute resolution in accordance with Section 10.4 of this
Agreement.
<PAGE>
SCHEDULE "C"
Customer Service Standards
BID.COM shall, at a minimum, comply with the following customer service
standards in its operation of the Canadian E-Commerce Service:
C.1 Logistics
BID.COM shall:
1. appoint the equivalent of one full-time employee to provide online customer
service;
2. receive and respond to email and customer inquiries within one (1) business
day of receipt;
3. install a toll free phone line and communicate the toll free phone number
in the online "Customer Service" area of the Canadian BID.COM Site;
4. ensure the ability to handle customer service volumes in excess of 25% to
50% of average daily order volumes;
5. monitor the Canadian E-Commerce Service to minimize and/or eliminate out of
stock merchandise;
6. post all customer service policies in an online "Customer Service" area of
the Canadian BID.COM Site which includes the following information and
policies: shipping information, return policies, product warranties and
contact information; and
7. post security and privacy policies in an online "Customer Service" area of
the Canadian BID.COM Site.
C.2 Process and Fulfillment
In fulfilling purchases by customers of the Canadian E-Commerce Service, BID.COM
shall:
1. process electronic orders within one (1) business day of receipt;
2. provide customers with an order confirmation which includes order status (in
stock, temporary back order or out of stock), expected delivery time and
total cost (including all shipping and taxes) within one (1) business day of
receipt;
3. ship products at the price displayed and without substitutions, unless such
substitutions are authorized by the customer;
4. deliver all merchandise in professional packaging;
<PAGE>
5. ensure all packages arrive undamaged, well packed and neat (barring shipping
disasters);
6. permit the return of defective or damaged goods to the manufacturers under
warranty; and
7. permit the return of other goods within 30 days of delivery, less a 15%
restocking fee with chronic abuse exclusions.
<PAGE>
SCHEDULE "D"
Response Times
D.1 BID.COM shall respond to any report that the BID.COM Technology, the
Canadian E-Commerce Service or the Canadian BID.COM Site is failing to meet
Rogers's Requirements, and shall correct such failure, within the time frames
set out in Section D.2 of this Schedule "D". The severity of any particular
failure shall be reasonably determined by Rogers, and communicated to BID.COM,
based on the following definitions:
Severity 1: total inability to use any material part of the BID.COM Technology,
the Canadian E-Commerce Service or the Canadian BID.COM Site,
resulting in a critical impact on user objectives.
Severity 2: ability to use the BID.COM Technology, the Canadian E-Commerce
Service or the Canadian BID.COM Site, but user operation is
severely restricted.
Severity 3: ability to use the BID.COM Technology, the Canadian E-Commerce
Service or the Canadian BID.COM Site; failures relate to functions
which are not critical to overall user operations.
Severity 4: failure has been bypassed or temporarily corrected and is not
affecting customer operations.
D.2 BID.COM shall correct failures of the BID.COM Technology, the Canadian E-
Commerce Service and the Canadian BID.COM Site in order to comply with Rogers's
Requirements within the following time frames:
Severity 1: within 12 hours of notification by Rogers.
Severity 2: within 48 hours of notification by Rogers.
Severity 3: within 15 days of notification by Rogers.
Severity 4: within 120 days of notification by Rogers.
<PAGE>
SCHEDULE "E"
Source Code Trust Agreement
MASTER PREFERRED ESCROW AGREEMENT
Master Number __________
This Agreement is effective February 12, 1997 among Data Securities
International, Inc.("DSV), Internet Liquidators International Inc.
("Depositor"), and any additional party signing the Acceptance Form attached to
this Agreement ("Preferred Beneficiary") who collectively may be referred to in
this Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement in the form attached to such Preferred Beneficiary's
Acceptance Form regarding certain proprietary technology of Depositor
(referred to in this Agreement as "the license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical to
Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under
certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI
to provide for the retention, administration and controlled access of
certain proprietary technology materials of Depositor.
ARTICLE 1 -DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, including the signing of the Acceptance Form, Depositor shall deliver
to DSI the proprietary information and other materials identified on an Exhibit
A. DSI shall have no obligation with respect to the preparation, signing or
delivery of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
--------------------------------
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed by
Depositor and delivered to DSI with the deposit materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in
the form provided by the Depositor and conduct a deposit inspection by visually
matching the labeling of the tangible media containing the deposit materials to
the item descriptions and quantity listed on the Exhibit B. In
<PAGE>
addition to the deposit inspection, Preferred Beneficiary may elect to cause a
verification of the deposit materials in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a
copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted, and (c) provide a copy of the Exhibit B
to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Beneficiary is Preferred Beneficiary's notice that the deposit
materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
(a) Depositor lawfully possesses all of the deposit materials deposited with
DSI;
(b) With respect to all of the deposit materials Depositor has the right and
authority to grant to DSI and Preferred Beneficiary the rights as provided
in this Agreement;
(c) The deposit materials are not subject to any lien or other encumbrance
other than encumbrances arising in the ordinary cause of Depositor's
business;
(d) The deposit materials consist of the proprietary information and other
materials identified in Exhibit A; and
(e) The deposit materials are readable and useable in their current form or, if
the deposit materials are encrypted, the decryption tools and decryption
keys have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense. to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness. sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release of a
new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the escrow account.
An independent record will be created which will document the activity for each
Exhibit B. The processing of all deposit updates shall be in accordance with
Sections 1.2 through 1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any updates.
<PAGE>
1.8 Removal of Deposit Materials. The deposit materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 --CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked facility in the greater Toronto area which is
accessible only to authorized representatives of DSI. DSI shall have the
obligation to reasonably protect the confidentiality of the deposit materials.
Except as provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the deposit materials. DSI shall not disclose the content of
this Agreement to any third party. If DSI receives a subpoena or other order of
a court or other judicial tribunal pertaining to the disclosure or release of
the deposit materials, DSI will immediately notify the parties to this
Agreement. It shall be the responsibility of Depositor and/or Preferred
Beneficiary to challenge any such order; provided, however, that DSI does not
waive its rights to present its position with respect to any such order. DSI
will not be required to disobey any court or other judicial tribunal order. (See
Section 7.5 below for notices of requested orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 - GRANT OF RIGHTS TO DSI
3.1 Title to Physical Copies of Deposited Materials.
(a) Depositor transfers to DSI in trust all legal title in and to the physical
copies of the deposit materials provided to DSI from time to time in
accordance with the terms of this Agreement. It is acknowledged by the
parties hereto that such transfer by Depositor to DSI under this Section is
not intended to, nor does it, transfer any intellectual property or other
intangible rights in the deposit materials. DSI agrees to hold the deposit
materials in trust for Depositor and Preferred Beneficiary as provided in
this Agreement.
(b) The expression "in trust" is intended to refer strictly to the issue of
ownership of the deposit materials and not to the level of care which must
be taken by DSI in performing its duties under this Agreement. The duties
of DSI are strictly contractual in nature and are as set out in this
Agreement. It is not intended that DSI is to have the fiduciary duty of a
trustee.
<PAGE>
3.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure. and other proprietary notices and titles
contained on the deposit materials onto any copies made by DSI. With all deposit
materials submitted to DSI, Depositor shall provide any and all instructions as
may be necessary to duplicate the deposit materials including but not limited to
the hardware and/or software needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right
to transfer deposit materials to Preferred Beneficiary upon any release of the
deposit materials for use by Preferred Beneficiary in accordance with Section
4.5. Except upon such a release or as otherwise provided in this Agreement, DSI
shall not transfer the deposit materials.
ARTICLE 4 - RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the following:
(a) voluntary bankruptcy of Depositor;
(b) involuntary bankruptcy provided that the Depositor is not in good faith
diligently taking steps to contest or set aside such process,
(c) if Depositor becomes insolvent and ceases to continue to carry on its
business;
(d) if Depositor ceases the operation of its business and the business is not
continued by a successor acceptable to the Preferred Beneficiary, acting
reasonably; and
(e) any additional release conditions identified on the attached Acceptance
Form.
4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a
Release Condition has occurred, Preferred Beneficiary may provide to DSI written
notice of the occurrence of the Release Condition and a request for the release
of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy
of the notice to Depositor.
4.3 Contrary Instructions. From the date DSI delivers the notice requesting
release of the deposit materials, if the Release Condition is one defined in 4.
1 (b), 4. 1 (d) or 4. 1 (e) Depositor shall have ten business days to deliver to
DSI Contrary Instructions. If the Release Condition is one defined in 4. 1 (a)
or (c), DSI shall release the deposit materials pursuant to Section 4.4 within
48 hours of giving notice to the Depositor under Section 4.2. "Contrary
Instructions" shall mean the written representation by Depositor that a Release
Condition has not occurred or has been cured. Upon receipt of Contrary
Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally,
DSI shall notify both Depositor and Preferred Beneficiary that there is a
dispute to be resolved pursuant to the Dispute Resolution section of this
Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the
deposit materials without release
<PAGE>
pending (a) joint instructions from Depositor and Preferred Beneficiary, (b)
resolution pursuant to the Dispute Resolution provisions, or (c) order of a
court.
4.4 Release of Deposit. If DSI does not receive Contrary Instructions from the
Depositor, DSI is authorized to release the deposit materials to the Preferred
Beneficiary or, if more than one beneficiary is registered to the deposit
materials, to release a copy of the deposit materials to the Preferred
Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized
representative is entitled to receive any fees due DSI or DSI's authorized
representative before making the release. This Agreement will terminate with
respect to the Preferred Beneficiary giving notice under Section 4.2 upon the
release of the deposit materials held by DSI.
4.5 Right to Use Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Beneficiary shall have the right to use the deposit materials for
the sole purpose of continuing the benefits afforded to Preferred Beneficiary by
the license agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 5 - TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period of
one year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing
that the Agreement is terminated, or (b) the Agreement is terminated by DSI for
nonpayment in accordance with Section 5.2. If the Acceptance Form has been
signed at a date later than this Agreement, the initial term of the Acceptance
Form will be for one year with subsequent terms to be adjusted to match the
anniversary date of this Agreement. If the deposit materials are subject to
another escrow agreement with DSI, DSI reserves the right, after the initial one
year term, to adjust the anniversary date of this Agreement to match the then
prevailing anniversary date of such other escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI or DSI's authorized representative, DSI shall provide written notice of
delinquency to the parties to this Agreement affected by such delinquency. Any
such party shall have the right to make the payment to DSI or DSI's authorized
representative to cure the default. If the past due payment is not received in
full by DSI or DSI's authorized representative within one month of the date of
such notice, then at anytime thereafter DSI shall have the right to terminate
this Agreement to the extent it relates to the delinquent party by sending
written notice of termination to such affected parties. DSI shall have no
obligation to take any action under this Agreement so long as any payment due to
DSI or DSI's authorized representative remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement by joint instruction of Depositor and each Preferred Beneficiary,
DSI shall return the deposit materials to the Depositor. Upon termination for
nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall
have no obligation to return or destroy the deposit materials if the deposit
materials are subject to another escrow agreement with DSI.
<PAGE>
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
(a) Depositor's Representations (Section 1.5);
(b) The obligations of confidentiality with respect to the deposit materials;
(c) The rights granted in the sections entitled Right to Transfer Upon Release
(Section 3.3) and Right to Use Following Release (Section 4.5), if a
release of the deposit materials has occurred prior to termination;
(d) The obligation to pay DSI or DSI's authorized representative any fees and
expenses due;
(e) The provisions of Article 7; and
(f) Any provisions in this Agreement which specifically state they survive the
termination or expiration of this Agreement.
5.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred
Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by
mutual agreement. If Depositor and Preferred Beneficiary cannot agree, Preferred
Beneficiary shall appoint a trust company or other company specializing in the
escrow business as the agent provided that such company has appropriate storage
facilities located in or around Toronto and agrees to store the deposited
materials there in accordance with the terms of this Agreement. The new agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named hereunder, without any further assurance,
conveyance, act or deed.
ARTICLE 6 - DSI'S FEES
6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be
paid its standard fees and expenses applicable to the services provided. DSI or
DSI's authorized representative shall notify the party responsible for payment
of DSI's fees at least 90 days prior to any increase in fees. For any service
not listed on DSI's standard fee schedule, DSI or DSI's authorized
representative will provide a quote prior to rendering the service.
6.2 Payment Terms. DSI shall not be required to perform any service unless the
payment for such service and any outstanding balances owed to DSI or DSI's
authorized representative are paid in full. All other fees are due upon receipt
of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in
accordance with Section 5.2. Late fees on past due amounts shall accrue at the
rate of one and one-half percent per month (18% per annum) from the date of the
invoice.
<PAGE>
ARTICLE 7 - LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice. request, or instruction has the authority to do so. DSI shall
not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI, subject to Section 2. 1.
7.2 Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend
and hold harmless DSI from any and all claims, actions, damages, arbitration
fees and expenses, costs, attorney's fees and other liabilities incurred by DSI
relating in any way to this escrow arrangement.
7.3 Dispute Resolution. Any dispute, difference or question arising among any
of the parties concerning the construction, meaning, effect or implementation of
this Agreement or any part hereof will be settled by a single arbitrator
mutually agreed upon by the parties, or failing agreement, an arbitrator
appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The
decision of such arbitrator appointed pursuant to this Agreement or such Act
will be final and binding on the parties and no appeal will lie therefrom.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the Province of Ontario except any laws which would
refer any matter to the laws of another jurisdiction. All parties irrevocably
attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the
subject matter hereof.
7.5 Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or refrain from taking any action, that party shall:
(a) Give DSI at least two business days' prior notice of the hearing;
(b) Include in any such order that, as a precondition to DSI's obligation, DSI
or DSI's authorized representative be paid in full for any past due fees
and be paid for the reasonable value of the services to be rendered
pursuant to such order: and
(c) Ensure that DSI not be required to deliver the original (as opposed to a
copy) of the deposit materials if DSI may need to retain the original in
its possession to fulfill any of its other escrow duties.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Acceptance Form and
the Exhibits described herein, embodies the entire understanding between all of
the parties with respect to its
<PAGE>
subject matter and supersedes all previous communications. representations or
understandings, either oral or written. No amendment or modification of this
Agreement shall be valid or binding unless signed by all the parties hereto,
except that Exhibit A need not be signed by DSI, Exhibit B need not be signed by
Preferred Beneficiary and the Acceptance Form need only be signed by the parties
identified therein.
8.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C and Acceptance Form. It shall be the responsibility of the
parties to notify each other as provided in this Section in the event of a
change of address. The parties shall have the right to rely on the last known
address of the other parties. Unless otherwise provided in this Agreement, all
documents and communications may be delivered by First Class mail.
8.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have no
obligation in performing this Agreement to recognize any successor or assign of
Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
Data Securities International, Inc. Internet Liquidators International Inc.
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title______________________________
Date:________________________________ Date:______________________________
By:__________________________________ By:________________________________
Name:________________________________ Name:______________________________
Title:_______________________________ Title______________________________
Date:________________________________ Date:______________________________
<PAGE>
ACCEPTANCE FORM
Account Number _____________________
Rogers Media Inc., hereby (i) acknowledges that it is a Preferred Beneficiary
referred to in the Master Preferred Escrow Agreement effective February 12, 1997
with Data Securities International, Inc. as the escrow agent and Bid.Com
International Inc. (formerly Internet Liquidators International, Inc.) as the
Depositor, (ii) agrees to be bound by all provisions of such Agreement, and
(iii) agrees that in addition to the Release Conditions set forth in section 4.1
of this Agreement, a further Release Condition shall exist if the Depositor is
in continuing material breach of the E-Commerce and Promotion Services Agreement
attached hereto as Schedule "A".
Rogers Media Inc.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
Notices and communications should Invoices should be addressed to:
be addressed to:
Company Name: Rogers Media Inc. Rogers Media Inc.
Address: 156 Front Street West 156 Front Street West
Suite 400 Suite 400
Toronto, Ontario Toronto, Ontario
M5J2L6 M5J2L6
Designated
Contact: Mike Abramsky Mike Abramsky
Telephone: (416) 340-0264 (416) 340-0264
Facsimile: (416) 340-6541 (416) 340-6541
<PAGE>
SCHEDULE "A"
LICENSE AGREEMENT
<PAGE>
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number __________________
Deposit represents to Preferred Beneficiary that deposit materials delivered to
DSI shall consist of the following:
[Confidential Information filed separately with the SEC]
<TABLE>
<CAPTION>
BID.COM International Inc. Rogers Media Inc.
- ---------------------------------------------- -------------------------------------------------
<S> <C> <C>
Depositor Preferred Beneficiary
By: Chris Bulger
-------------------------------------- --------------------------------------------------
Name:
-------------------------------------- -------------------------------------------------
Title: Chief Financial Officer Vice President Finance, CEO
-------------------------------------- -------------------------------------------------
Date: July , 1998 July 29, 1998
I certify for Depositor that the above DSI has inspected and accepted the above
desceribed deposit materials have been materials (any exceptions are noted above):
transmitted to DSI:
Signature: Signature:
--------------------------------------
Print Name: Print Name:
-------------------------------------- --------------------------------------
</TABLE>
Date: Date:
Exhibit B#
Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123
<PAGE>
EXHIBIT "B"
DESCRIPTION OF DEPOSIT MATERIALS
<TABLE>
<CAPTION>
Depositor Company Name: Bid.com International Inc.
-------------------------------------------------------
<S> <C> <C>
Account Number:
PRODUCT DESCRIPTION:
[Confidential Information
Product Name: filed separately with the Version: [Confidenti
SEC] al Information
filed
separately
with the
SEC]
[Confidential Information filed separately with the
Operating System: SEC]
-------------------------------------------------------
[Confidential Information filed separately with the
Hardware Platform: SEC]
-------------------------------------------------------
DEPOSIT COPYING INFORMATION:
[Confidential Information filed separately with the
Hardware required: SEC]
[Confidential Information filed separately with the
Software required: SEC]
</TABLE>
<TABLE>
<CAPTION>
DEPOSIT MATERIAL DESCRIPTION:
<S> <C> <C>
Qty Media Type & Size Label Description of Each Separate Item
- ---------------------------------------------------------------------------------------------------
(Excluding documentation
1X Disk 3.5" or ________ No Documentation
DAT tape 4mm
CD-ROM
Data Cartridge Tape DAT 24I
TK 70 or _______ tape
Magnetic tape _______
Documentation
Other: ____________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Listing of Bid.Com Source Components
ILI Bid.com Modules
- ------------------------------------------------
Database: [Confidential Information filed
separately with the SEC]
Business Services: [Confidential Information filed
separately with the SEC]
Data Service: [Confidential Information filed
separately with the SEC]
Dynmic Export: [Confidential Information filed
separately with the SEC]
Order Processing [Confidential Information filed
Administrator:
Credit Card: separately with the SEC]
Order Business Services:
Utilities [Confidential Information filed
Category Builder: separately with the SEC]
AdRotatorGenerator:
AssetMgmt
DB Services:
Notification:
Supporting S/W: [Confidential Information filed
separately with the SEC]
Web: [Confidential Information filed separately
with the SEC]
</TABLE>
<TABLE>
<CAPTION>
ILIBid.com Modules (Dutch)
- ---------------------------
<S> <C>
Business Services: [Confidential Information filed separately
with the SEC]
Data Services: [Confidential Information filed separately
with the SEC]
Dutch Server: [Confidential Information filed separately
with the SEC]
Dutch Client: [Confidential Information filed separately
with the SEC]
Internet Web: [Confidential Information filed separately
with the SEC]
Admin Web: [Confidential Information filed separately
with the SEC]
</TABLE>
<PAGE>
SCHEDULE "F"
Site Activity Reporting Requirements
Pursuant to subsection 2.1(viii) of this Agreement, BID.COM shall deliver the
following site activity information to Rogers with the frequency indicated
below:
F.1 Daily Reports
1. number of page views.
F.2 Monthly Reports
1. number of unique visitors;
2. top 15 domain names from which traffic to the Canadian BID.COM Site
originated;
3. number of unique visits by province;
4. number of unique visits by product category offered;
5. average visit duration;
6. number of transactions;
7. average transaction value;
8. number of transactions by category;
9. number of transactions by product; and
10. percentage of server uptime/availability.
F.3 Additional Reports
In addition, BID.COM shall deliver the following site activity information as
indicated below:
1. purchase history of repeat visitors on a semi annual basis;
2. advertising statistical reports at the request of Rogers; and
3. other statistics as mutually agreed by the parties.
-2-
<PAGE>
SCHEDULE "G"
Prohibited Products and Services
Pursuant to subsection 2.1(i) of this Agreement, BID.COM shall not offer any of
the categories of products or services set out below without the prior written
consent of Rogers:
1. cellular, paging or PCS hardware, services or packages;
2. cable hardware, services or packages;
3. broadband hardware, services or packages;
4. set-top box, WebTV and wireless cable hardware, services or packages;
5. satellite hardware, services or packages;
6. pornographic or obscene materials or services; and
7. firearms.
-3-
<PAGE>
SCHEDULE "H"
Prohibited Rogers Assignees
Pursuant to subsection 11.2(ii) of this Agreement, Rogers may not, without the
prior written consent of BID.COM, assign its rights and obligations under this
Agreement, in whole or in part, to a joint venture in which Rogers has an
interest with a party which operates an on-line auction site which is
competitive to BID.COM, including the on-line auction sites currently operating
at the following URLs:
[Confidential Information filed separately with the SEC]
-4-
<PAGE>
SCHEDULE "I"
Net E-Commerce Revenue Reports
<TABLE>
<CAPTION>
SUMMARY Month 1 Month 2 Month 3 Quarter
Total
-------------------------------------------
<S> <C> <C> <C> <C>
(a) Sales Revenues XXX XXX XXX XXX
(b) Sales Returns and Allowances (XXX) (XXX) (XXX) (XXX)
(c) Cost of Goods Sold (XXX) (XXX) (XXX) (XXX)
Shipping and Handling Costs (XXX) (XXX) (XXX) (XXX)
Credit Card Fees (XXX) (XXX) (XXX) (XXX)
-------------------------------------------
Gross Margin XXX XXX XXX XXX
Less Revenue Share (XXX) (XXX) (XXX) (XXX)
-------------------------------------------
Net Margin XXX XXX XXX XXX
-------------------------------------------
TOP BID AUCTION DETAIL
Product Sales Top Bid Auction XXX XXX XXX XXX (a)
Shipping & Handling Sales Top Bid Auction XXX XXX XXX XXX (a)
Sales Return & Allowances Top Bid Auction (XXX) (XXX) (XXX) (XXX) (b)
Cost of Goods Sold Top Bid Auction (XXX) (XXX) (XXX) (XXX) (c)
-------------------------------------------
Gross Margin XXX XXX XXX XXX
-------------------------------------------
DUTCH AUCTION DETAIL
Product Sales Dutch Auction XXX XXX XXX XXX (a)
Shipping & Handling Sales Dutch Auction XXX XXX XXX XXX (a)
Sales Returns & Allowances Dutch Auction (XXX) (XXX) (XXX) (XXX) (b)
-------------------------------------------
Cost of Goods Sold Dutch Auction (XXX) (XXX) (XXX) (XXX) (c)
-------------------------------------------
DIRECT SALES DETAIL
Product Sales Direct XXX XXX XXX XXX (a)
Shipping & Handling Sales Direct XXX XXX XXX XXX (a)
Sales Returns & Allowances Direct (XXX) (XXX) (XXX) (XXX) (b)
Cost of Goods Sold Direct (XXX) (XXX) (XXX) (XXX) (c)
-------------------------------------------
Gross Margin XXX XXX XXX XXX
</TABLE>
-5-
<PAGE>
SCHEDULE "J"
Net Promotional Revenue Reports
Pursuant to subsection 5.1(ii) of this Agreement, Rogers shall provide a report
of Net Promotional Revenue to BID.COM in a format similar to the following:
For the calendar quarter beginning ____________, 19___ and ending ____________,
19___.
Advertiser Status Amount Paid
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Advertising
Revenue $xx,xxx.xx
$ xxx.xx
- --------------------------------------------------------------------------------
Total Net Promotional Revenue earned by Rogers $xx,xxx.xx
Share of Net Promotional Revenue due to BID.COM $ xxxx.xx
-6-
<PAGE>
SCHEDULE "K"
Rogers Performance Metrics
K.1 Performance Metrics. Rogers shall achieve three of the following metrics:
1. during the last [Confidential Information filed separately with the SEC] of
the Evaluation Period, the aggregate site traffic on the Canadian BID.COM
Site shall be at least [Confidential Information filed separately with the
SEC] of the aggregate site traffic on the U.S. E-Commerce Service site
during such three (3) month period.
2. Aggregate Net Promotional Revenue during the Evaluation Period shall be
greater than or equal to [Confidential Information filed separately with the
SEC]. If the aggregate Net Promotional Revenue during the Evaluation Period
is less than [Confidential Information filed separately with the SEC],
Rogers may, at its sole option, fulfill this metric by paying to BID.COM
[Confidential Information filed separately with the SEC] of the difference
between the [Confidential Information filed separately with the SEC] metric
and the actual aggregate Net Promotional Revenue earned by Rogers during
such Evaluation Period.
3. Rogers shall spend a minimum of [Confidential Information filed separately
with the SEC] annually during the Evaluation Period in respect of
advertising, and promotion of the Canadian E-Commerce Service, allocated as
follows:
(i) the equivalent rate card value of [Confidential Information filed
separately with the SEC]in media properties operated by Rogers and its
Affiliates; and
(ii) [Confidential Information filed separately with the SEC] in non-Rogers
media properties. This amount shall include, without limitation: (a)
amounts paid by Rogers to advertising agencies; (b) amounts paid by Rogers
to employees and consultants who provide services relating, to the
advertising and promotion of the Canadian E-Commerce Service in non-Rogers
media properties; and (c) [Confidential Information filed separately with
the SEC] of the value of Contra transactions involving any non-Rogers media
property, as such value is attributed to such Contra transactions by mutual
agreement of the parties
4. Rogers shall retain, at a minimum, the equivalent of [Confidential
Information filed separately with the SEC] full-time staff to provide
services related to the Canadian E-Commerce Service.
K.2 Amendments to Performance Metrics. At either party's request, the parties
will negotiate reasonable amendments to the performance metrics set out above
for a subsequent Evaluation Period. If the parties are unable to reach such an
agreement on such amended performance metrics, the parties agree that they will
submit
-7-
<PAGE>
the determination of such amended performance metrics to dispute
resolution in accordance with Section 10.5 of this Agreement. In choosing new
performance metrics, the arbitrator shall take into account the following:
(a) the arbitrator may choose new numbers for the categories of
metrics set out in Section K. I above, but the arbitrator may not establish
new categories of performance metrics;
(b) actual performance in each of the above categories for the U.S.
E-Commerce Service;
(c) computer penetration in Canada compared to computer penetration
in the United States;
(d) Internet use in Canada compared to Internet use in the United
States;
(e) use of the Internet to purchase products and services in Canada
compared to such use in the United States, measured both by number of
transactions and dollar value;
(f) performance of the Canadian E-Commerce Service during the
previous Evaluation Period; and
(g) the existence of BID.COM Competitors in Canada.
K.3 Default Metrics. If the parties are unable to agree upon new performance
metrics, and if an arbitrator falls to render a decision pursuant to Section K.2
hereof which is mutually acceptable to the parties, the performance metrics
applicable for each year during the following Evaluation Period shall be equal
to the actual performance achieved by Rogers in the immediately preceding year
in each of the categories set out in Section K. I above.
-8-
<PAGE>
SCHEDULE "L"
Transition Plan
Pursuant to Section 7.5 of this Agreement, the parties agree that upon
termination of this Agreement, there will be a transition period of such
duration as will be mutually agreed upon, during which the parties will co-
operate and work together in good faith to effect a smooth and orderly
transition from the facilities, networks, technology, Web sites and services
provided by each of the parties hereunder to the separate facilities, networks,
technology, Web sites and services required by each of the parties after the end
of the transition period. Without limiting the generality of the foregoing, the
parties agree to co-operate and work together in good faith to address
transition issues relating to the following:
1. linking of the Canadian BID.COM Site and the Rogers E-Commerce Portal;
2. delivery up of a complete, updated list of Customer Profiles to Rogers;
3. continued service to and support of customers of the Canadian E-Commerce
Service;
4. continued fulfillment of all obligations to advertisers on the Canadian
BID.COM Site;
5. branding strategy; and
6. any technical or operational requirements.
-9-
<PAGE>
SCHEDULE "M"
BID.COM Marks
The BID.COM Marks licensed to Rogers pursuant to Section 3.4 of this Agreement
include:
1. BID.COM;
2. BID.COM + Design;
3. any derivations or modified versions incorporating the word BID.COM; and
4. any other marks mutually agreed between the parties.
-10-
<PAGE>
SCHEDULE "N"
Torstar Amending Letter
VIA FACSIMILE
July 22, 1998
Mr. Rocco Rossi
Vice President Strategic Planning and New Media
Toronto Star Newspapers Limited
One Yonge Street, 9th Floor
Toronto, Ontario
M5E 1E6
Dear Rocco;
Re: E-Commerce Services Agreement between Internet Liquidators Internatiors4
Inc. ("IL") and Toronto Star Newspapers Limited ("Torstar") dated February
12, 1997 (the "Torstar Agreement")
-------------------------
Following the introduction of Rogers Media Inc. ("Rogers") to IL for the
purpose of creating a Canadian national partnership for e-commerce, the
following areas require clearer definition so that the rights granted to Torstar
under the Torstar Agreement do not conflict with the rights to be granted to
Rogers in an agreement to form a national partnership with IL (the "Rogers
Agreement"). Unless otherwise defined in this letter, capitalize terms will have
the meaning set out in the Torstar Agreement, as clarified and amended by this
letter.
1. The Torstar Agreement grants to Torstar the exclusive right to use the
E-Commerce Service "in a Local Auction and Mall format to sell products from
charitable and community organizations and local retailers to purchasers in
the Territory", Torstar agrees that the exclusive rights granted in the
Torstar Agreement are to use the IL Technology (not the E-Commerce Service)
in a Local Auction and Mall format. In addition, Torstar agrees that the
charitable and community organizations and local retailers; from whom Torstar
has the right to sell products in a Local Auction and Mall format are
restricted to charitable organization, community organizations and local
retailers located in Ontario.
The Torstar Agreement also extends rights to sell products from Ontario based
retailers to purchasers Outside of the Territory only until such time as IL
-------
may grant exclusive rights for such non-Ontario territory to another party.
Torstar acknowledges that following the execution of the Rogers Agreement,
Torstar will have no further right to sell products to purchaser located
outside of Ontario, provided that Torstar may accept sales from purchasers
located outside of Ontario, which are incidental to the Ontario focus of its
event (i.e. representing less than five percent of the total Net Revenue
received by Torstar from the Torstar Online Auction in any calendar quarter).
2. Torstar agrees that the Torstar Agreement grants the right to Torstar to use
the IL Technology to sell products in a Local Auction and Mall format only at
a new URL chosen by Torstar, and that this does not extend to any other URL
owned or used by IL now or in the future including, for greater certainty,
the URL www.bid.com.
3. The branding of such an auction is at Torstar's discretion, with IL granting
the use of its "Online Auction" trademark to facilitate a "Torstar Online
Auction" branding if so desired by Torstar. Torstar may, in its discretion,
use the IL trademark "Online Auction" as a sub-brand. Torstar agrees that it
does not have any right to any IL trademark other than the trademark "Online
Auction". For greater certainty, Torstar agrees that it does not have the
right to use the trademark BID.COM or any trademark related to the trademark
BID.COM.
4. Torstar agrees that Torstar's rights to require BID.COM to make functionality
and customization changes to the IL Technology or the E-Commerce Service to
implement a "Torstar look" is restricted to the right to require charges to
the look and feel of the Torstar Online Auction operating at the URL chosen
by Torstar and to the branding of the user interface on the Torstar Online
Auction, and not to changes to the IL Technology or the E-Commerce Service.
5. The Torstar Agreement granted to Torstar the right to participate in a co-
branded Torstar Sponsored Auction on IL's "Canadian national auction" for a
minimum of one hour per day. In addition, The Torstar Agreement provided that
while each Torstar Sponsored Auctions are operating, IL may not conduct or
allow any third party to conduct other online auctions through the E-Commerce
Service. Torstar and IL contemplated that the Canadian national auction and
any Torstar Sponsored Auctions would be operated at the URL
www.internetliquidators.com.
---------------------------
The URL www.internetliquidators.com no longer has any consumer based
---------------------------
traffic and IL will no longer have an "IL Canadian national auction"
through which Torstar would operate Torstar Sponsored Acutions within the
meaning of the Torstar Agreement. As such, Torstar agrees that it no longer
has any right to participate in a Torstar Sponsored Auction on any IL
Canadian national auction, including, for greater certainty, the Canadian
national auction on the URL www.bid.com without the prior written consent
-----------
of Rogers. If Rogers, in its sole discretion consents to such daily one
hour Torstar Sponsored Auction, the daily one hour Torstar Sponsored
Auction need not be the only auction operated at such time, but shall have
at least equal prominence with any other auction functioning at that time.
Should Rogers refuse to grant such consent, Torstar shall be at liberty to
operate another Torstar Sponsored Auction on a competing auction platform.
6. The Torstar Agreement granted to Torstar the right to call up to
[Confidential Material filed separately with the SEC] of the advertising on
IL's "Canadian national auction". Torstar agrees that since IL will no
longer have a "Canadian national auction" at the URL
www.internetliquidators.com within the meaning of the Torstar Agreement,
Torstar will have no right to sell any advertisments for any Web site owned
or operated by IL or its affiliates, including any linked pages and
including for greater certainty the URL www.bid.com, IL will pay Torstar
[Confidential Material filed separately with the SEC] of the revenue
received by IL form the sale of banner advertisement on its Canadian
business to consumer on-line auction in accordance with the terms of the
Rogers Agreement.
7. IL will pay a Net Revenue split to Torstar of [Confidential Material filed
separately with the SEC] (which equates to [Confidential Material filed
separately with the SEC] of the total) of the Net Revenue received by IL
from sales to consumers who provide a billing address in Ontario through
the URL www.bid.com as this component of the Torstar Agreement had the
intent of comprising Torstar for assistance in building a national presence
for IL.
8. Torstar agrees that IL and Rogers are not restricted from sourcing goods
and services from retailers who have a presence which is not restricted to
Ontario, as long as such products and services are offered on a national
presence for IL.
9. It is understood that nothing in the Rogers Agreement will prevent Torstar
from operating the Torstar Online Auction in the territory or prevent
Torstar from selling advertising on the Torstar Online Auction in the
Territory. The mutually agreed terms required for any rights by Torstar to
a non-exclusive license of the IL Technology for non-auction related uses
such as the operation of games and contests will require the additional
prior written agreement of Rogers.
Kindly acknowledge your agreement to the amendments to the Torstar Agreement
contained herein by signing a copy of this letter and returning it to the
undersigned to be used as a schedule in the Rogers Agreement. Please accept our
sincere gratitude for being a catalyst in forming our national partnership with
Rogers. We look forward to facilitating a successful launch of the Torstar
Online Auction whenever you deem the timing to be opportune.
Yours very truly,
BID-COM International Inc.
Per:
___________________________
Chris Bulger
Chief Financial Officer
Acknowledged and agreed to this ____ day of July, 1998.
TORONTO STAR NEWSPAPER LIMITED
By:_________________________________
Rocco Rossi
(duly authorized signatory)
-11-
<PAGE>
SCHEDULE "O"
AOL Amending Letter
VIA FACSIMILE
July 29, 1998
Mike McGowan
America Online, Inc
22000 AOL Way
Dulles, Virginia
20166-9323
Dear Mike:
Re: Interactive Marketing Agreement between America Online, Inc. ("AOL") and
Internet Liquidators International, Inc. ("IL") dated November 1, 1997 (the
"AOL Agreement")
The purpose of this letter is to confirm our understanding that:
1. the right of AOL provided in Section 2.13 of the AOL Agreement to "license
or sell promotions advertisements, links, promoters or similar services or
rights ("Advertisements") through the Affiliated IL Site" does not include
the right of AOL to Sell Advertisements, through those pages of the
Affiliated IL Site through which IL conducts on-line auctions for purchasers
with a billing address in Canada; and
2. the rights of AOL to establish, operate and maintain an auction service on
one or more AOL servers in accordance with Article Three of the agreement
between IL and AOL dated February 21, 1997, which is incorporated into the
ht AOL Agreement pursuant to Section 1.5 does not include any right to
establish, operate and maintain an on-line auction service using the IL
Technology for purchasers with a billing address Canada.
Kindly acknowledge your agreement to the above by signing a copy of this letter
and return it to the undersigned.
Yours very truly,
BID.COM International Inc.
Per:
________________________________
David Pamenter
Director and Assistant Secretary
Acknowledged and agreed to this 29th day of July, 1998
AMERICA ONLINE, INC.
By:_____________________________
(duly authorized signatory)
<PAGE>
Exhibit 3.21
AIM License Agreement
THIS AGREEMENT is made as of the 30th day of December, 1998 (the "Effective
Date") by and between BID.COM INTERNATIONAL INC., ("BID.COM"), a corporation
having a principal place of business at 6725 Airport Road, Suite 201,
Mississauga, Ontario, L4V 1V2 and AMERICAN INTERACTIVE MEDIA, INC. ("AIM"), a
corporation having a place of business at Suite 308, 611 Broadway, New York, NY,
10012.
BACKGROUND:
1. BID.COM has developed, and has all necessary rights in, certain electronic
auction software, technology and services (collectively, the "BID.COM
Technology" as that term is more fully described in Article I).
2. BID.COM uses a portion of the BID.COM Technology to operate an online
auction service over the Internet provided at BID.COM's website found at URL
"www.bid.com".
3. AIM wishes to acquire from BID.COM a non-exclusive license to use and
commercially exploit the BID.COM Technology to permit cable and broadcast
network television customers and certain affinity group members and in-house
networks produced and distributed by AIM in the United States and (subject to
the prior written consent of Rogers Media Inc.) in Canada to access a co-
branded online auction for retail consumers, as more specifically described
herein.
NOW THEREFORE in consideration of the premises, the mutual covenants contained
in this Agreement, and other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), the Parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 Definitions.
In this Agreement, unless the context otherwise requires, each capitalized term
shall have the meanings indicated below.
"Agreement" means this Licence and Services Agreement and all schedules annexed
to this Agreement as the same may be amended from time to time in accordance
with the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and
similar expressions mean and refer to this Agreement and not to any particular
article or section; except where the context specifically requires, "Article" or
"Section" means and refers to the specified article or section of this
Agreement;
<PAGE>
"AIM E-Commerce Service" means the service to be operated pursuant to this
Agreement which will permit retail consumers in the Territory including, without
limitation, "small office home office" customers ("SOHO") to access an online
auction as currently operated by BID.COM or its subsidiaries at the BID.COM site
by using their cable modems or other television based on line enabling devices
(or by way of any method of internet access in the case of members of certain
affinity groups and in house networks produced and distributed by AIM) to
participate in on-line auctions of consumer goods and services, but excluding
business to business and liquidation applications;
"BID.COM Site" means the Web site at which BID.COM will operate its online
auction service provided for the AIM E-Commerce Service as currently found at
the URL "www.bid.com";
"BID.COM Technology" means the technology (including cybermall software) and
know-how owned by BID.COM in respect of the provision of on-line auction
services generally (and including all Intellectual Property Rights therein), as
more particularly described in Schedules "A"and "I";
"Business Day" means any day from Monday to Friday inclusive, except statutory
or civic holidays observed in Toronto, Ontario;
"Confidential Information" means all information relating to either Party or to
such Party's business, products, sales, customers, trade secrets, technology or
financial position to which access is obtained or granted hereunder, which is
treated by the disclosing Party as being confidential provided, however, that
Confidential Information of the disclosing Party shall not include any data or
information which the receiving Party can demonstrate:
(1) is or becomes publicly available through no fault of the receiving Party;
(2) is already in the rightful possession of the receiving Party prior to its
receipt from the other Party;
(3) is independently developed by the receiving Party;
(4) is rightfully obtained by the receiving Party from a third party not
subject to an obligation of confidentiality;
(5) is disclosed with the written consent of the disclosing Party whose
information it is; or
<PAGE>
-3-
(6) is disclosed pursuant to court order or other legal compulsion, provided
the receiving Party gives the disclosing Party prompt notice of any such
requirement to afford the disclosing Party an opportunity to obtain a
protective order;
"Customer Profile"means all information and data relating to a customer of the
AIM E-Commerce Service, including, without limitation: (i) name, address, e-mail
address, telephone number, and any other personal or demographic information
relating to such customer; (ii) all information and data relating to the
purchase of goods and services by such customer; and (iii) any other information
relating to such customer's behavior collected while such customer accesses the
AIM E-Commerce Service;
"Data" has the meaning attributed to such term in Section 5.5;
"Deliverables" means the whole of the activities, services, materials, software,
matters and things required to be done, delivered or performed by BID.COM in
accordance with the terms of this Agreement, including the Software,
Documentation and Services and including all other rights and things, tangible
or intangible, including Intellectual Property Rights to be provided hereunder
including, without limitation, any of the foregoing as described in Schedule
"A";
"Effective Date" has the meaning attributed thereto on the face page of this
Agreement;
"Intellectual Property Rights" means (A) any and all proprietary rights provided
under (i) patent law, (ii) copyright law, (iii) trademark law, (iv) design
patent or industrial design law, (v) semi- conductor chip or mask work law, or
(vi) any other statutory provision or common law principle applicable to this
Agreement or the BID.COM Technology including trade secret law, which may
provide a right in either (a) ideas, formulae, algorithms, concepts, inventions
or know-how generally, or (b) the expression or use of such ideas, formulae,
algorithms, concepts, inventions or know-how; and (B) any and all applications,
registrations, licenses, sub-licenses, franchises, agreements or any other
evidence of a right in any of the foregoing;
"Joint Venture" means the Delaware company to be established and owned by AIM to
provide the AIM E-Commerce Service to third parties on the terms provided in
this Agreement;
"Net Revenue" means the sum of:
(i) aggregate revenue earned by the Parties and the Joint Venture in
connection with the operation of the AIM E- Commerce Service
(including all shipping and handling costs paid by retail customers),
net of sales, use, goods and services, and other similar taxes imposed
by any federal, provincial, municipal or other governmental authority;
and
(ii) aggregate revenue earned by the Parties and the Joint Venture in
connection with the sale of products and services by them to customers
of the AIM E-Commerce
<PAGE>
-4-
Service as part of its database marketing operations, and not through
the AIM E-Commerce Service (including all shipping costs paid by
retail customers), net of sales, use, goods and services, and other
similar taxes imposed by any federal, state, provincial, municipal or
other governmental authority,
less cost of goods or services sold (as invoiced by the supplier of such
products or services, but net of all taxes invoiced by such supplier), ISP
carrier costs, credit card transaction fees paid to or deducted by third
parties, duties, the cost of shipping and handling, and credits for returned
goods, services or bad debts (including shipping and restocking costs, if
applicable). Net Revenue shall be calculated in accordance with generally
accepted accounting principles applied in Canada on a consistent basis;
"Net Promotional Revenue" means aggregate revenue and benefits earned by the
Parties and the Joint Venture from sales of advertising or sponsorship,
licensing fees, use of Data or from any other source whatsoever, directly or
indirectly related to the AIM E-Commerce Service, net of all sales, use, goods
and services and other similar taxes imposed by any federal, state, provincial,
municipal or other governmental authority, agency commissions and bad debts. Net
Promotional Revenue shall be calculated in accordance with generally accepted
accounting principles applied in Canada on a consistent basis;
"Parties" means BID.COM and AIM collectively and "Party" means either of them;
"Person" includes an individual, company, corporation, partnership, government
or government agency, authority or entity howsoever designated or constituted;
"Reasonable Best Efforts" means that a party shall comply with the obligation to
which the covenant to use Reasonable Best Efforts applies in all cases where
such party has the ultimate discretion, control and ability to do so, and that
such party shall use commercially reasonable efforts to comply with such
obligation in cases where such party does not have such ultimate discretion,
control and ability;
"Software" means that computer software being provided to AIM by BID.COM
hereunder to meet AIM's Requirements, including any modifications or
improvements to the Software (whether developed by BID.COM, AIM, the Joint
Venture or otherwise);
"Source Code Materials" means:
(1) a complete copy of the source code version of all software required to
allow AIM to independently operate, maintain and support the AIM E-Commerce
Service including the Software, appropriately labeled to denote the version
or release thereof, and the currency date thereof, in each of:
<PAGE>
-5-
(1) machine-readable form on machine-readable storage medium suitable for long
term storage and compatible with the Software as then being used by AIM and
which, when compiled, will produce the object code version of the Software;
and
(2) human-readable form with annotations in English on bond paper suitable for
long term archival storage; and
(2) a complete copy, in English, on bond paper, suitable for long term archival
storage, and appropriately labeled to describe the contents thereof, of all
applicable Documentation and other explanatory materials including
programmer's notes, technical or otherwise, for the Software as may be
required by AIM, using a competent computer programmer possessing ordinary
skills and experience, to further develop, maintain and operate such
software without further recourse to BID.COM including, but not necessarily
limited to, general flow-charts, input and output layouts, field
descriptions, volumes and sort sequence, data dictionary, file layouts,
processing requirements and calculation formula and the details of all
algorithms;
"Term", "Initial Term" and "Subsequent Term" have the meanings ascribed in
Section 6.1(a);
"Territory" means the United States of America as presently constituted.
2. Schedules.
The following are the schedules attached to and forming part of this Agreement:
Schedule "A" - BID.COM Technology (including Third Party Technology)
Schedule "B" - AIM's Requirements
Schedule "C" - Customer Service Standards
Schedule "D" - Response Times
Schedule "E" - Source Code Trust Agreement
Schedule "F" - Site Activity Reporting Requirements
Schedule "G" - Net Revenue Reports
Schedule "H" - Net Promotional Revenue Reports
Schedule "I" - BID.COM Marks
3. Headings.
The use of headings in this Agreement is for convenience of reference only and
shall not affect its interpretation.
4. Extended Meanings.
<PAGE>
-6-
Words expressed in the singular include the plural and vice-versa and words in
one gender include all genders.
5. Entire Agreement.
This Agreement, and any agreements and other documents to be delivered pursuant
to it constitutes the entire agreement between the Parties pertaining to the
subject matter hereof and supersedes all prior agreements, understandings,
negotiations and discussions, oral or written between the Parties. The
execution of this Agreement has not been induced by, nor do either of the
Parties rely upon or regard as material, any representations, warranties,
conditions, other agreements or acknowledgments not expressly made in this
Agreement or in the agreements and other documents to be delivered pursuant
hereto.
6. Currency.
Unless otherwise indicated, all dollar amounts referred to in this Agreement are
in Canadian funds.
7. Invalidity.
If in any jurisdiction a provision contained in this Agreement is found by a
court of competent jurisdiction to be invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions
contained herein, or of such provision in any other jurisdiction affected or
impaired thereby.
8. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein and shall be
treated, in all respects, as an Ontario contract. The Parties hereby
irrevocably submit to the exclusive jurisdiction of the courts of Ontario in
respect of the subject matter hereof.
9. Provision of Services.
For the purposes of this Agreement, references to the sale of products through
the AIM E-Commerce Service shall be deemed to include the provision of services
as well.
10. Consent
Wherever any Party is required to obtain consent from another Party, such
consent shall not be unreasonably withheld or delayed.
ARTICLE II.
<PAGE>
-7-
USE OF AIM E-COMMERCE SERVICE
11. AIM E-Commerce Service
Subject to the terms of this Agreement, BID.COM hereby grants to AIM the non-
exclusive right to use and commercially exploit the BID.COM Technology to
operate the AIM E-Commerce Service through the Joint Venture for customers of
cable and television broadcast networks, for subscribers to its own cable and
television broadcast networks, for customized auctions exclusive to affinity
groups, and for the same applications, to launch a video streaming version
thereof. BID.COM may in its discretion, on request and subject to such further
or other terms as may be appropriate in the view of BID.COM, permit AIM to offer
all or any of such services to retail cable and television broadcast network
users in Canada. AIM and BID.COM acknowledge that the prior written consent of
Rogers Media Inc. may be required to operate any part of the AIM E-Commerce
Service or to use some or all of the BID.COM Technology (including the BID.COM
Marks) in Canada. AIM shall exercise the rights granted hereunder solely through
the Joint Venture unless: (i) BID.COM breaches its obligations to operate the
AIM E-Commerce Service following the acquisition by AIM of the Joint Venture by
the exercise of its option to purchase the Joint Venture; or (ii) BID.COM
prevents the Joint Venture from exercising the rights granted hereunder on
behalf of AIM following the acquisition by AIM of the Joint Venture by the
excercise of its option to purchase the Joint Venture; or (iii) there is an
occurence of a Release Condition within the meaning given to that phrase in the
Source Code Trust Agreement.
12. BID.COM/AIM Auction Network
AIM through the Joint Venture, will create new BID.COM branded user interfaces
for the AIM E-Commerce Service. The interfaces shall feature a BID.COM
trademark or brand as BID.COM may elect which shall appear on all screen views
and promotional material as a sub-brand.
13. Operation of AIM E-Commerce Service.
BID.COM shall operate the AIM E-Commerce Service for the Joint Venture in
accordance with the provisions of this Agreement. Except for those obligations
which AIM shall perform set out in Article 3 hereof, BID.COM shall be
responsible for all aspects of operating the AIM E-Commerce Service. Without
limiting the generality of the foregoing, BID.COM shall, at its expense:
1. have sole responsibility for supplying the inventory of products and
services which will be offered as part of the AIM E-Commerce Service.
BID.COM acknowledges that affinity groups may wish to offer unique goods or
service. AIM acknowledges and agrees
<PAGE>
-8-
that BID.COM shall maintain ultimate discretion with respect to the choice
of products and services which will be included as part of the AIM E-
Commerce Service.
2. comply with AIM's Requirements attached as Schedule "B" hereto;
3. comply with the Customer Service Standards attached as Schedule "C" hereto;
4. provide tracking reports in accordance with Schedule "D" hereto;
5. be responsible for the fulfillment of all purchases of products and
services sold by it through the AIM E-Commerce Service;
6. be responsible for the processing of all credit card purchases of products
and services through the AIM E-Commerce Service; and
7. comply with the site activity reporting requirements set out in Schedule
"F" hereto.
14. Joint Venture
Forthwith after execution of this Agreement, AIM shall incorporate a Delaware
corporation as a wholly owned subsidiary which shall thereupon execute an
addendum to this Agreement in form and content satisfactory to BID.COM whereby
the Joint Venture and AIM shall agree to be jointly and severally responsible to
BID.COM for the performance of AIM's obligations and liabilities under the
Agreement.
15. Promotion of Auction E-Commerce Service
AIM shall operate the Joint Venture in accordance with the provisions of this
Agreement. AIM shall be responsible for content, creation, advertising,
promotional activity, distribution and sales of the AIM E-Commerce Service.
Without limiting the generality of the foregoing, AIM shall:
1. have sole responsibility for promoting the AIM E-Commerce and securing
cable and television broadcast network and affinity group customers;
2. support and finance the operations of the Joint Venture as required under
this Agreement;
3. sell up to 100% of the banner advertisements on the AIM E-Commerce Service;
<PAGE>
-9-
4. in co-ordination with BID.COM, integrate the BID.COM Technology into the
Joint Venture interfaces including developing all necessary links to the
BID.COM Site; and
5. be responsible for the ongoing creative and entertainment content of the
Joint Venture interfaces, on a cost pass through basis.
16. Management of Joint Venture
AIM shall ensure that the Joint Venture is managed in accordance with the
following:
1. the business of the Joint Venture shall be restricted to the functions
provided for in this Agreement;
2. no transfer, assignment, mortgage, charge or pledge shall be permitted or
any equity securities, warrants, options or other rights to acquire equity
or other voting rights in respect of the Joint Venture without the prior
written consent of BID.COM which may be withheld in its absolute
discretion, except for any of the foregoing which are necessary for AIM to
comply with its present agreements with Hollinger Digital Inc.;
3. BID.COM is (or in the event BID.COM exercises its option to purchase the
Joint Venture, BID.COM and AIM are) granted a security interest (second in
priority only to the existing security interest in favour of Hollinger
Digital Inc.) in form and content satisfactory to BID.COM in all assets of
the Joint Venture to secure the performance of the Joint Venture's
obligations hereunder;
4. each of BID.COM and AIM shall have equal representation on the board of
directors of the Joint Venture, which shall be chaired by an arm's length
person mutually satisfactory to AIM and BID.COM;
5. key financial and management decisions shall require the prior written
approval of both AIM and BID.COM including without limitation any issue or
transfer of stock or rights or options to acquire stock; all borrowing
whether secured or not; the implementation and any changes to an annual
business plan; the terms and conditions for acquiring goods or services
from persons not at arm's length to the parties; the terms and conditions
of retaining senior employees or consultants; the terms and conditions of
contracts with users of the AIM E-Commerce Service and any other
transaction which is or may be material to the operations of the Joint
Venture (BID.COM acknowledges that certain decisions may also require
approval of Hollinger Digital Inc or Pioneer Ventures Associates Limited
Partnership pursuant to existing agreements):
6. BID.COM shall fund the Joint Venture to the extent of [Confidential
Information filed separately with the SEC] in above the line costs (meaning
talent, director and line
<PAGE>
-10-
producers) and AIM shall fund the Joint Venture for [Confidential
Information filed separately with the SEC] below the line costs (meaning
all infrastructure costs required to get the job done) and [Confidential
Information filed separately with the SEC] above the line costs to create a
promotional tape of the AIM E-Commerce Service; and
7. additional agreed ongoing promotional costs of the Joint Venture shall be
funded [Confidential Information filed separately with the SEC] by the
parties.
17. Payment and Effective Date
In consideration for the grant of the License herein, AIM agrees to share the
Net Promotional Revenue and Net Revenue as provided in Section 4.2. The parties
agree this Agreement is effective December 30,1998
ARTICLE III.
RIGHT TO USE BID.COM TECHNOLOGY
18. Acknowledgment of Title.
(1) AIM acknowledges that ownership of the BID.COM Technology and any
customization or enhancements as used in the AIM E-Commerce Service shall
remain with BID.COM.
(2) AIM shall take all reasonable precautions to prevent third parties from
using the BID.COM Technology in any way that would constitute a breach of
this Agreement.
19. Restriction on Business
During the Term of this Agreement AIM agrees that neither it nor any entity
which controls, is controlled by or is under common control with it will
directly or indirectly use, promote, invest in, or otherwise support in any
manner, any cable or television broadcast network auction properties for the
Term or any renewal thereof.
ARTICLE IV.
SERVICES
20. Additional Services.
<PAGE>
-11-
If AIM requests the inclusions of specific functionality or customization
changes to the BID.COM Technology, BID.COM will use reasonable efforts to assist
AIM, on terms to be mutually agreed upon by the Parties. Such AIM-specific
enhancements will be provided by BID.COM on a cost pass through basis, plus
reasonable out-of pocket expenses and all applicable taxes.
21. Allocation of Revenue.
1. BID.COM shall pay AIM [Confidential Information filed separately with the
SEC] of the Net Revenue. BID.COM shall invoice and collect all Net Revenue.
Net Revenue shall be aggregated on a monthly basis, and BID.COM shall pay
AIM [Confidential Information filed separately with the SEC] of the Net
Revenue within fifteen (15) days of the end of each month. BID.COM shall
complete a Net Revenue Report in the form attached hereto as Schedule "G"
for each applicable payment period and shall remit each such report along
with each payment due hereunder.
2. AIM shall pay BID.COM [Confidential Information filed separately with the
SEC] of the Net Promotional Revenue. AIM shall invoice and collect all Net
Promotional Revenue. Net Promotional Revenue shall be aggregated on a
monthly basis, and AIM shall pay BID.COM [Confidential Information filed
separately with the SEC] of the Net Promotional Revenue within fifteen (15)
days of the end of each month. AIM shall complete a Net Promotional Revenue
Report in the form attached hereto as Schedule "H" for each applicable
payment period and shall remit each such report along with each payment due
hereunder.
3. Notwithstanding the foregoing provisions of Section 4.2 at such time as the
AIM stock issued to BID.COM pursuant to the AIM Stock Agreement of even
date herewith (the "AIM Stock") becomes freely trading on a United States
exchange satisfactory to BID.COM in the hands of BID.COM or its assigns and
maintains an aggregate market value of not less than [Confidential
Information filed separately with the SEC] for a minimum of 30 consecutive
trading days on such exchange (as measured by the average trading price of
stock traded on each of such trading days), AIM shall become entitled to a
[Confidential Information filed separately with the SEC] share of future
Net Revenue and Net Promotional Revenue until the aggregate of cumulative
Net Revenue and Net Promotional Revenue received by AIM from the Effective
Date equals [Confidential Information filed separately with the SEC]
whereupon all such revenues thereafter shall be shared [Confidential
Information filed separately with the SEC].
4. All other gross margin derived by AIM or the Joint Venture from marketing
BID.COM services in the cable and television broadcast network industry in
the Territory, including without limitation, from marketing to affinity
groups, shall be shared between AIM and BID.COM on a [Confidential
Information filed separately with the SEC] basis net of
<PAGE>
-12-
mutually agreed out of pocket and third party costs, and paid monthly
within fifteen (15) days of the end of each month.
22. Audit.
AIM shall keep accurate books and records of all revenues received by AIM and
all information regarding deductions made to calculate Net Promotional Revenues.
BID.COM shall keep accurate books and records of all revenues received by
BID.COM and all information regarding deductions made to calculate Net Revenues.
Each party has the right, acting reasonably, to audit the books and records of
the other party during normal business hours in respect of financial obligations
under this Agreement. If such audit discloses underpayment by the other party,
the other party shall pay such underpayment forthwith, together with interest
from the date the payment was due until such amount is paid. If an audit
discloses an underpayment of 5% or more, the party in default shall reimburse
the other party on demand for the reasonable out of pocket costs incurred in
conducting such audit.
ARTICLE V.
REPRESENTATIONS, WARRANTIES AND INDEMNITIES
23. Warranty and Indemnity re: Authority, Title and Proprietary Rights.
(1) BID.COM represents and warrants that it has the right to grant the licence
hereby granted and that BID.COM has the right to provide the AIM E-Commerce
Service.
(2) BID.COM agrees to defend and indemnify AIM and hold it harmless from all
losses, claims, damages or liabilities, including court costs and legal
fees, in connection with or arising out of any claim asserted against AIM
based upon a contention that the AIM E-Commerce Service, the BID.COM
Technology or the Software or any of the Deliverables, or any portion
thereof used by AIM or the Joint Venture within the scope of this Agreement
infringe the Intellectual Property Rights of any third Party provided that:
(1) AIM or the Joint Venture promptly notify BID.COM in writing of the
claim and of all material developments in connection with such claim
and provides all assistance otherwise reasonably requested by BID.COM;
(2) BID.COM has the right to control, at its own expense, the defence and
all related settlement negotiations (AIM has the right to participate
at its own expense);
(3) AIM or the Joint Venture does not pay or settle any such claim without
the express written consent of BID.COM; and
(4) the claim in respect of which indemnity is sought does not arise out
of or in connection with any unauthorized use of the BID.COM
Technology by AIM.
<PAGE>
-13-
In addition, if the BID.COM Technology, any of the Deliverables, or any portion
thereof is held to constitute an infringement of another Person's rights, and
use thereof is enjoined, or BID.COM enters into a settlement of the claim which
includes an agreement to refrain from the use thereof, BID.COM shall, at its
election and expense, either:
1) procure the right to use the infringing element thereof;
2) procure the right to an element which performs the same function
without any material loss of functionality; or
3) replace or modify the element thereof so that the infringing
portion is no longer infringing and still performs the same
function without any material loss of functionality;
and shall make every reasonable effort to correct the situation with
minimal effect upon the operations of AIM or AIM affiliates.
24. General Limitation on Liability.
UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR
INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) ARISING FROM BREACH
OF THE AGREEMENT, THE USE OR INABILITY TO USE THE BID.COM TECHNOLOGY, THE AIM
E-COMMERCE SERVICE, THE SOFTWARE, OR ARISING FROM ANY OTHER PROVISION OF THIS
AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS
OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH SUCH
PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES
ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO
SECTION 5.1(2) ABOVE. EXCEPT AS PROVIDED IN SECTION 5.1(2), NEITHER PARTY WILL
BE LIABLE TO THE OTHER PARTY FOR MORE THAN $250,000 PROVIDED THAT EACH PARTY
WILL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO
THE OTHER PARTY.
25. Provision of Source Code Materials.
AIM may subscribe, at its own expense, to the existing Source Code Escrow
Agreement attached as Schedule "D" and deposited with Data Securities
International, Inc. which provides for the release to AIM of the source code for
the BID.COM Technology for use as provided in Section 2.1 if (i) BID.COM
voluntarily declares bankruptcy, becomes insolvent or ceases the operation of
its business; or (ii) BID.COM materially fails to maintain or operate the
BID.COM
<PAGE>
-14-
Technology or the AIM E-Commerce Service; or (iii) BID.COM is in continuing
material breach of this Agreement.
26. Confidentiality.
Each Party (hereinafter in this Section, the "Receiving Party") covenants with
the other Party (hereinafter in this Section, the "Disclosing Party") that it
shall keep confidential the Confidential Information of the Disclosing Party to
which the Receiving Party obtains access as a consequence of entering into this
Agreement and that it will take all reasonable precautions to protect such
Confidential Information from any use, disclosure or copying except as expressly
authorized by this Agreement. The Receiving Party shall implement such
procedures as the Disclosing Party may reasonably require from time to time to
improve the security of the Confidential Information of the Disclosing Party in
its possession. This Section shall survive the termination of the Agreement.
Upon termination of this Agreement, the Receiving Party shall, at the choice of
the Disclosing Party, either return to the Disclosing Party or destroy all
copies or partial copies of Confidential Information of the Disclosing Party in
any form which is in the possession of the Receiving Party or under its control,
and certify that all such Confidential Information has been returned or
otherwise destroyed.
27. Use of Data.
(1) BID.COM retains ownership of the BID.COM Technology, but to the extent
permitted by applicable law and subject to any restrictions imposed by
customers of the Joint Venture or subscribers agrees to allow AIM access to
and, subject to the restrictions below, use of any and all Data pertaining
to the purchase and sale of goods or services by United States Television
subscribers (the "Data"). All Data is the property of BID.COM.
(2) BID.COM shall provide AIM with monthly usage reports that tracks all
elements necessary to allocate revenues in the forms set out in Schedule
"E" and will make all payments required pursuant to such reports within 15
days of each month end. BID.COM agrees that it also provide, on a best
efforts basis, information as to how cable and television broadcast network
users of the BID.COM Technology are navigating through the BID.COM Online
Auction.
(3) AIM covenants that:
(1) it will not use the Data to operate a competitive auction service during
the Term of this Agreement or any extension thereof or for one year
thereafter; and
(2) it will not allow third parties to use the Data for any purpose without the
prior written approval of BID.COM.
28. Ownership of the Software and Online Auction Trade-mark.
<PAGE>
-15-
AIM acknowledges that the Software constitutes commercially valuable trade
secrets and proprietary data of BID.COM and is Confidential Information and that
no provision of this Agreement shall be construed to convey title in the
Software, any of BID.COM's Intellectual Property Rights or the BID.COM URL.
29. AIM-Specific Enhancements.
If AIM requests that BID.COM develop an AIM-Specific Enhancement, the parties
will mutually agree in writing to terms and conditions respecting the
development of such AIM-Specific Enhancement, including, without limitation,
terms and conditions relating to each parties' respective ownership and
exploitation rights in such AIM-Specific Enhancement. The parties acknowledge
and agree that their respective ownership and exploitation rights in each AIM-
Specific Enhancement shall be determined in accordance with the following
principles:
1. if an AIM-Specific Enhancement can be used as a severable, standalone
component, then AIM shall own all right, title and interest in and to such
AIM-Specific Enhancement, and BID.COM shall be granted perpetual, royalty-
free license rights to use sub-license, exploit and reproduce such AIM-
Specific Enhancement, provided that BID.COM may not transfer or license
such AIM-Specific Enhancement to any third party (other than its
Affiliates) without the prior written consent of AIM.
2. if an AIM-Specific Enhancement is integrated into the BID.COM Technology,
the BID.COM Site or the AIM E-Commerce Service in such a way that it cannot
reasonably be used as a severable, standalone component, then BID.COM shall
own all right, title and interest in and to such AIM-Specific Enhancement,
and AIM shall be granted perpetual, royalty-free license rights to use,
sub-license, exploit and reproduce such AIM-Specific Enhancement
internally, provided that AIM may not transfer or license such AIM-Specific
Enhancement to any third party without the prior written consent of
BID.COM.
30. Limitation on Warranties.
Except for those warranties otherwise provided herein, neither Party makes any
warranties or representations, and there are no conditions, express or implied,
in fact or in law, including without limitation, the implied warranties or
conditions of merchantable quality and fitness for a particular purpose and
those arising by statute or otherwise in law or from a course of dealing or
usage of trade.
ARTICLE VI.
DEFAULT AND TERMINATION
<PAGE>
-16-
31. Term.
(1) This Agreement shall commence on the Effective Date and shall continue,
subject to early termination in accordance with the terms hereof, until
June 30, 2001 (the "Initial Term"). Thereafter, the Agreement may be
renewed at the option of AIM (at the end of the Initial Term and the next
following two subsequent Terms, for additional one year periods
("Subsequent Terms") provided the last of the Term and Subsequent Terms
shall expire no later than June 30, 2003. All Renewals shall be subject to
agreement or allocation of Net Revenue and Net Promotional Revenue for the
ensuing Subsequent Term and in default of agreement, the parties shall
submit the determination of such allocation to arbitration pursuant to
Article VII unless either party elects to terminate at least 90 days before
the end of the then current Term.
(2) The extension of the Term of the Agreement into a Subsequent Term shall be
conditional upon the Parties, during the ninety (90) days prior to the end
of the Initial Term, negotiating and agreeing on reasonable values for
renewal metrics for the upcoming Subsequent Term. If the Parties are
unable to reach such an agreement, the Parties agree that they will submit
the determination of such allocation to binding arbitration in accordance
with the terms of Article VII unless either party elects to terminate this
Agreement unless by providing written notice to the other party at least
ninety (90) days prior to the end of the then current term, stating its
intention to terminate the Agreement at the end of such term.
32. Termination.
Subject to the time frames set out below, this Agreement may be terminated
forthwith by notice to the either Party on written notice upon the occurrence of
an event of default by the other Party. Each of the following constitutes an
event of default for the purposes of this Agreement:
(1) if a Party fails to perform any material obligation set forth in this
Agreement and such default, in the case of a default which is remediable,
continues for a period of thirty (30) days after written notice of such
failure has been given by the non-defaulting Party;
(2) if a Party declares bankruptcy or becomes insolvent or ceases the operation
of its business without a successor acceptable to the other Party;
(3) if a Party decides to permanently exit the on line auction business; or
(4) AIM or the Joint Venture fails to establish the AIM E-Commerce Service as a
viable business or if the AIM Stock does not become freely trading in the
hands of BID.COM or its assigns within twelve (12) months of the Effective
Date.
<PAGE>
-17-
33. Survival.
For a period of ninety (90) days after this Agreement is terminated or expires,
all operative terms of this Agreement with respect to the allocation of Net
Revenue and Net Promotional Revenue will remain in full force and effect and
(except for termination as provided in section 6.2 (ii), (iii) or (iv) in which
event there shall be no survival period) AIM shall retain the right to use the
AIM E-Commerce Service and the BID.COM Technology in the same manner it was
entitled to use them as of the date of termination. At the end of a period of
ninety (90) days, AIM will cease to have any right to use the BID.COM Technology
or the AIM E-Commerce Service and BID.COM will cooperate with AIM in a mutually
agreed transition schedule to a new technology. Except as otherwise provided
herein, the terms of Articles II, III and VII shall survive any termination or
expiry of this Agreement and shall continue in force thereafter for the period
contemplated by the Agreement. Other provisions of this Agreement which, by
the nature of the rights or obligations set out therein, might reasonably be
expected to be intended to so survive, shall survive termination or expiry of
this Agreement until they are satisfied or by their nature expire.
ARTICLE VII.
ARBITRATION
34. Dispute Resolution Process.
If any dispute, disagreement, controversy or claim arising out of or relating to
this Agreement including, without limitation, its application, interpretation,
performance, breach, termination, enforcement or damages, or remedies arising
out of the breach of or non-compliance therewith, shall be finally determined by
arbitration before a single arbitrator to be commenced and conducted in the
English language in Toronto in accordance with the Arbitration Act (Ontario).
The Parties hereto agree that:
(1) subject to mutual agreement between the Parties to the contrary, the
arbitrator shall be a person who is legally trained and trained as a
professional arbitrator and who has a minimum of five (5) years experience
in the licensing of computer software;
(2) the Parties shall agree on the identity of the arbitrator within 10 days of
notice of reference to arbitration and in default thereof, either Party may
apply to a Judge of the Supreme Court of Ontario, General Division, to
appoint an arbitrator with the foregoing qualifications;
(3) the Parties shall be required to make written submissions to the arbitrator
within 7 days of appointment and shall not be entitled to make verbal
representations or further
<PAGE>
-18-
submissions unless so requested by the arbitrator. Any Party who does not comply
with the foregoing time period shall not be entitled to make any submissions
without the written approval of the other Party;
(4) the arbitrator shall be required to render his decision in writing within
10 days of the period mentioned in Subsection 7.1(c);
(5) neither of the Parties shall apply to the Courts of Ontario or any other
jurisdiction to attempt to enjoin, delay, impede or otherwise interfere
with or limit the scope of the arbitration or the powers of the arbitrator
provided for in the Arbitration Act (Ontario)
(6) the award of the arbitrator shall be a final and conclusive award and
judgment with respect to all matters properly before the arbitral tribunal
in accordance with the Arbitration Act (Ontario) and neither Party shall
appeal such award in any manner whatever to any court, tribunal or other
authority; and
(7) the award of the arbitral tribunal may be entered and enforced by any court
in any jurisdiction having jurisdiction over the Parties hereto or the
subject matter of the award or the properties or assets of either of the
Parties hereto.
ARTICLE VIII.
MANAGEMENT AND REPORTING
35. Management.
The Parties each agree to designate an individual known as a Project Manager
from their respective companies with adequate authority and full technical
competence to deal with matters relating to the implementation of the
Deliverables. Specifically, Project Managers will, on behalf of their respective
Parties, in accordance with the spirit of this Agreement, use reasonable efforts
to coordinate the provision of the AIM E-Commerce Service. Upon such
designations, each of BID.COM and AIM shall concurrently provide the other with
details with respect to its Project Manager, including name, address and
telephone number, and each of BID.COM and AIM may from time to time change its
Project Manager with the consent of the other which will not be unreasonably
withheld or delayed.
36. Reports.
(1) Subject to Section 5.5, Data obtained in connection with the AIM E-Commerce
Service will be shared with AIM by BID.COM to generate co-marketing
opportunities with BID.COM, such as (i) customer name; (ii) address; (iii)
e-mail address; (iv) registered credit card information; and (v) purchase
history.
<PAGE>
-19-
(2) To the extent permirred by applicable law and subject to any restrictions
imposed by contract, Data and information obtained by the Joint Venture and
AIM in promoting the Joint Venture and the AIM E-Commerce Service shall be
shared with BID.COM for the purposes described in the preceeding section.
(3) BID.COM will maintain its ownership of the BID.COM Technology, databases
and customer information provided on a voluntary basis to AIM.
(4) The Parties further agree that they will, on request, provide such
information as to weekly or other periodic activity relating to the AIM E-
Commerce Service as is readily available and as can be generated without
unreasonable disruption of business.
ARTICLE IX.
GENERAL
37. Notice.
Any notice or other communication (a "Notice") required or permitted to be given
or made hereunder shall be in writing and shall be well and sufficiently given
or made if:
(1) delivered in person during normal business hours on a Business Day and left
with a receptionist or other responsible employee of the relevant Party at
the applicable address set forth below;
(2) sent by prepaid first class mail; or
(3) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic Transmission"),
charges prepaid and confirmed by prepaid first class mail;
in the case of a Notice to AIM addressed to it at:
American Interactive Media, Inc.
Suite 308, 611 Broadway
New York, New York 10012
Attention: Mark Graff
Fax No.: (212) 358-0189
with a copy to:
<PAGE>
-20-
Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue,
New York, New York,
101780061
Attention: Jeffrey N. Ostrager
Fax No.: (212) 697-1559
and in the case of a Notice to BID.COM addressed to it at:
BID.COM International Inc.
201 - 6725 Airport Road
Mississauga, Ontario
L4V 1V2
Attention: Paul Godin
Fax No.: (905) 672-7514
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 9.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there exists any
general interruption of postal services due to strike, lockout or other
cause) after it was mailed, if mailed as aforesaid; and
<PAGE>
-21-
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on the
first Business Day after the sending thereof.
Either Party may from time to time change its address for notice by giving
Notice to other Party in accordance with the provisions of this Section 9.1.
38. Assignment.
Neither Party may assign its rights and obligations under this Agreement, in
whole or in part, without the prior consent in writing of the other and any
purported assignment made without that consent is void and of no effect (save
and except for an assignment as an incident of security taken in a normal course
financing transaction). No assignment of this Agreement shall relieve either
party from any obligation under this Agreement.
39. Binding on Successors.
This Agreement shall enure to the benefit of and be binding upon the Parties and
their respective successors and permitted assigns.
40. Further Assurances.
Each Party agrees that upon the written request of the other Party, it will do
all such acts and execute all such further documents, conveyances, deeds,
assignments, transfers and the like, and will cause the doing of all such acts
and will cause the execution of all such further documents as are within its
power to cause the doing or execution of, as any other Party hereto may from
time to time reasonably request be done and/or executed as may be necessary or
desirable to give effect to this Agreement.
41. Independent Contractors.
It is understood and agreed that in giving effect to this Agreement, no Party
shall be or be deemed a partner, agent or employee of another Party for any
purpose and that their relationship to each other shall be that of independent
contractors. Nothing in this Agreement shall constitute a partnership or a
joint venture between the Parties. No Party shall have the right to enter into
contracts or pledge the credit of or incur expenses of liabilities on behalf of
the other Party.
42. Waiver.
A waiver by a Party hereto of any of its rights hereunder or of the performance
by the other Party of any of its obligations hereunder shall be without
prejudice to all of the other rights hereunder of the Party so waiving and shall
not constitute a waiver of any such other rights or, in any other instance, of
the rights so waived, or a waiver of the performance by the other Party of any
of its other obligations hereunder or of the performance, in any other instance,
of the obligations so
<PAGE>
-22-
waived. No waiver shall be effective or binding upon a Party unless the same
shall be expressed in writing and executed by the Party to be bound.
43. Compliance With Law.
Each party shall, in the performance of this Agreement, fully comply with, and
abide by, all laws, regulations, regulatory rulings or directives, court orders,
and decisions of administrative tribunals of competent jurisdiction, that may,
in any manner or extent, concern, govern, or affect either party's respective
performance of, and obligations under, this Agreement.
44. Interpretation.
This Agreement has been negotiated by the parties hereto and their respective
counsel and shall be fairly interpreted in accordance with its terms and without
any rules of construction relating to which party drafted the Agreement being
applied in favour or against either party.
45. Effective Date.
This Agreement shall not become a valid and binding contract unless and until
each party has duly executed and delivered this Agreement. For greater
certainty, there shall be no agreement, whether oral, written, express, implied
or otherwise notwithstanding any performance between the parties concerning the
subject matter of this document, including, without limitation, by course of
conduct, doctrine of part performance, or otherwise.
46. Amendment.
No amendment of any provision of this Agreement shall be effective unless such
amendment is embodied in a written agreement which is: (i) expressly stated to
be intended to amend this Agreement; and (ii) executed by two authorized signing
officers of AIM and an authorized officer of BID.COM. For greater certainty, the
parties acknowledge and agree that no representations, warranties, conditions,
covenants or other statements or commitments, whether
<PAGE>
-23-
made orally, in writing, by course of conduct or otherwise, and whether made
prior to the Effective Date of this Agreement or thereafter, shall be binding on
either of the parties.
47. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein and shall be
treated, in all respects, as an Ontario contract. The parties hereby: (i)
irrevocably submit to the exclusive jurisdiction of the courts of Ontario in
respect of the subject matter hereof; (ii) consent to service of process being
effected upon the other party by registered mail sent to the address set forth
in section 8.1 hereof; (iii) agree not
to seek, request, claim or pursue trial by jury; and (iv) agree not to seek,
request, claim or pursue any right, claim, or entitlement to any punitive or
exemplary damages whatsoever.
IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date
first written, above.
BID.COM INTERNATIONAL INC.
By:____________________________________
(Duly Authorized Officer)
By:____________________________________
(Duly Authorized Officer)
AMERICAN INTERACTIVE MEDIA, INC.
By:____________________________________
(Duly Authorized Officer)
<PAGE>
-24-
By:____________________________________
(Duly Authorized Officer)
CP Doc #: 124859-1
<PAGE>
SCHEDULE A
BID.COM Technology (including Third Party Technology)
<PAGE>
<TABLE>
<CAPTION>
ILI Bid.com Modules
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Databases: [Confidential Information filed
separately with the SEC]
Business Services: [Confidential Information filed
separately with the SEC]
Data Services: [Confidential Information filed
separately with the SEC]
Dynamic Export: [Confidential Information filed
separately with the SEC]
Order Processing
Administrator: [Confidential Information filed
Credit Card: separately with the SEC]
Order Business Services:
Utilities:
Category Builder: [Confidential Information filed
AdrotatorGenerator separately with the SEC]
AssetMgmt:
DB Services:
Notification:
Supporting S/W: [Confidential Information filed
separately with the SEC]
Web: [Confidential Information filed
separately with the SEC]
ILI Bid.com Modules (Dutch)
- --------------------------
Business Services: [Confidential Information filed
separately with the SEC]
Data Services: [Confidential Information filed
separately with the SEC]
Dutch Server: [Confidential Information filed
separately with the SEC]
Dutch Client: [Confidential Information filed
separately with the SEC]
Internet Web: [Confidential Information filed
separately with the SEC]
Admin Web: [Confidential Information filed
separately with the SEC]
</TABLE>
<PAGE>
Top Bid Auction
---------------
[Confidential Information filed separately with the SEC]
2
<PAGE>
Dutch Auction
-------------
[Confidential Information filed separately with the SEC]
3
<PAGE>
Bid.Com Commerce Site
List Of Third Party Tools Incorporated Into
Application
[Confidential Information filed separately with the SEC]
4
<PAGE>
SCHEDULE "B"
AIM's Requirements
B.1 Preparation and Delivery of AIM's Requirements. AIM and BID.COM
covenant and agree to negotiate in good faith to execute an amendment to this
Agreement (the "Amendment") within thirty (30) days of the Effective Date in
order to complete this Schedule "B" in a manner acceptable to both parties. The
Amendment shall contain detailed performance requirements and specifications for
the Television E-Commerce Service.
B.2 Escalation. In the event that the Amendment has not been executed
within thirty (30) days of the Effective Date, the parties shall review disputes
and use their good faith efforts to complete the Amendment within an additional
thirty (30) day period. If the Amendment has not been completed within such
additional (30) day period, outstanding disputes or issues relating to the
Amendment shall be submitted to dispute resolution in accordance with Article
VII of this Agreement.
5
<PAGE>
SCHEDULE "C"
Customer Service Standards
BID.COM shall, at a minimum, comply with the following customer service
standards in its operation of the Television E-Commerce Service:
C.1 Logistics
BID.COM shall:
1. appoint sufficient numbers of dedicated employees to provide e-mail online
customer service;
2. receive and respond to email and customer inquiries within two (2) business
days of receipt;
3. install a toll free phone line and communicate the toll free phone number
in the online "Customer Service" area of the BID.COM Site;
4. ensure the ability to handle customer service volumes in excess of 25% of
average daily order volumes;
5. monitor the Television E-Commerce Service to minimize out of stock
merchandise;
6. post all customer service policies in an online "Customer Service" area of
the BID.COM Site which includes the following information and policies:
shipping information, return policies, product warranties and contact
information; and
7. post security and privacy policies in an online "Customer Service" area of
the BID.COM Site.
C.2 Process and Fulfilment
In fulfilling purchases by customers of the Television E-Commerce Service,
BID.COM shall abide by its "USA Terms and Conditions" as published and amended
by it from time to time. A copy of the current USA Terms and Conditions is
attached as Schedule "C-1".
<PAGE>
SCHEDULE "D"
Response Times
D.1 BID.COM shall respond to any report that the BID.COM Technology, the
Television Commerce Service or the BID.COM Site is failing to meet AIM's
Requirements, and shall correct such failure, within the time frames set out in
Section D.2 of this Schedule"D". The severity of any particular failure shall
be reasonably determined by AIM, and communicated to BID.COM, based on the
following definitions:
Severity 1: total inability to use any material part of the BID.COM Technology,
the E-Commerce Service or the BID.COM Site, resulting in a critical
impact on user objectives.
Severity 2: ability to use the BID.COM Technology, the Television E-Commerce
Service or the BID.COM Site, but user operation is severely
restricted.
Severity 3: ability to use the BID.COM Technology, the Television E-Commerce
Service or the BID.COM Site; failures relate to functions which are
not critical to overall user operations.
Severity 4: failure has been bypassed or temporarily corrected and is not
affecting customer operations.
D.2 BID.COM shall correct failures of the BID.COM Technology, the Television E-
Commerce Service and the BID.COM Site in order to comply with AIM's Requirements
within the following time frames:
Severity 1: within 24 hours of notification by AIM
Severity 2: within 48 hours of notification by AIM
Severity 3: within 15 days of notification by AIM
Severity 4: within 120 days of notification by AIM
<PAGE>
SCHEDULE "E"
Source Code Trust Agreement
<PAGE>
MASTER PREFERRED ESCROW AGREEMENT
Master Number __________
This Agreement is effective February 12, 1997 among Data Securities
International, Inc.("DSV), Internet Liquidators International Inc.
("Depositor"), and any additional party signing the Acceptance Form attached to
this Agreement ("Preferred Beneficiary") who collectively may be referred to in
this Agreement as "the parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
license agreement in the form attached to such Preferred Beneficiary's
Acceptance Form regarding certain proprietary technology of Depositor
(referred to in this Agreement as "the license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical to
Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under
certain limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI
to provide for the retention, administration and controlled access of
certain proprietary technology materials of Depositor.
ARTICLE 1 -DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, including the signing of the Acceptance Form, Depositor shall deliver
to DSI the proprietary information and other materials identified on an Exhibit
A. DSI shall have no obligation with respect to the preparation, signing or
delivery of Exhibit A.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
--------------------------------
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed by
Depositor and delivered to DSI with the deposit materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify the parties regarding
the status of the deposit account as required in Section 2.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
Exhibit B, DSI will give a receipt for the deposit materials to the Depositor in
the form provided by the Depositor and conduct a deposit inspection by visually
matching the labeling of the tangible
<PAGE>
media containing the deposit materials to the item descriptions and quantity
listed on the Exhibit B. In addition to the deposit inspection, Preferred
Beneficiary may elect to cause a verification of the deposit materials in
accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and deliver a
copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on the Exhibit B, DSI
will (a) note the discrepancies in writing on the Exhibit B; (b) date and sign
the Exhibit B with the exceptions noted, and (c) provide a copy of the Exhibit B
to Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of the Exhibit B by DSI. Delivery of the signed Exhibit B to
Preferred Beneficiary is Preferred Beneficiary's notice that the deposit
materials have been received and accepted by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
(a) Depositor lawfully possesses all of the deposit materials deposited
with DSI;
(b) With respect to all of the deposit materials Depositor has the right
and authority to grant to DSI and Preferred Beneficiary the rights as
provided in this Agreement;
(c) The deposit materials are not subject to any lien or other encumbrance
other than encumbrances arising in the ordinary cause of Depositor's
business;
(d) The deposit materials consist of the proprietary information and other
materials identified in Exhibit A; and
(e) The deposit materials are readable and useable in their current form
or, if the deposit materials are encrypted, the decryption tools and
decryption keys have also been deposited.
1.6 Verification. Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense. to cause a verification of any deposit materials. A
verification determines, in different levels of detail, the accuracy,
completeness. sufficiency and quality of the deposit materials. If a
verification is elected after the deposit materials have been delivered to DSI,
then only DSI, or at DSI's election an independent person or company selected
and supervised by DSI, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the license agreement,
Depositor shall update the deposit materials within 60 days of each release of a
new version of the product which is subject to the license agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B and the new Exhibit B shall be signed by Depositor.
Each Exhibit B will be held and maintained separately within the escrow account.
An independent record will be created which will document the activity for each
Exhibit B. The processing of all deposit updates shall be in accordance with
Sections 1.2 through 1.6 above. All references in this Agreement to the deposit
materials shall include the initial deposit materials and any updates.
2
<PAGE>
1.8 Removal of Deposit Materials. The deposit materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 --CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
environmentally safe, locked facility in the greater Toronto area which is
accessible only to authorized representatives of DSI. DSI shall have the
obligation to reasonably protect the confidentiality of the deposit materials.
Except as provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the deposit materials. DSI shall not disclose the content of
this Agreement to any third party. If DSI receives a subpoena or other order of
a court or other judicial tribunal pertaining to the disclosure or release of
the deposit materials, DSI will immediately notify the parties to this
Agreement. It shall be the responsibility of Depositor and/or Preferred
Beneficiary to challenge any such order; provided, however, that DSI does not
waive its rights to present its position with respect to any such order. DSI
will not be required to disobey any court or other judicial tribunal order. (See
Section 7.5 below for notices of requested orders.)
2.2 Status Reports. DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the request of
any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of DSI
pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3 - GRANT OF RIGHTS TO DSI
3.1 Title to Physical Copies of Deposited Materials.
(a) Depositor transfers to DSI in trust all legal title in and to the
physical copies of the deposit materials provided to DSI from time to
time in accordance with the terms of this Agreement. It is
acknowledged by the parties hereto that such transfer by Depositor to
DSI under this Section is not intended to, nor does it, transfer any
intellectual property or other intangible rights in the deposit
materials. DSI agrees to hold the deposit materials in trust for
Depositor and Preferred Beneficiary as provided in this Agreement.
(b) The expression "in trust" is intended to refer strictly to the issue
of ownership of the deposit materials and not to the level of care
which must be taken by DSI in performing its duties under this
Agreement. The duties of DSI are strictly contractual in nature and
are as set out in this Agreement. It is not intended that DSI is to
have the fiduciary duty of a trustee.
3
<PAGE>
3.2 Right to Make Copies. DSI shall have the right to make copies of the
deposit materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure. and other proprietary notices and titles
contained on the deposit materials onto any copies made by DSI. With all deposit
materials submitted to DSI, Depositor shall provide any and all instructions as
may be necessary to duplicate the deposit materials including but not limited to
the hardware and/or software needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to DSI the right
to transfer deposit materials to Preferred Beneficiary upon any release of the
deposit materials for use by Preferred Beneficiary in accordance with Section
4.5. Except upon such a release or as otherwise provided in this Agreement, DSI
shall not transfer the deposit materials.
ARTICLE 4 - RELEASE OF DEPOSIT
4.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the following:
(a) voluntary bankruptcy of Depositor;
(b) involuntary bankruptcy provided that the Depositor is not in good
faith diligently taking steps to contest or set aside such process,
(c) if Depositor becomes insolvent and ceases to continue to carry on its
business;
(d) if Depositor ceases the operation of its business and the business is
not continued by a successor acceptable to the Preferred Beneficiary,
acting reasonably; and
(e) any additional release conditions identified on the attached
Acceptance Form.
4.2 Filing For Release. If Preferred Beneficiary believes in good faith that a
Release Condition has occurred, Preferred Beneficiary may provide to DSI written
notice of the occurrence of the Release Condition and a request for the release
of the deposit materials. Upon receipt of such notice, DSI shall deliver a copy
of the notice to Depositor.
4.3 Contrary Instructions. From the date DSI delivers the notice requesting
release of the deposit materials, if the Release Condition is one defined in 4.
1 (b), 4. 1 (d) or 4. 1 (e) Depositor shall have ten business days to deliver to
DSI Contrary Instructions. If the Release Condition is one defined in 4. 1 (a)
or (c), DSI shall release the deposit materials pursuant to Section 4.4 within
48 hours of giving notice to the Depositor under Section 4.2. "Contrary
Instructions" shall mean the written representation by Depositor that a Release
Condition has not occurred or has been cured. Upon receipt of Contrary
Instructions, DSI shall deliver a copy to Preferred Beneficiary. Additionally,
DSI shall notify both Depositor and Preferred Beneficiary that there is a
dispute to be resolved pursuant to the Dispute Resolution section of this
Agreement (Section 7.3). Subject to Section 5.2, DSI will continue to store the
deposit materials without release pending (a) joint instructions from Depositor
and Preferred Beneficiary, (b) resolution pursuant to the Dispute Resolution
provisions, or (c) order of a court.
4
<PAGE>
4.4 Release of Deposit. If DSI does not receive Contrary Instructions from the
Depositor, DSI is authorized to release the deposit materials to the Preferred
Beneficiary or, if more than one beneficiary is registered to the deposit
materials, to release a copy of the deposit materials to the Preferred
Beneficiary who gave notice under Section 4.2. However, DSI or DSI's authorized
representative is entitled to receive any fees due DSI or DSI's authorized
representative before making the release. This Agreement will terminate with
respect to the Preferred Beneficiary giving notice under Section 4.2 upon the
release of the deposit materials held by DSI.
4.5 Right to Use Following Release. Unless otherwise provided in the license
agreement, upon release of the deposit materials in accordance with this Article
4, Preferred Beneficiary shall have the right to use the deposit materials for
the sole purpose of continuing the benefits afforded to Preferred Beneficiary by
the license agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 5 - TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period of
one year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor and Preferred Beneficiary jointly instruct DSI in writing
that the Agreement is terminated, or (b) the Agreement is terminated by DSI for
nonpayment in accordance with Section 5.2. If the Acceptance Form has been
signed at a date later than this Agreement, the initial term of the Acceptance
Form will be for one year with subsequent terms to be adjusted to match the
anniversary date of this Agreement. If the deposit materials are subject to
another escrow agreement with DSI, DSI reserves the right, after the initial one
year term, to adjust the anniversary date of this Agreement to match the then
prevailing anniversary date of such other escrow arrangements.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI or DSI's authorized representative, DSI shall provide written notice of
delinquency to the parties to this Agreement affected by such delinquency. Any
such party shall have the right to make the payment to DSI or DSI's authorized
representative to cure the default. If the past due payment is not received in
full by DSI or DSI's authorized representative within one month of the date of
such notice, then at anytime thereafter DSI shall have the right to terminate
this Agreement to the extent it relates to the delinquent party by sending
written notice of termination to such affected parties. DSI shall have no
obligation to take any action under this Agreement so long as any payment due to
DSI or DSI's authorized representative remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement by joint instruction of Depositor and each Preferred Beneficiary,
DSI shall return the deposit materials to the Depositor. Upon termination for
nonpayment, DSI shall return the deposit materials to the Depositor. DSI shall
have no obligation to return or destroy the deposit materials if the deposit
materials are subject to another escrow agreement with DSI.
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
5
<PAGE>
(a) Depositor's Representations (Section 1.5);
(b) The obligations of confidentiality with respect to the deposit materials;
(c) The rights granted in the sections entitled Right to Transfer Upon Release
(Section 3.3) and Right to Use Following Release (Section 4.5), if a
release of the deposit materials has occurred prior to termination;
(d) The obligation to pay DSI or DSI's authorized representative any fees and
expenses due;
(e) The provisions of Article 7; and
(f) Any provisions in this Agreement which specifically state they survive the
termination or expiration of this Agreement.
5.5 Alternative to DSI. If this Agreement terminates, Depositor and Preferred
Beneficiary agree, at Preferred Beneficiary's request, to appoint a new agent by
mutual agreement. If Depositor and Preferred Beneficiary cannot agree, Preferred
Beneficiary shall appoint a trust company or other company specializing in the
escrow business as the agent provided that such company has appropriate storage
facilities located in or around Toronto and agrees to store the deposited
materials there in accordance with the terms of this Agreement. The new agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named hereunder, without any further assurance,
conveyance, act or deed.
ARTICLE 6 - DSI'S FEES
6.1 Fee Schedule. DSI or DSI's authorized representative is entitled to be
paid its standard fees and expenses applicable to the services provided. DSI or
DSI's authorized representative shall notify the party responsible for payment
of DSI's fees at least 90 days prior to any increase in fees. For any service
not listed on DSI's standard fee schedule, DSI or DSI's authorized
representative will provide a quote prior to rendering the service.
6.2 Payment Terms. DSI shall not be required to perform any service unless the
payment for such service and any outstanding balances owed to DSI or DSI's
authorized representative are paid in full. All other fees are due upon receipt
of invoice. If invoiced fees are not paid, DSI may terminate this Agreement in
accordance with Section 5.2. Late fees on past due amounts shall accrue at the
rate of one and one-half percent per month (18% per annum) from the date of the
invoice.
ARTICLE 7 - LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of a party to this Agreement who gives any
written notice. request, or instruction has the authority to
6
<PAGE>
do so. DSI shall not be responsible for failure to act as a result of causes
beyond the reasonable control of DSI, subject to Section 2. 1.
7.2 Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor and Preferred Beneficiary each agree to indemnify, defend
and hold harmless DSI from any and all claims, actions, damages, arbitration
fees and expenses, costs, attorney's fees and other liabilities incurred by DSI
relating in any way to this escrow arrangement.
7.3 Dispute Resolution. Any dispute, difference or question arising among any
of the parties concerning the construction, meaning, effect or implementation of
this Agreement or any part hereof will be settled by a single arbitrator
mutually agreed upon by the parties, or failing agreement, an arbitrator
appointed pursuant to the Arbitration Act (Ontario) or similar legislation. The
decision of such arbitrator appointed pursuant to this Agreement or such Act
will be final and binding on the parties and no appeal will lie therefrom.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the Province of Ontario except any laws which would
refer any matter to the laws of another jurisdiction. All parties irrevocably
attorn to the exclusive jurisdiction of the Courts of Ontario in respect of the
subject matter hereof.
7.5 Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or refrain from taking any action, that party shall:
(a) Give DSI at least two business days' prior notice of the hearing;
(b) Include in any such order that, as a precondition to DSI's obligation, DSI
or DSI's authorized representative be paid in full for any past due fees
and be paid for the reasonable value of the services to be rendered
pursuant to such order: and
(c) Ensure that DSI not be required to deliver the original (as opposed to a
copy) of the deposit materials if DSI may need to retain the original in
its possession to fulfill any of its other escrow duties.
ARTICLE 8 - GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Acceptance Form and
the Exhibits described herein, embodies the entire understanding between all of
the parties with respect to its subject matter and supersedes all previous
communications. representations or understandings, either oral or written. No
amendment or modification of this Agreement shall be valid or binding unless
signed by all the parties hereto, except that Exhibit A need not be signed by
DSI, Exhibit B need not be signed by Preferred Beneficiary and the Acceptance
Form need only be signed by the parties identified therein.
7
<PAGE>
8.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C and Acceptance Form. It shall be the responsibility of the
parties to notify each other as provided in this Section in the event of a
change of address. The parties shall have the right to rely on the last known
address of the other parties. Unless otherwise provided in this Agreement, all
documents and communications may be delivered by First Class mail.
8.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have no
obligation in performing this Agreement to recognize any successor or assign of
Depositor or Preferred Beneficiary unless DSI receives clear, authoritative and
conclusive written evidence of the change of parties.
Data Securities International, Inc. Internet Liquidators International Inc.
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title______________________________
Date:_______________________________ Date:______________________________
By:_________________________________ By:________________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title______________________________
Date:_______________________________ Date:______________________________
8
<PAGE>
ACCEPTANCE FORM
Account Number _____________________
American Interactive Media, Inc., hereby (i) acknowledges that it is a Preferred
Beneficiary referred to in the Master Preferred Escrow Agreement effective
February 12, 1997 with Data Securities International, Inc. as the escrow agent
and Bid.Com International Inc. (formerly Internet Liquidators International,
Inc.) as the Depositor, (ii) agrees to be bound by all provisions of such
Agreement, and (iii) agrees that in addition to the Release Conditions set forth
in section 4.1 of this Agreement, a further Release Condition shall exist if the
Depositor is in continuing material breach of the E-Commerce and Promotion
Services Agreement attached hereto as Schedule "A".
American Interactive Media, Inc.
By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
Notices and communications Invoices should be addressed
should be addressed to: to:
Company Name:
Address:
Designated
Contact:
Telephone:
Facsimile:
<PAGE>
SCHEDULE "A"
LICENSE AGREEMENT
<PAGE>
EXHIBIT A
MATERIALS TO BE DEPOSITED
Account Number __________________
Deposit represents to Preferred Beneficiary that deposit materials delivered to
DSI shall consist of the following:
Internet liquidators Inc. - Code Module Listing
- -----------------------------------------------
[Confidential Information filed separately with the SEC]
BID.COM International Inc.
- -------------------------- --------------------------------
Depositor Preferred Beneficiary
By: Chris Bulger
-------------------------------- --------------------------------
Name:
-------------------------------- --------------------------------
Title: Chief Financial Officer
-------------------------------- --------------------------------
Date: July , 1998
I certify for Depositor that the above DSI has inspected and
desceribed deposit materials have been accepted the above
transmitted to DSI: materials (any exceptions
are noted above):
<TABLE>
<CAPTION>
<S> <C>
Signature: Signature:
-------------------------------- --------------------------------
Print Name: Print Name:
-------------------------------- -------------------------------
</TABLE>
Date: Date:
Exhibit B#
Send materials to: DSI, 9555 Chesapeake Drive, #200, San Diego, CA 92123
<PAGE>
EXHIBIT "B"
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name: Bid.com International Inc.
-------------------------
Account Number:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRODUCT DESCRIPTION:
[Confidential Information
Product Name: filed separately with the Version: [Confidenti
SEC] al
Information
filed
separately
with the
SEC]
Operating System: [Confidential Information filed separately with the
SEC]
---------------------------------------------------
Hardware Platform: [Confidential Information filed separately with the
SEC]
---------------------------------------------------
DEPOSIT COPYING INFORMATION:
[Confidential Information filed separately with the
Hardware required: SEC]
Software required: [Confidential Information filed separately with the
SEC]
</TABLE>
DEPOSIT MATERIAL DESCRIPTION:
<TABLE>
<CAPTION>
<S> <C> <C>
Qty Media Type & Size Label Description of Separate Item
- ------------------------------------------------------------------------------------------------------
(Excluding documentation
1X Disk 3.5" or ________ No Documentation
DAT tape 4mm
CD-ROM
Data Cartridge Tape DAT
24I
TK 70 or _______ tape
Magnetic tape _______
Documentation
Other: ____________
</TABLE>
<PAGE>
Listing of Bid.Com Source Components
ILI Bid.com Modules
- ----------------------------------------
Database: [Confidential Information filed
separately with the SEC]
Business Services: [Confidential Information filed
separately with the SEC]
Data Service: [Confidential Information filed
separately with the SEC]
Dynmic Export: [Confidential Information filed
separately with the SEC]
Order Processing [Confidential Information filed
Administrator: separately with the SEC]
Credit Card:
Order Business Services:
Utilities [Confidential Information filed
Category Builder: separately with the SEC]
AdRotatorGenerator:
AssetMgmt
DB Services:
Notification:
Supporting S/W: [Confidential Information filed
separately with the SEC]
Web: [Confidential Information filed
separately with the SEC]
ILIBid.com Modules (Dutch)
- -------------------------
Business Services: [Confidential Information filed
separately with the SEC]
Data Services: [Confidential Information filed
separately with the SEC]
Dutch Server: [Confidential Information filed
separately with the SEC]
Dutch Client: [Confidential Information filed
separately with the SEC]
Internet Web: [Confidential Information filed
separately with the SEC]
Admin Web: [Confidential Information filed
separately with the SEC]
<PAGE>
SCHEDULE "F"
Site Activity Reporting Requirements
Pursuant to subsection 2.3(VII) of this Agreement, BID.COM shall deliver the
following site activity information to AIM with the frequency indicated below:
F.1 Daily Reports
1. number of page views.
F.2 Monthly Reports
1. Number of unique visitors;
2. top 15 domain names from which television traffic to the BID.COM
Site originated;
3. number of unique visits by product category offered;
4. average visit duration;
5. number of transactions;
6. average transaction value;
7. number of transactions by category;
8. number of transactions by product.
F.3 Additional Reports
In addition, BID.COM shall deliver the following site activity information as
indicated below:
1. purchase history of repeat visitors on a semi-annual basis;
2. advertising statistical reports at the request of AIM; and
3. other statistics as mutually agreed by the parties.
<PAGE>
SCHEDULE "G"
Net Revenue Reports
<PAGE>
<TABLE>
<CAPTION>
SUMMARY Month 1 Month 2 Month 3 Quarter
Total
-------------------------------------------
<S> <C> <C> <C> <C>
(a) Sales Revenues XXX XXX XXX XXX
(b) Sales Returns and Allowances (XXX) (XXX) (XXX) (XXX)
(c) Cost of Goods Sold (XXX) (XXX) (XXX) (XXX)
Shipping and Handling Costs (XXX) (XXX) (XXX) (XXX)
Credit Card Fees (XXX) (XXX) (XXX) (XXX)
-------------------------------------------
Gross Margin XXX XXX XXX XXX
Less Revenue Share (XXX) (XXX) (XXX) (XXX)
Net Margin XXX XXX XXX XXX
-------------------------------------------
TOP BID AUCTION DETAIL
Product Sales Top Bid Auction XXX XXX XXX XXX (a)
Shipping & Handling Sales Top Bid Auction XXX XXX XXX XXX (a)
Sales Return & Allowances Top Bid Auction (XXX) (XXX) (XXX) (XXX) (b)
Cost of Goods Sold Top Bid Auction (XXX) (XXX) (XXX) (XXX) (c)
Gross Margin XXX XXX XXX XXX
-------------------------------------------
DUTCH AUCTION DETAIL
Product Sales Dutch Auction XXX XXX XXX XXX (a)
Shipping & Handling Sales Dutch Auction XXX XXX XXX XXX (a)
Sales Returns & Allowances Dutch Auction (XXX) (XXX) (XXX) (XXX) (b)
Cost of Goods Sold Dutch Auction (XXX) (XXX) (XXX) (XXX) (c)
-------------------------------------------
DIRECT SALES DETAIL
Product Sales Direct XXX XXX XXX XXX (a)
Shipping & Handling Sales Direct XXX XXX XXX XXX (a)
Sales Returns & Allowances Direct (XXX) (XXX) (XXX) (XXX) (b)
Cost of Goods Sold Direct (XXX) (XXX) (XXX) (XXX) (c)
-------------------------------------------
Gross Margin XXX XXX XXX XXX
</TABLE>
<PAGE>
SCHEDULE "H"
Net Promotional Revenue Reports
Pursuant to subsection 5.1(ii) of this Agreement, AIM shall provide a report of
Net Promotional Revenue to BID.COM in a format similar to the following:
For the calendar quarter beginning ____________, 19_____ and ending ___________,
19 ____.
<TABLE>
<CAPTION>
Advertiser Status Amount Paid
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Total Advertising Revenue $ XX,XXX.XX
- -------------------------------------------------------------------------------------------------
</TABLE>
Total Net Promotional Revenue earned by AIM $ XX,XXX.XX
Share of Net Promotional Revenue due to BID.COM $ XXX.XX
<PAGE>
SCHEDULE "I"
BID.COM Marks
The BID.COM Marks licensed to AIM pursuant to this Agreement include:
1. BID.COM;
2. BID.COM + Design;
3. any derivations or modified versions incorporating the word BID.COM; and
4. any other marks mutually agreed between the parties.
<PAGE>
Exhibit 3.22
DISTRIBUTION AGREEMENT
THIS AGREEMENT made as of the 17th day of November, 1998 between Micra
Soundcards Inc., a corporation incorporated under the laws of' the Province of
Ontario ("MICRA"), and Bid.Com International Inc., a corporation incorporated
under the laws of the Province of Ontario ("BID.COM").
WHEREAS MICRA has developed a card (the "SoundCard") which will carry (i)
an image of an athlete or other notable person, and (ii) an audio of video
recording concerning that person. MICRA has also developed a playback unit (the
"Player") with the ability to play back the audio recording on the SoundCard;
AND WHEREAS through the registration of patents and other means of
protecting intellectual property, MICRA has taken such steps as it has deemed
necessary to ensure that (i) it has all necessary intellectual property rights
to make and distribute the SoundCard and Player, and (ii) the SoundCard and
Player do not offend or infringe any other person's intellectual property
rights;
AND WHEREAS MICRA will use its commercially reasonable efforts to ensure
that all licenses and rights it deems necessary are obtained for the use of the
intellectual and proprietary property embodied in all SoundCards distributed
pursuant to this agreement.
NOW THEREFORE IN CONSIDERATION of the premises and mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Distributorship
MICRA grants to BID.COM:
(a) the exclusive, world-wide right to market, distribute and sell
the Player (or any other player using technology owned or controlled by MICRA)
through the Internet and any other form of computer-assisted electronic
commerce, whether via cable, satellite and other means through televisions,
computers and other receivers (collectively, "Electronic Distribution");
(b) the exclusive, world-wide right to market, distribute and sell
selected SoundCards through Electronic Distribution (the parties intend to
jointly agree on the series and individual SoundCards most likely to be
successful for the. purposes of this provision); and
(c) the right of first opportunity to negotiate, on a case by case
basis, the non-exclusive, world-wide right to market, distribute and sell the
Player (or any other player using technology owned or controlled by MICRA) and
selected SoundCards manufactured by MICRA through means of trade or distribution
other than Electronic Distribution; provided that, for greater certainty, this
paragraph (c) shall not impact, limit, restrict or otherwise affect
<PAGE>
MICRA's ability to consummate any marketing, distribution or sales arrangements
or agreements entered into or being pursued by MICRA as of the date hereof.
Subject to the terms of this agreement, MICRA will offer for sale to
BID.COM all SoundCards which are available for distribution or sale except
certain "proprietary" SoundCards manufactured for the exclusive use of specific
customers of MICRA for the purpose of promoting their products or services and
BID.COM hereby acknowledges and agrees that such SoundCards will not be offered
to it for sale.
2. No Rights of Ownership
The grant of the right to market, distribute and sell the Player and
SoundCards contemplated by Section 1 shall not include or create any right or
interest of BID.COM in the Player or SoundCards or give BID.COM the right to
modify or make alterations or improvements thereto or otherwise reverse engineer
or disassemble the Player or SoundCards.
3. Term of Agreement
Subject to the provisions of Section 8 of this agreement, the rights
granted to BID.COM under this agreement will continue until December 31, 2001.
This agreement shall be automatically renewed for consecutive terms of two years
subject to notice of intention not to renew given by either party at least six
months prior to the expiration of the original or any renewal term.
4. Purchase by BID.COM
(1) BID.COM will:
(a) within 30 days of receipt of notification from MICRA that such
SoundCards have been approved for distribution, purchase at least [Confidential
Information filed separately with the SEC] Players and [Confidential Information
filed separately with the SEC] SoundCards, with the image of and a recording
about Michael Jordan;
(b) place orders for additional Players and other SoundCards at the
earliest appropriate opportunity following the completion by MICRA of
arrangements necessary to manufacture and market those SoundCards;
(c) meet with MICRA every three months during the first year of the
initial term of this agreement and every six months thereafter to determine and
establish commercially reasonable quarterly sales targets;
(d) not remove or allow any employee or agent of BID.COM to remove
any of MICRA's product identifications or copyright, trademark or patent
notifications;
(e) give prominence to the MICRA trademark notice on all marketing
materials it produces as part of its promotional efforts; and
2
<PAGE>
(f) not market, distribute or sell or offer to market, distribute or
sell any other "talking trading card" or product reasonably similar to or
competitive with the SoundCards.
(2) MICRA will:
(a) Ensure that all licenses and rights as it deems necessary are
obtained for the manufacture and marketing of the Players and SoundCards;
(b) provide a minimum one year replacement or full refund warranty
on all SoundCards and Players;
(c) make the necessary arrangements to ensure the availability of
the SoundCards and Players in sufficient quantities to meet BID.COM's orders
promptly;
(d) sell Players to BID.COM at U.S. [Confidential Information filed
separately with the SEC] per unit and sell SoundCards at commercially reasonable
prices to be negotiated between BID.COM and MICRA in good faith based on the
guidelines set forth. in the attached Schedule "A"; and
(e) not sell or offer to sell the Players and SoundCards to other
purchasers at prices and on terms that are materially lower or more favorable
than the price and terms offered to BID.COM for the same products and similar
quantities thereby resulting in a competitive disadvantage.
The quantities ordered by BID.COM will be in commercially reasonable
amounts given the methods of marketing used by it. BID.COM understand that (i)
there will be a minimum order quantity of [Confidential Information filed
separately with the SEC] SoundCards for each order of SoundCards, unless
mutually agreed as per Schedule "A" attached (ii) delivery and payment will be
F.O.B. MICRA's Toronto facility or such other location as BID.COM may reasonably
request, and (iii) payment shall be made as to [Confidential Information filed
separately with the SEC] of the purchase price, by cash, certified cheque, bank
draft or money order, and as to the balance, by irrevocable, transferable letter
of credit, in each case delivered with the order.
5. BID.COM Promotion
BID.COM will actively market and promote the sale of the Players and the
SoundCards in a commercially reasonable fashion with a view to maximizing the
profit earned by BID.COM on the sale of Players and SoundCards and maximizing
the volume of Players and SoundCards ordered from MICRA, subject to BID.COM's
merchandising, inventory control and promotional techniques. BID.COM shall
consult with and advise MICRA of its proposed pricing policy and any changes
thereto.
6. MICRA
3
<PAGE>
Notwithstanding any other provision of this agreement, nothing herein shall
restrict, impair or otherwise limit MICRA's right and ability to market,
distribute and sell the Players and SoundCards to any customer which markets,
distributes or sells or intends to market, distribute or sell its products and
services through Electronic Distribution, provided that:
(a) such customer is not engaged primarily in the business of
marketing, distributing and selling products and services through Electronic
Distribution;
(b) MICRA advises such customers of the rights held by BID.COM and
uses its reasonable commercial best efforts to introduce BID.COM to such
customers to facilitate negotiations by BID.COM of exclusive sales by way of
Electronic Distribution; and
(c) MICRA takes all action it reasonably deems necessary to prevent
an infringement of the rights held by BID.COM by any of MICRA's customers.
7. Rights of Other Parties
Except in respect of any SoundCards which may be manufactured from time to
time at the specific request of BID.COM, MICRA shall be responsible for
obtaining all consents, licenses, rights or permits required to manufacture and
to sell the SoundCards and the Players throughout the world and shall ensure
that all royalties, fees and any other expenses are accounted for and paid.
MICRA's aggregate liability for costs or damages under this agreement shall be
limited to the purchase price for the Players and SoundCards purchased
hereunder. MICRA shall not be liable for any indirect, incidental, special or
consequential damages in connection with or arising out of the sale or use of
the Player and SoundCards.
8. Termination
Either MICRA or BID.COM (the "Terminating Party") may terminate this agreement:
(a) on [Confidential Information filed separately with the SEC]
written notice provided that:
(i) the other party has committed a material breach of its
obligations under this agreement including, for greater certainty, the failure
to satisfy any sales targets established by MICRA and BID.COM pursuant to
subsection 4(1)(e);
(ii) the Terminating Party has given written notice to the other
party of the material breach together with sufficient information about the
breach to permit the other party to respond to the notice; and
(iii) the other party has not cured the breach within
[Confidential Information filed separately with the SEC] of the date of the
receipt of the notice by the order party, or
4
<PAGE>
(b) immediately, if the other party is declared bankrupt or
insolvent or files for voluntary bankruptcy, insolvency or similar creditor
protection or otherwise causes to carry on its business.
9. Intellectual Party
(a) All patents, trade secrets, copyright, trademarks, trade names,
service marks, quality designations and other proprietary words, symbols and
technology of MICRA (collectively, "Intellectual Property") are and remain. the
exclusive property of MICRA, whether or not specifically registered or
recognized under applicable law. BID.COM will not take any action that
jeopardizes MICRA's rights in, or acquire any right to, the Intellectual
Property except the limited rights specified below in paragraph 9(b).
(b) BID.COM may use the trademarks, tradenames, service marks and
quality designations (collectively, the "Trademarks") exclusively to advertise
and promote the Player and Soundcards. All advertisements and promotional
materials shall (i) clearly identify MICRA as the owner of the Trademarks, (ii)
conform to MICRA's current trademark and logo type guidelines, and (iii)
otherwise comply with any applicable notice or marking requirement.
(c) Before publishing or disseminating any advertisement or
promotional material bearing a Trademark, BID.COM shall deliver a copy of the
advertisement or promotional materials to MICRA for approval. If MICRA gives
notice within five (5) business days of delivery that the proposed use of its
Trademark is inappropriate, BID.COM shall refrain from placing the advertisement
or promotional materials in circulation.
(d) BID.COM shall immediately notify MICRA if it learns (i) of any
potential infringement of MICRA's right in and to the Intellectual Property by a
third party, or (ii) the use of Intellectual Property may infringe the
proprietary rights of a third party.
10. Confidentiality
(a) Each party acknowledges that it may disclose to the other, in
connection to the performance of this agreement, data or other information which
is confidential or proprietary, the disclosure of which to or use by any
unauthorized party may be damaging (collectively, the "Confidential
Information"). No Confidential Information of a party shall be disclosed by the
other party to any person, except those of its employees or agents having a need
to know for the purposes contemplated by this agreement. If either party
discloses any of its Confidential Information to the other party, the party
receiving the Confidential Information shall (i) maintain it in confidence; (ii)
use at least the same degree of care in maintaining its secrecy as it uses in
maintaining the secrecy of its own proprietary confidential and trade secret
information, but in no event with less care than is reasonable given the nature
of the information; (iii) use it only to fulfill its obligations under this
agreement unless hereinafter agreed in writing by the other party; and (iv)
return all copies, notes, packages, diagrams, computer memory media and other
materials containing any portion of the Confidential Information to the
disclosing party upon its reasonable request given the rights and obligations of
the parties hereunder.
5
<PAGE>
(b) Neither party shall have any obligations of non-disclosure
concerning any portion of the Confidential Information of the other party of
which (i) is known or independently developed by the non-disclosing party before
receipt, directly or indirectly, from the disclosing parity; (ii) is lawfully
obtained, directly or indirectly, by the non-disclosing party under no
obligation of confidentiality from a third party acting in good faith; or (iii)
is or become publicly available other than its result to act or failure to act
by the non-disclosing party, its agent or employees.
11. General
(a) This agreement shall be governed by the laws of the Province of
Ontario and the parties hereby irrevocably attorn to the exclusive jurisdiction
of the Courts of the Province of Ontario in respect of the subject matter
hereof.
(b) MICRA and BID.COM are independent contractors and neither is the
agent, representative, partner or joint venturer of the other.
(c) If any provision of this agreement is deemed to be invalid or
unenforceable, that provision shall be severed from this agreement and the
remainder of this letter agreement shall remain in full force and effect. If
such severed provision is fundamental to the relationship governed by this
agreement, then either party shall have the right to terminate the
distributorship and related rights as if the severance of such provision was a
material breach of this letter agreement and such termination may only be
effected in accordance with Section 8 above.
(d) This agreement contains the entire understanding between the
parties with respect to the subject matter hereof and supersedes all prior and
contemporaneous written or oral negotiations and agreements. This agreement may
be amended only in writing signed by both parties.
(e) Neither party may transfer or assign this agreement, or any part
hereof, without the prior written approval of the other, not to be unreasonably
withheld; provided, however, that MICRA may transfer or assign this agreement to
a third party without the prior written consent of BID.COM so long as the
assignment or transfer is in connection with the sale or transfer of all or
substantially all of the assets of MICRA and the assignee agrees in writing to
be bound by the terms and conditions of this agreement.
(f) This agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns.
(g) The provisions of Sections 7, 9, 10 and 11(a) shall survive any
termination of this agreement.
(h) Any notice required or permitted hereunder shall be deemed given
when personally delivered or sent by facsimile properly addressed to the party
to receive the notice at the following address or any other address given to the
other party as provided in this paragraph:
6
<PAGE>
If to BID.COM:
Bid.Com International Inc.
2701 North Rocky Point Drive
Suite 510
Tampa, Florida 33607-5917
Attention: Jeff Lymburner
Facsimile: (813) 636-8026
Bid.Com International Inc.
6725 Airport Road
Suite 201
Mississauga, Ontario L4V 1V2
Attention: Paul Godin
Facsimile: (905) 672-7514
if to MICRA:
Micra Soundcards
135 West Beaver Creek Road
Richmond Hills, Ontario 1AB 1C6
Attention: Dieter Doederlein
Facsimile: (905) 889-4124
IN WITNESS WHEREOF, the parties have executed this agreement as of the day and
year first written above.
MICRA SOUNDCARDS INC.
Per:
---------------------------------
Dieter Doederlein
BID.COM INTERNATIONAL INC.
Per:
---------------------------------
Jeff Lymburner
7
<PAGE>
SCHEDULE "A"
Pricing Guidelines and Technical
Specifications for Soundcards
-----------------------------
($ in U.S. funds and for 12 second message only)
[Confidential Information filed separately with the SEC].
Set forth below are the parameters if BID.COM wishes to produce its own licensed
SoundCards.
Required materials:
[Confidential Information filed separately with the SEC]
Timing:
[Confidential Information filed separately with the SEC]
Other Specifications:
[Confidential Information filed separately with the SEC]
8
<PAGE>
Exhibit 3.23
AIM STOCK AGREEMENT
THIS AGREEMENT is made as of the 30th day of December, 1998 (the "Effective
Date") by and between BID.COM INTERNATIONAL INC., ("BID.COM"), a corporation
having a principal place of business at 6725 Airport Road, Suite 201,
Mississauga, Ontario, L4V 1V2 and AMERICAN INTERACTIVE MEDIA, INC. ("AIM"), a
corporation having a place of business at Suite 308, 611 Broadway, New York, NY,
10012.
BACKGROUND:
1. BID.COM has expertise in designing and operating online auctions.
2. AIM retained BID.COM to provide advice on establishing an AIM E-Commerce
Service as described below.
3. BID.COM has completed an assessment of AIM's network and infrastructure in
order to support the e-commerce technology of Bid.Com and set up a
demonstration site, at the request of AIM.
ARTICLE I
INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, each capitalized
term shall have the meanings indicated below.
"Agreement" means this Agreement and all schedules annexed to this
Agreement as the same may be amended from time to time in accordance with
the provisions hereof or thereof, "hereof'" "hereto" and "hereunder" and
similar expressions mean and refer to this Agreement and not to any
particular article or section; except where the context specifically
requires, "Article" or "Section" means and refers to the specified article
or section of this Agreement;
"AIM E-Commerce Service" means the service which will permit retail
consumers in the Territory including, without limitation, "small office
home office" customers ("SOHO") to access an online auction as currently
operated by BID.COM or its subsidiaries at the BID.COM Site by using their
cable modems or other television based on line enabling devices (or by way
of any method of internet access in the case of members of certain affinity
groups and in house networks produced and distributed by AIM) to
participate in on-line auctions of consumer goods and services, but
excluding business to business and liquidation applications;
<PAGE>
- 2 -
"AIM Stock" means that number of common shares in the capital of AIM which
has an aggregate value of [Confidential Information filed separately with
the SEC] valued at the average trading price of AIM stock on each of the
twenty-one (21) trading days prior to December 31,1998;
"BID.COM Site" means the Web site at which BID.COM will operate its online
auction service provided for the AIM E-Commerce Service as currently found
at the URL "www.bid.com";
"Business Day" means any day from Monday to Friday inclusive, except
statutory or civic holidays observed in Toronto, Ontario;
"Effective Date" has the meaning attributed thereto on the face page of
this Agreement;
"Joint Venture" means the Delaware company to be established and owned by
AIM to provide the AIM E-Commerce Service;
"Parties" means BID.COM and AIM collectively and "Party" means either of
them;
"Person" includes an individual, company, corporation, partnership,
government or government agency, authority or entity howsoever designated
or constituted;
"Reasonable Best Efforts" means that a party shall comply with the
obligation to which the covenant to use Reasonable Best Efforts applies in
all cases where such party has the ultimate discretion, control and ability
to do so, and that such party shall use commercially reasonable efforts to
comply with such obligation in cases where such party does not have such
ultimate discretion, control and ability;
"Registration Rights Agreement" means the agreement to be entered into
between the Parties providing for registration of the AIM stock;
"Territory" means the United States of America as presently constituted.
1.2 Headings.
The use of headings in this Agreement is for convenience of reference only
and shall not affect its interpretation.
1.3 Extended Meanings.
Words expressed in the singular include the plural and vice-versa and
words in one gender include all genders.
<PAGE>
- 3 -
1.4 Entire Agreement.
This Agreement, and any agreements and other documents to be delivered
pursuant to it (including without limitation the Registration Rights
Agreement), constitutes the entire agreement between the Parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, oral or written between the
Parties. The execution of this Agreement has not been induced by, nor do
either of the Parties rely upon or regard as material, any representations,
warranties, conditions, other agreements or acknowledgments not expressly
made in this Agreement or in the agreements and other documents to be
delivered pursuant hereto.
1.5 Currency.
Unless otherwise indicated, all dollar amounts referred to in this
Agreement are in Canadian funds.
1.6 Invalidity.
If in any jurisdiction a provision contained in this Agreement is found by
a court of competent jurisdiction to be invalid, illegal or unenforceable
in any respect, the validity, legality or enforceability of the remaining
provisions contained herein, or of such provision in any other jurisdiction
affected or impaired thereby.
1.7 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein
and shall be treated, in all respects, as an Ontario contract. The Parties
hereby irrevocably submit to the exclusive jurisdiction of the courts of
Ontario in respect of the subject matter hereof.
1.8 Consent.
Wherever any Party is required to obtain consent from another Party, such
consent shall not be unreasonably withheld or delayed.
ARTICLE II
1.9 Acknowledgment.
<PAGE>
- 4 -
AIM acknowledges that BID.COM has completed the initial consulting
feasibility assessment and set up a demonstration site for the AIM E-
Commerce Service in accordance with its agreement in respect thereof and to
the satisfaction of AIM in all respects.
1.10 Aim Stock.
[Confidential Information filed separately with the SEC]
ARTICLE III
1.11 Option to Purchase.
Until the AIM Stock becomes freely trading on a United States Stock
Exchange (satisfactory to BID.COM) in the hands of BID.COM or its assigns
and maintains an aggregate market value of not less than [Confidential
Information filed separately with the SEC] for a minimum of 30 consecutive
trading days on such exchange (as measured by the average trading price of
stock traded on each trading day) BID.COM shall have an option to acquire
[Confidential Information filed separately with the SEC] of the issued
stock of the Joint Venture for [Confidential Information filed separately
with the SEC]. Notwithstanding the foregoing, if BID.COM elects to exercise
the option, AIM shall have the ability to pay BID.COM [Confidential
Information filed separately with the SEC] in which event the option of
BID.COM under this Section shall be at an end and BID.COM shall forthwith
surrender the AIM Stock for cancellation.
ARTICLE IV
1.12 Confidentiality.
Each Party (hereinafter in this Section, the "Receiving Party") covenants
with the other Party (hereinafter in this Section, the "Disclosing Party")
that it shall keep confidential the Confidential Information of the
Disclosing Party to which the Receiving Party obtains access as a
consequence of entering into this Agreement and that it will take all
reasonable precautions to protect such Confidential Information from any
use, disclosure or copying except as expressly authorized by this
Agreement. The Receiving Party shall implement such procedures as the
Disclosing Party may reasonably require from time to time to improve the
security of the Confidential Information of the Disclosing Party in its
possession. This Section shall survive the termination of the Agreement.
Upon termination of this Agreement, the Receiving Party shall, at the
choice of the Disclosing Party, either return to the Disclosing Party or
destroy all copies or partial copies of Confidential Information of the
Disclosing Party in any form which is in the possession
<PAGE>
- 5 -
of the Receiving Party or under its control, and certify that all such
Confidential Information has been returned or otherwise destroyed.
ARTICLE V
ARBITRATION
1.13 Dispute Resolution Process.
If any dispute, disagreement, controversy or claim arising out of or
relating to this Agreement including, without limitation, its application,
interpretation, performance, breach, termination, enforcement or damages,
or remedies arising out of the breach of or non-compliance therewith, shall
be finally determined by arbitration before a single arbitrator to be
commenced and conducted in the English language in Toronto in accordance
with the Arbitration Act (Ontario). The Parties hereto agree that:
(a) subject to mutual agreement between the Parties to the contrary,
the arbitrator shall be a person who is legally trained and
trained as a professional arbitrator and who has a minimum of
five (5) years experience in the licensing of computer software;
(b) the Parties shall agree on the identity of the arbitrator within
10 days of notice of reference to arbitration and in default
thereof, either Party may apply to a Judge of the Supreme Court
of Ontario, General Division, to appoint an arbitrator with the
foregoing qualifications;
(c) the Parties shall be required to make written submissions to the
arbitrator within 7 days of appointment and shall not be entitled
to make verbal representations or further submissions unless so
requested by the arbitrator. Any Party who does not comply with
the foregoing time period shall not be entitled to make any
submissions without the written approval of the other Party;
(d) the arbitrator shall be required to render his decision in
writing within 10 days of the period mentioned in Subsection
5.1(c);
(e) neither of the Parties shall apply to the Courts of Ontario or
any other jurisdiction to attempt to enjoin, delay, impede or
otherwise interfere with
<PAGE>
- 6 -
or limit the scope of the arbitration or the powers of the
arbitrator provided for in the Arbitration Act (Ontario)
(f) the award of the arbitrator shall be a final and conclusive award
and judgment with respect to all matters properly before the
arbitral tribunal in accordance with the Arbitration Act
(Ontario) and neither Party shall appeal such award in any manner
whatever to any court, tribunal or other authority; and
(g) the award of the arbitral tribunal may be entered and enforced by
any court in any jurisdiction having jurisdiction over the
Parties hereto or the subject matter of the award or the
properties or assets of either of the Parties hereto.
ARTICLE VI
GENERAL
1.14 Notice.
Any notice or other communication (a "Notice") required or permitted to be
given or made hereunder shall be in writing and shall be well and
sufficiently given or made if:
(a) delivered in person during normal business hours on a Business Day and
left with a receptionist or other responsible employee of the relevant
Party at the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including facsimile
transmission, which produces a paper record (an "Electronic
Transmission"), charges prepaid and confirmed by prepaid first class
mail;
in the case of a Notice to AIM addressed to it at:
American Interactive Media, Inc.
Suite 308, 611 Broadway
New York, New York 10012
Attention: Mark Graff
Fax No.: (212) 358-0189
with a copy to:
<PAGE>
- 7 -
Curtis, Mallet-Prevost,Colt & Mosle
101 Park Avenue,
New York, New York,
101780061
Attention: Jeffrey N. Ostrager
Fax No.: (212) 697-1559
and in the case of a Notice to BID.COM addressed to it at:
BID.COM International Inc.
201 - 6725 Airport Road
Mississauga, Ontario
L4V 1V2
Attention: Paul Godin
Fax No.: (905) 672-7514
with a copy to:
Gowling, Strathy & Henderson
Barristers & Solicitors
Commerce Court West
Suite 4900
Toronto, Ontario
M5L 1J3
Attention: David Pamenter
Fax No.: (416) 862-7661
Any Notice given or made in accordance with this Section 6.1 shall be deemed to
have been given or made and to have been received:
(a) on the day it was delivered, if delivered as aforesaid;
(b) on the fifth Business Day (excluding each day during which there
exists any general interruption of postal services due to strike,
lockout or other cause) after it was mailed, if mailed as aforesaid;
and
<PAGE>
- 8 -
(c) on the day of sending if sent by Electronic Transmission during normal
business hours of the addressee on a Business Day and, if not, then on
the first Business Day after the sending thereof.
Either Party may from time to time change its address for notice by giving
Notice to other Party in accordance with the provisions of this Section 6.1.
1.15 Assignment.
Neither Party may assign its rights and obligations under this Agreement,
in whole or in part, without the prior consent in writing of the other and
any purported assignment made without that consent is void and of no effect
(save and except for an assignment as an incident of security taken in a
normal course financing transaction). No assignment of this Agreement
shall relieve either party from any obligation under this Agreement.
1.16 Binding on Successors.
This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.
1.17 Further Assurances.
Each Party agrees that upon the written request of the other Party, it will
do all such acts and execute all such further documents, conveyances,
deeds, assignments, transfers and the like, and will cause the doing of all
such acts and will cause the execution of all such further documents as are
within its power to cause the doing or execution of, as any other Party
hereto may from time to time reasonably request be done and/or executed as
may be necessary or desirable to give effect to this Agreement.
1.18 Independent Contractors.
It is understood and agreed that in giving effect to this Agreement, no
Party shall be or be deemed a partner, agent or employee of another Party
for any purpose and that their relationship to each other shall be that of
independent contractors. Nothing in this Agreement shall constitute a
partnership or a joint venture between the Parties. No Party shall have
the right to enter into contracts or pledge the credit of or incur expenses
of liabilities on behalf of the other Party.
1.19 Waiver.
A waiver by a Party hereto of any of its rights hereunder or of the
performance by the other Party of any of its obligations hereunder shall be
without prejudice to all of the
<PAGE>
- 9 -
other rights hereunder of the Party so waiving and shall not constitute a
waiver of any such other rights or, in any other instance, of the rights so
waived, or a waiver of the performance by the other Party of any of its
other obligations hereunder or of the performance, in any other instance,
of the obligations so waived. No waiver shall be effective or binding upon
a Party unless the same shall be expressed in writing and executed by the
Party to be bound.
1.20 Compliance With Law.
Each party shall, in the performance of this Agreement, fully comply with,
and abide by, all laws, regulations, regulatory rulings or directives,
court orders, and decisions of administrative tribunals of competent
jurisdiction, that may, in any manner or extent, concern, govern, or affect
either party's respective performance of, and obligations under, this
Agreement.
1.21 Interpretation.
This Agreement has been negotiated by the parties hereto and their
respective counsel and shall be fairly interpreted in accordance with its
terms and without any rules of construction relating to which party drafted
the Agreement being applied in favour or against either party.
1.22 Effective Date.
This Agreement shall not become a valid and binding contract unless and
until each party has duly executed and delivered this Agreement. For
greater certainty, there shall be no agreement, whether oral, written,
express, implied or otherwise notwithstanding any performance between the
parties concerning the subject matter of this document, including, without
limitation, by course of conduct, doctrine of part performance, or
otherwise.
1.23 Amendment.
No amendment of any provision of this Agreement shall be effective unless
such amendment is embodied in a written agreement which is: (i) expressly
stated to be intended to amend this Agreement; and (ii) executed by two
authorized signing officers of AIM and an authorized officer of BID.COM.
For greater certainty, the parties acknowledge and agree that no
representations, warranties, conditions, covenants or other statements or
commitments, whether made orally, in writing, by course of conduct or
<PAGE>
- 10 -
otherwise, and whether made prior to the Effective Date of this Agreement
or thereafter, shall be binding on either of the parties.
1.24 Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein
and shall be treated, in all respects, as an Ontario contract. The parties
hereby: (i) irrevocably submit to the exclusive jurisdiction of the courts
of Ontario in respect of the subject matter hereof; (ii) consent to service
of process being effected upon the other party by registered mail sent to
the address set forth in section 6.1 hereof; (iii) agree not to seek,
request, claim or pursue trial by jury; and (iv) agree not to seek,
request, claim or pursue any right, claim, or entitlement to any punitive
or exemplary damages whatsoever.
IN WITNESS WHEREOF this Agreement is executed by the Parties as of the date
first written, above.
BID.COM INTERNATIONAL INC.
By:
---------------------------------
(Duly Authorized Officer)
By:
---------------------------------
(Duly Authorized Officer)
AMERICAN INTERACTIVE MEDIA, INC.
By:
---------------------------------
(Duly Authorized Officer)
By:
---------------------------------
(Duly Authorized Officer)
CP Doc #: 124790-1
<PAGE>
Exhibit 3.24
TERMINATION AGREEMENT
---------------------
This Termination Agreement (the "Termination Agreement"), dated as of
March __, 1999, is made and entered into by and between America Online, Inc.
("AOL"), with offices located at 22000 AOL Way, Dulles, Virginia 20166, and
Internet Liquidators International, Inc. ("IL"), a _______ corporation with
offices located at 2701 Rocky Point Drive, Suite 510, Tampa, FL 33607 (AOL and
IL are referred to herein individually as a "Party" and collectively as the
"Parties").
INTRODUCTION
------------
WHEREAS, AOL and IL are parties to an Interactive Marketing Agreement
dated as of November 1, 1997 (the "Agreement"); and
WHEREAS, IL has requested that AOL agree to terminate the Agreement
and enter into a new contract with IL with substantially different terms; and
WHEREAS, AOL and IL will enter into an Advertising Insertion Order
reflecting such substantially different terms simultaneously with execution of
this Termination Agreement;
NOW, THEREFORE, in consideration of the terms and conditions set forth
in this Termination Agreement and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, AOL and IL hereby agree
to terminate the Agreement in accordance with the following terms and
conditions:
TERMS
-----
1. TERMINATION.
-----------
AOL and IL hereby agree to terminate the Agreement as of March ___,
1999. This termination shall be subject to survival of those terms expressly
identified for survival in the Agreement. This Termination Agreement shall not
constitute a waiver by either Party of any claims which may exist, now or in the
future, pursuant to the Agreement.
2. GENERAL PROVISIONS.
------------------
2.1 Further Assurances. Each party shall take such further action
------------------
(including, but not limited to, the execution, acknowledgment and
delivery of documents) as may reasonably be requested by the other
party in order to facilitate the implementation and performance of
this Termination Agreement.
2.2 Confidentiality. Neither party shall disclose the existence of this
---------------
Termination Agreement or the terms hereof without the prior approval of the
other party except: (i) as may be required by law, regulation, or court order,
or rules or regulations of any securities exchange; or (ii) in the case of
confidential disclosures on a need to know basis to employees, consultants,
counsel, accountants, investors or other professional advisers of the party and
its affiliates.
<PAGE>
2.3 Entire Agreement. This Termination Agreement is the entire agreement
----------------
between the parties regarding the subject matter contained herein. It
supersedes, and its terms govern, all prior proposals, agreements, or
other communications between the parties, oral or written, regarding
the subject matter contained herein. This Termination Agreement shall
not be modified or amended unless done so in a writing signed by
authorized representatives of both parties.
2.4 Applicable Law. This Termination Agreement shall be interpreted,
--------------
construed and enforced in all respects in accordance with the laws of
the Commonwealth of Virginia, except for its conflicts of laws
principles.
2.5 Construction. In the event that any provision of this Termination
------------
Agreement conflicts with the law under which this Termination
Agreement is to be construed or if any such provision is held invalid
by a court with jurisdiction over the parties to this Agreement, such
provision shall be deemed to be restated to reflect as nearly as
possible the original intentions of the parties in accordance with
applicable law, and the remainder of this Termination Agreement shall
remain in full force and effect.
2.6 Counterparts. This Termination Agreement may be executed in
------------
counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same document.
IN WITNESS WHEREOF, the Parties have executed this Termination Agreement as of
the date first above written.
AMERICA ONLINE, INC. INTERNET LIQUIDATORS INTERNATIONAL, INC.
By: _______________________________ By: _______________________________
Print Name: ________________________ Print Name: ________________________
Title: ______________________________ Title: ______________________________
<PAGE>
EXHIBIT 3.25
[AOL ADVERTISING INSERTION ORDER] [LOGO]
AMERICA
ONLINE
Contract #:
--------------------
AOL Salesperson: Credit approval received
---------------
Sales Coordinator:
-------------
Date:
--------------------------
<TABLE>
<CAPTION>
Advertiser Advertising Agency
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Jeff Lymburner
- --------------------------------------------------------------------------------------------------
Company Name Internet Liquidators International, Inc.
- --------------------------------------------------------------------------------------------------
Address Line 1 2701 Rocky Point Drive, Ste. 510
- --------------------------------------------------------------------------------------------------
Address Line 2 Tampa, FL 33607
- --------------------------------------------------------------------------------------------------
Phone # 888-750-7467
- --------------------------------------------------------------------------------------------------
Fax #
- --------------------------------------------------------------------------------------------------
Email [email protected]
- ------------------------------------------------------------------------------
SIC Code
- ------------------------------------
Advertiser IAB Category
- --------------------------------------------------------------------------------------------------
<CAPTION>
Billing Information
- --------------------------------------------------------------------------------------------------
Send Invoices to (choose one): Advertiser Agency
<S> <C> <C>
Advertiser or Agency Billing
Contact Person
- --------------------------------------------------------------------------------------------------
Company Name Same as above
- --------------------------------------------------------------------------------------------------
Billing Address Line 1
- --------------------------------------------------------------------------------------------------
Billing Address Line 2
- --------------------------------------------------------------------------------------------------
Billing Phone #
- --------------------------------------------------------------------------------------------------
Billing Fax #
- --------------------------------------------------------------------------------------------------
Billing Email Address
- --------------------------------------------------------------------------------------------------
P.O. #, if applicable
- --------------------------------------------------------------------------------------------------
</TABLE>
Payments:
Advertiser shall pay AOL One Million Seven Hundred Fifty Thousand Dollars
(US$1,750,000) as follows:
a. Three Hundred Fifty Thousand Dollars (US$350,000) on execution of this
Insertion Order;
b. Three Hundred Fifty Thousand Dollars (US$350,000) on April 1, 1999;
c. Three Hundred Fifty Thousand Dollars (US$350,000) on July 1, 1999;
d. Three Hundred Fifty Thousand Dollars (US$350,000) on October 1, 1999; and
e. Three Hundred Fifty Thousand Dollars (US$350,000) on January 1, 2000.
Late Payments; Wired Payments. All amounts owed hereunder not paid when due
and payable will bear interest from the date such amounts are due and payable
at the prime rate in effect at such time. All payments required hereunder
will be paid in immediately available, non-refundable U.S. funds wired to the
"America Online" account, Account Number 323070752 at The Chase Manhattan
Bank, 1 Chase Manhattan Plaza, New York, NY 10081 (ABA: 021000021). In the
event of nonpayment, AOL reserves the right to immediately terminate this
Insertion Order Agreement with written notice to Advertiser.
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Inventory Type (choose one): [ ] AOL Service only [ ] AOL Affiliate only (e.g. AOL.com)
[ ] AOL Service & AOL Affiliate
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AOL Service
- --------------------------------------------------------------------------------------------------------------------
Inventory
- --------------------------------------------------------------------------------------------------------------------
AOL Inventory/Demographic* Purchased Display Display Total Gross Price
Start Stop Ad Type
Date Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shopping Channel Auctions & Outlets 2/1/99 3/31/00 Anchor Tenant $ 416,000
Department
- --------------------------------------------------------------------------------------------------------------------
Shopping Channel Computing Products 2/1/99 3/31/00 Tenant $ 47,500
More Hardware Department
- --------------------------------------------------------------------------------------------------------------------
Shopping Channel Computing Products 2/1/99 3/31/00 More Stores Listbox Entry $ 60,000
Department
- --------------------------------------------------------------------------------------------------------------------
Shopping Channel Office Products & 2/1/99 3/31/00 Tenant $ 140,000
Services Department
- --------------------------------------------------------------------------------------------------------------------
Computing Superstore Auctions 2/1/99 3/31/00 Continuous Placement $1,000,000
Department
- --------------------------------------------------------------------------------------------------------------------
Sports Channel 2/1/99 3/31/00 Banner Advertising $ 90,000
(Total of 1,500,000 Impressions)
- --------------------------------------------------------------------------------------------------------------------
* Attach completed AOL Demographic Total: $1,750,000
Profile Worksheet
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
Art
- --------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency:
----------------------------------------
[ ] 234x60 IAB Standard /10k Max [ ] 145x30 Old Standard /10k Max [ ] 120x60 Shopping/10k Max
[ ] 175x45 Chat/Mail in-box/10k Max [ ] 197x40 PF Area/10k Max [ ] Special_____
* Static banners only, no animation*
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http://www.bid.com (the "Affiliated Advertiser
Site"). Advertiser shall be responsible for any hosting or communication costs associated with the Affiliated Advertiser Site.
Please send artwork and URL to (choose one):
[ ] [email protected] [ ] [email protected]
------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of
the site linked to the Advertisement.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AOL Affiliate (e.g., AOL.com)
- --------------------------------------------------------------------------------------------------------------------
Inventory
- --------------------------------------------------------------------------------------------------------------------
AOL Affiliate Display Display
Inventory/Demographic* Start Stop Ad Type Total Gross Price
Purchased Date Date
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
N/A
- --------------------------------------------------------------------------------------------------------------------
* See attached package description for
any AOL.com package purchases
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
Art
- --------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date.
Artwork required from Advertiser/Agency :
-----------------------------------------
[ ] 468x60 NF Reviews, Search Terms, My News & Hometown/10k Max/animation OK
[ ] 100x70 AOL.com Home Page/3k Max/No animation [ ] 120x60 NF Home Page/2k Max/No animation
[ ] 120x60 Shopping/4k Max/No animation [ ] 234x60 NF Kids Only & Hometown/5k Max/animation OK
[ ] 120x60 Instant Messenger/7.5k Max/animation OK
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be the same address as that of the Advertiser Site.
Please send artwork and URL to (choose one):
[ ] [email protected] [ ] [email protected]
------------------ ------------------
AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of
the site linked to the Advertisement.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Advertising Purchase Summary
- --------------------------------------------------------------------------------------------------------------------
Total Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
AOL Networks $1,750,000
- --------------------------------------------------------------------------------------------------------------------
AOL Affiliate N/A
- --------------------------------------------------------------------------------------------------------------------
Total Purchase Price $1,750,000
- --------------------------------------------------------------------------------------------------------------------
(Less Agency Discount) N/A
- --------------------------------------------------------------------------------------------------------------------
Net Purchase Price
-------------------------------------------------------
$1,750,000
-------------------------------------------------------
</TABLE>
The products and/or services to be offered or promoted by Advertiser in the
Advertisements are as follows: consumer retail-oriented products, as more
specifically described on Exhibit A.
Navigation. Advertiser shall provide continuous navigational ability for AOL or
- -----------
users to return to an agreed-upon point on the AOL Service (for which AOL shall
supply the proper address) from the Affiliated Advertiser Site (e.g., the point
on the AOL Service from which the Affiliated Advertiser Site is linked), which,
at AOL's option, may be satisfied through the use of a hybrid browser format.
Additional Terms. The Parties shall comply with the terms set forth on Exhibits
- -----------------
A, B, and C attached hereto and incorporated herein by reference.
Standard Terms and Conditions. This Insertion Order incorporates by reference
- -----------------------------
AOL's standard advertising terms and conditions (the "Standard Terms"),
including terms related to advertising material, payment modifications,
cancellation rights, usage data, limitations of liability, disclaimers,
indemnifications, use of AOL member information and miscellaneous legal terms.
Among other things, the Standard Terms provide AOL the right to cancel this
Insertion Order Agreement on thirty days notice to Advertiser (or upon such
shorter notice as may be designated by AOL in the event that AOL believes that
further display of the Advertisement will expose AOL to liability or other
adverse consequences), in which case Advertiser shall only be responsible for
the pro-rata portion of payments attributable to the period preceding such
termination. The Standard Ad Terms appear at keyword "Standard Ad Terms3" on
the U.S.-based America Online brand service and at
"http://mediaspace.aol.com/adterms3.html." A hard copy of the Standard Ad Terms
will be provided to advertiser upon request. Advertiser acknowledges that it
has been provided an opportunity to review the Standard Terms and agrees to be
bound by them.
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including Exhibits A and B and the Standard Terms incorporated
by reference) shall be binding on both parties when signed on behalf of each
party and delivered to the other party (which delivery may be accomplished by
facsimile transmission of the signature pages hereto).
3
<PAGE>
AOL ADVERTISER
By: _________________________________ By:__________________________________
(signature) (signature)
Print Name: __________________________ Print Name:___________________________
Title: ________________________________ Title:________________________________
(Print or Type) (Print or Type)
Date: _______________________________ Date:________________________________
4
<PAGE>
EXHIBIT A
---------
1. General Sales Restrictions. Except as provided in paragraphs 1 and 2 of
--------------------------
this Exhibit A, Advertiser will be entitled to sell only consumer retail-
oriented products through the Affiliated Advertiser Site and only through
the format of an Online Auction ("Auction Sales"). Notwithstanding the
foregoing, Advertiser will be entitled to create a non-prominent, below-
the-fold link to a limited sub-area, accessible only to a limited number of
pre-qualified users possessing special Advertiser passcodes, in which
Advertiser will conduct business-oriented Online Auctions (including
business-to-business sales) (the "Business-to-Business Area"); provided
that Advertiser will not use any of the promotional placements provided
hereunder or any other space on the Affiliated Advertiser Site or the AOL
Network to promote, market or advertise the Business-to-Business Area. Any
changes or modifications to the consumer retail-oriented focus of the
Affiliated Advertiser Site or any material alteration to the Online Auction
format (e.g., use of member-to-member auctions or fee-based membership
clubs) will be subject to AOL's prior written approval. In addition, in no
event will Advertiser promote, market, distribute, sell or otherwise offer
or provide through the Affiliated Advertiser Site (or links therefrom)
products from any category in which AOL has granted an exclusivity to a
third party. The limitations in the foregoing sentence are referred to
herein as the "General Sales Restrictions." Notwithstanding any
restriction on general book sales, Advertiser will be entitled to sell rare
used books (i.e., books previously possessed by a consumer) in print form
through the Affiliated Advertiser Site, so long as Advertiser does not
offer more than [Confidential Information filed separately with the SEC]
titles at any one time. For the purposes of this insertion order, "Online
Auctions" shall mean a traditional or "Yankee" auction format where bidders
compete for a single item over a period of time until the highest bidder
purchases the product, or a "Dutch" auction format where a group of
identical products are offered for a period of time and the price is slowly
lowered until all of the available items have been purchased.
2. Direct Sales. Subject to the General Sales Restrictions and paragraph 3
------------
below, Advertiser will be entitled to sell directly to AOL users through
the Affiliated Advertiser Site (i.e., through a non-Online Auction format
on the Affiliated Advertiser Site) any of the Auction Products listed in
paragraph 12 below, so long as (a) such sales ("Direct Sales") do not
constitute more than [Confidential Information filed separately with the
SEC] of the transaction revenues generated through the Affiliated
Advertiser Site in any quarter and (b) Direct Sales in any category do not
constitute [Confidential Information filed separately with the SEC] of the
transaction revenues generated through the Affiliated Advertiser Site in
any quarter; provided that, subject to the General Sales Restrictions,
Advertiser will be entitled to sell such Auction Products to AOL users
through "offline" means (e.g., direct mail) and email, subject to the
terms and conditions of this Agreement. Any additions to the list of
Auction Products will be subject to AOL's prior written approval.
3. Promotional Limitations. Subject to the General Sales Restrictions,
-----------------------
Advertiser will be entitled to promote, market and advertise its products
using the promotional placements described in this insertion order, subject
to the following: (i) absent AOL's prior written approval, Advertiser will
not promote, market or distribute any products other than those listed as
Auction Products in Paragraph 12 below (or those otherwise allowed pursuant
to Paragraph 1 of this Exhibit A); and (ii) all promotion, marketing and
advertising for Auction Sales will indicate that the products are being
offered in an Online Auction format.
4. Product Offering. Advertiser will ensure that the Affiliated Advertiser
----------------
Site includes all of the products and other Content (including, without
limitation, any features, functionality or technology) that are then made
available by or on behalf of Advertiser through any distribution channel;
provided, however, that (a) such inclusion will not be required where it is
commercially or technically impractical to either Party (i.e., inclusion
would cause either Party to incur substantial incremental costs); and (b)
the specific changes in scope, nature and/or offerings required by such
inclusion will be subject to AOL's review and approval and the terms of
this Agreement.
5. Online Auctions Terms and Conditions. Advertiser will ensure that (a) the
------------------------------------
pricing and the terms and conditions related to Online Auctions services in
the Affiliated Advertiser Site are no less favorable, taken as a whole, to
the pricing and the terms and conditions for substantially similar Online
Auctions services offered by or on behalf of Advertiser or through any
Additional Advertiser Channel under Advertiser's control and (b) the
pricing and the terms and conditions related to Online Auctions services in
the Affiliated Advertiser Site will be reasonably competitive, taken as a
whole, with the pricing and the terms and conditions for substantially
similar Online Auctions services offered by any Advertiser competitor
through any online medium.
5
<PAGE>
6. Special Offers. Advertiser will (a) promote through the Affiliated
--------------
Advertiser Site any special or promotional offers made available by or on
behalf of Advertiser or through any Additional Advertiser Channel
controlled by Advertiser and (b) promote through the Affiliated Advertiser
Site special or promotional offers during the term of this insertion order
which are available exclusively to AOL users (e.g., AOL users-only auctions
for certain products, free gift certificates to AOL users upon the purchase
of product(s), tie-ins to AOL's reward or frequent purchaser points
program) ((a) and (b) collectively, the "Special Offers"). Advertiser
shall notify AOL in advance of each Special Offer. In the event that AOL
does not promote a Special Offer from one or more locations on the AOL
Service within a reasonable time after the offer is first made available,
Advertiser may discontinue such Special Offer.. Advertiser will provide
AOL with reasonable prior notice of Special Offers so that AOL can market
the availability of such Special Offers in the manner AOL deems appropriate
in its editorial discretion, subject to the terms and conditions hereof.
7. AOL Quick Checkout. Advertiser will take all reasonable steps necessary to
------------------
conform its promotion and sale of products through the Advertiser Site to
the then-existing commerce technologies made available to Advertiser by
AOL, including without limitation AOL's "quick checkout" tool which allows
AOL users to enter payment and shipping information which is then passed
from AOL's centralized server unit to Advertiser for order fulfillment
("AOL Quick Checkout"). AOL will make all reasonable efforts to provide
the tools for the Advertiser to enable the Advertiser Site with the AOL
Quick Checkout technology and functionality. Collection, storage and
disclosure of information which Advertiser provides to AOL, will be subject
to AOL's privacy policy and all confidentiality requirements hereunder. To
the extent that the Advertiser Site includes AOL's Quick Checkout,
Advertiser will ensure that the AOL Quick Checkout is of equal placement
and promotion prominence to other available payment options.
8. Merchant Certification Program. Advertiser will participate in any
------------------------------
generally applicable "Certified Merchant" program operated by AOL or its
authorized agents or contractors. Such program may require Advertiser
participants on the Shopping Channel on an ongoing basis to meet certain
reasonable standards relating to provision of electronic commerce through
the AOL Service, AOL.com and the CompuServe Service and may also require
the payment of certain reasonable certification fees to AOL or its
authorized agents or contractors operating the program.
9. BizRate Survey. Advertiser agrees to (i) participate in the BizRate
--------------
Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which
provides opt-in satisfaction surveys to Users who purchase products through
such Advertiser Site or such other provider of such services as AOL may
designate or approve from time to time, and (ii) provide a link to
BizRate's then-current standard survey forms, or such other survey forms
offered by any other party that AOL may reasonably designate or approve
from time to time. Advertiser's participation shall be based upon a
separate written agreement which Advertiser will enter into with BCE, or
other such party reasonably designated or approved by AOL. Advertiser
hereby authorizes BCE to provide to AOL any and all reports provided to
Advertiser by BCE, or other third party providing such services, and
agrees to provide written notice of such authorization to BCE, or such
other third party.
10. Specific Customer Service Requirements. Advertiser will receive all emails
--------------------------------------
from Customers via a computer available to Advertiser's customer service
staff and generally respond to such emails within one business day of
receipt. Advertiser will receive all orders electronically and generally
process all orders within one business day of receipt, provided products
ordered are not advance order items. Advertiser will ensure that all
orders of products are received, processed, fulfilled and delivered on a
timely and professional basis. Advertiser will offer AOL users who
purchase products through such the Advertiser Site a money-back
satisfaction guarantee. Advertiser will bear all responsibility for
compliance with federal, state and local laws in the event that products
are out of stock or are no longer available at the time an order is
received. Advertiser will also comply with the requirements of any federal,
state or local consumer protection or disclosure law. Payment for products
will be collected by Advertiser directly from customers. Advertiser's
order fulfillment operation will be subject to AOL's reasonable review.
11. Reports to AOL. Advertiser will provide AOL with monthly reports, in a
--------------
form reasonably satisfactory to AOL, which detail the following information
for the previous month: (a) categories of products offered for sale
through the Advertiser Site, (b) percentage of total transaction revenues
derived from Direct Sales through the Advertiser Site, and (c) percentage
of transaction revenues derived from Direct Sales through the Advertiser
Site in each category.
6
<PAGE>
12. Auction Products. "Auction Products" shall consist of products in the
-----------------
following categories: Computers and Computer-Related Products (Desktop
Computers, Notebook Computers, Monitors, Upgrades & Accessories)
Printers, Scanners, Copiers, Games, Consumer Electronics, Cameras, Sporting
Goods, Jewelry, Travel, Appliances, Gifts, Rare Books, Collectibles, Toys,
Memorabilia (sports, entertainment & other), Housewares, Apparel and
Wearables.
EXHIBIT B
---------
Operations
----------
1. Affiliated Advertiser Site Infrastructure. Advertiser will be responsible
-----------------------------------------
for all communications, hosting and connectivity costs and expenses
associated with the Affiliated Advertiser Site. Advertiser will provide all
hardware, software, telecommunications lines and other infrastructure
necessary to meet traffic demands on the Affiliated Advertiser Site from the
AOL Network. Advertiser will design and implement the network between the
AOL Service and Affiliated Advertiser Site such that (i) no single component
failure will have a materially adverse impact on AOL Members seeking to
reach the Affiliated Advertiser Site from the AOL Network and (ii) no single
line will run at more than 70% average utilization for a 5-minute peak in a
daily period. In this regard, Advertiser will provide AOL, upon request,
with a detailed network diagram regarding the network infrastructure
supporting the Affiliated Advertiser Site. In the event that Advertiser
elects to create a custom version of the Affiliated Advertiser Site in order
to comply with the terms of this Agreement, Advertiser will bear
responsibility for all aspects of the implementation, management and cost of
such customized site.
2. Optimization; Speed. Advertiser will use commercially reasonable efforts to
-------------------
ensure that: (a) the functionality and features within the Affiliated
Advertiser Site are optimized for the client software then in use by AOL
Members; and (b) the Affiliated Advertiser Site is designed and populated
in a manner that minimizes delays when AOL Members attempt to access such
site. At a minimum, Advertiser will ensure that the Affiliated Advertiser
Site's data transfers initiate within fewer than fifteen (15) seconds on
average. Prior to commercial launch of any material promotions described
herein, Advertiser will permit AOL to conduct performance and load testing
of the Affiliated Advertiser Site (in person or through remote
communications), with such commercial launch not to commence until such
time as AOL is reasonably satisfied with the results of any such testing.
3. User Interface. Advertiser will maintain a graphical user interface within
--------------
the Affiliated Advertiser Site that is competitive in all material respects
with interfaces of other similar sites based on similar form technology.
AOL reserves the right to review and approve the user interface and site
design prior to launch of the Promotions and to conduct focus group testing
to assess compliance with respect to such consultation and with respect to
Advertiser's compliance with the preceding sentence.
4. Technical Problems. Advertiser agrees to use commercially reasonable
------------------
efforts to address material technical problems (over which Advertiser
exercises control) affecting use by AOL Members of the Affiliated
Advertiser Site (a "Advertiser Technical Problem") promptly following
notice thereof. In the event that Advertiser is unable to promptly resolve
a Advertiser Technical Problem following notice thereof from AOL
(including, without limitation, infrastructure deficiencies producing user
delays), AOL will have the right to regulate the promotions it provides to
Advertiser hereunder until such time as Advertiser corrects the Advertiser
Technical Problem at issue.
5. Monitoring. Advertiser will ensure that the performance and availability of
----------
the Affiliated Advertiser Site is monitored on a continuous basis.
Advertiser will provide AOL with contact information (including e-mail,
phone, pager and fax information, as applicable, for both during and after
business hours) for Advertiser's principal business and technical
representatives, for use in cases when issues or problems arise with
respect to the Affiliated Advertiser Site.
6. Telecommunications. The Parties agree to explore encryption methodology to
------------------
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component
failure will significantly impact AOL Users. The network will be sized such
that no single line runs at more than 70% average utilization for a 5-
minute peak in a daily period.
7. Security. Advertiser will utilize Internet standard encryption technologies
--------
(e.g., Secure Socket Layer SSL) to provide a secure environment for
conducting transactions and/or transferring private member information
(e.g. credit card numbers, banking/financial information, and member
address information) to and from the Affiliated Advertiser Site. Advertiser
will facilitate periodic reviews of the Affiliated Advertiser Site by AOL
in order to evaluate the security risks of such site. Advertiser will
promptly remedy any security risks or breaches of security as may be
identified by AOL's Operations Security team.
8. Technical Performance.
---------------------
i. [Confidential Information filed
separately with the SEC]
ii. Prior to releasing material, new functionality or features through
the Affiliated Advertiser Site ("New Functionality"), Advertiser will use
commercially reasonable efforts to either (i) test the New Functionality to
confirm its compatibility with AOL Service client software or (ii) provide
AOL with written notice of the New Functionality so that AOL can perform
tests of the New Functionality to confirm its compatibility with the AOL
Service client software.
7
<PAGE>
9. AOL Internet Services Advertiser Support. AOL will provide Advertiser with
----------------------------------------
access to the standard online resources, standards and guidelines
documentation, technical phone support, monitoring and after-hours
assistance that AOL makes generally available to similarly situated web-
based partners. AOL support will not, in any case, be involved with content
creation on behalf of Advertiser or support for any technologies,
databases, software or other applications which are not supported by AOL or
are related to any Advertiser area other than the Affiliated Advertiser
Site. Support to be provided by AOL is contingent on Advertiser providing
to AOL demo account information (where applicable), a detailed description
of the Affiliated Advertiser Site's software, hardware and network
architecture and access to the Affiliated Advertiser Site for purposes of
such performance and load testing as AOL elects to conduct.
10.
8
<PAGE>
EXHIBIT C
---------
Cross-Promotion
---------------
Online
- ------
In each Interactive Site controlled by Advertiser, Advertiser will include:
. A prominent promotional banner linking to AOL-designated Content on AOL.com
or the AOL Service (if feasible) appearing "above the fold" on the first
screen of the Advertiser Interactive Site
. A prominent "Try AOL" feature elsewhere in the site where users can obtain
promotional information about AOL products and services and, at AOL's option,
download or order AOL's then-current version of client software for the AOL
Service or software for any other AOL products or services (e.g., AOL's
Instant Messenger service)/1/; and
. AOL will pay Advertiser a standard bounty for each person who registers for
the AOL Network using Advertiser's special identifier for this promotion and
subsequently pays AOL at least three monthly usage fees for the use of the
AOL Network. Note that if this promotion is delivered through Microsoft's
Active Desktop or any other "push" product (an "Operating System"), such
feature will link users directly to AOL software within the Operating System
or direct users without Internet access to an AOL application setup program
within the Operating System (all subject to any standard policies of the
Operating System).
. To the extent Advertiser offers or promotes any products or services similar
to AOL's "component" products and services (e.g., Netfind or other
search/directory service, NetMail or free/discount email service, Instant
Messenger, yellow/white pages, "My AOL"-type personalized information,
classifieds, etc.), prominent offers or promotions related to such AOL-
designated products or services.
Offline
- -------
In Advertiser's television, radio and print advertisements and in any
publications, programs, features or other forms of media over which Advertiser
exercises at least partial editorial control, Advertiser will include:
. Specific references or mentions (verbally where feasible) of the Affiliated
Advertiser Site's availability through America Online(R) prior to, and at
least as prominent as, any reference to any Advertiser Interactive Site; and
. For instance, listing of the "URL(s)" the Advertiser Interactive Site will be
accompanied by the AOL "keyword" for the Affiliated Advertiser Site.
- ----------
/1/AOL will pay Advertiser a standard bounty for each person who registers for
the AOL Network using Advertiser's special identifier for this promotion and
subsequently pays AOL at least three monthly usage fees for the use of the AOL
Network. Note that if this promotion is delivered through Microsoft's Active
Desktop or any other "push" product (an "Operating System"), such feature will
link users directly to AOL software within the Operating System or direct users
without Internet access to an AOL application setup program within the Operating
System (all subject to any standard policies of the Operating System).
9
<PAGE>
Exhibit 3.26
February 21,1997
Paul Godin
c/o Internet Liquidators International Inc.
5195 Airport Road
Suite 330
Mississauga, Ontario
L4V 1T1
Dear Paul:
Re: Sa1ary Protection
In consideration of your agreeing to the non-competition provisions contained in
the Intellectual Property Rights Agreement between America Online, Inc., Paul
Godin, 1184011 Ontario Inc., Jeff Lymburner, Smythe Group Company and Internet
Liquidators International Inc. ("ILII") dated February, 1997 and a similar
agreement with the Toronto Star Newspaper Limited (collectively the "IP Rights
Agreement") for a period of 24 months following termination of your employment
as a condition to their investments in ILII, and in consideration of your
agreement to waive and release ILII from the performance bonus and option
provisions as set out in the January 1, 1996 employment letter (the "1996
Letter") with you, ILII agrees that in the event your employment is terminated
by ILII for any reason other than death, disability or cause (cause to be
defined as gross negligence or willful misconduct or illegal activity) and you
are not released from the non-competition provisions contained in the IP Rights
Agreement, ILII will provide you with income continuation for a period of 24
months following termination of your employment at the same level enjoyed by you
in the 12 months prior to your termination, inclusive of bonuses, the
continuation of your employee benefits and car allowance (but not long term
disability), but exclusive of stock options. It is expressly understood and
agreed that such payments are in full and final satisfaction of any claims or
entitlements that you may have under any employment related legislation and
under the common law arising out of your employment with ILII and the
termination thereof.
For your part and as a conditions to ILII's obligation to you above, you agree;
1. At the time of termination, you will execute a full and final release in
a form and content satisfactory to ILII and yourself, on behalf of
yourself and your heirs and executors in favour of ILII, its officers,
directors, employees and agents from any and all actions, causes of
actions, representations, warranties, or demands for any loss or damage
whatsoever in relation to your employment with ILII, termination of such
employment or all related matters (excluding any matter for which you
are entitled to be indemnified under the Business Corporations Act
(Ontario) or the by-laws or articles of ILII).
<PAGE>
2. You agree not to make any claim or take proceedings against any person
or corporation who might claim contribution or indemnity from ILII under
the provisions of any statute or otherwise, with respect to any matter
arising up to the time of termination (subject to the exclusion noted
above in subparagraph 1).
3. You agree to indemnify, defend and save ILII harmless from all claims,
actions, causes of actions or demands under the Income Tax Act in
respect of withholding tax, income tax, interest or penalties relating
to your employment or the termination thereof.
4. You agree that ILII's obligation to continue all or any portion of your
income shall terminate (i) on the breach by you of the IP Rights
Agreement, or (ii) on notice from ILII that you shall be released from
the non-competition provisions of the IP Rights Agreement provided that
in no event shall your notice period (ie. the period of your income
continuance) be less than twelve months.
5. Finally, you agree that in the event that you are able to secure
employment at a comparable income level at any time within the two year
period, ILII's obligation under this letter shall immediately cease and
you agree that you will advise ILII properly upon the commencement of
any such employment.
This Agreement supersedes sections 3, 5, 6 and 7 contained in the 1996 Letter.
The 1996 Letter as amended by this Agreement together with the IP Rights
Agreement constitutes the entire agreement between the parties pertaining to the
subject matter hereof and supersede all prior agreements, understandings,
negotiations and discussion, whether oral or written in respect of the subject
matter hereof, including without limitation the letter agreement between you and
ILII dated February 12, 1997. The parties hereby agree to execute any and all
necessary documentation to give full force and effect to this Agreement This
Agreement shall be govern by the laws of the Province of Ontario, and the
federal laws of Canada applicable therein. Please signify you agreement to the
forgoing by signing and returning the enclosed duplicate copy of this letter.
Yours truly,
Internet Liquidators International Inc.
By:
------------------------------------
Duly Authorized Officer
By:
------------------------------------
Duly Authorized Officer
I acknowledge and agree to the foregoing this _____ day of February. 1997.
- ---------------------------------
Paul Godin
<PAGE>
Exhibit 3.27
February 12,1997
Jeffrey Lymburner
c/o Internet Liquidators International Inc.
5195 Airport Road
Suite 330
Mississauga, Ontario
L4V 1T1
Dear Jeffrey:
Re: Sa1ary Protection
In consideration of your agreeing to execute non-competition agreements, one
with Internet Liquidators International Inc. ("ILII") and Toronto Star Newspaper
Limited and one with ILII and America Online, Inc, both for a period of 24
months following termination of your employment as a condition to their
investments in ILII, and in consideration of your agreement to waive and release
ILII from the performance bonus and option provisions as set out in the January
1, 1996 employment letter with you. ILII agrees that in the event your
employment is terminated by ILII for any reason other than death, disability or
cause (cause to be defined as gross negligence or willful misconduct or illegal
activity) and you are not released from the non-competition provisions contained
in the said Agreements, ILII will provide you with income continuation for a
period of 24 months following termination of your employment at the same level
enjoyed by you in the 12 months prior to your termination, inclusive of bonuses,
but exclusive of stock options, but including the continuation of your employee
benefits and car allowance (but not long term disability).
For your part and as a conditions to ILII's obligation to you above, you agree;
1. At the time of termination, you will execute a full and final
release in a form and content satisfactory to ILII and yourself, on
behalf of yourself and your heirs and executors in favour of ILII,
its officers, directors, employees and agents from any and all
actions, causes of actions, representations, warranties, or demands
for any loss or damage whatsoever in relation to your employment
with ILII, termination of such employment or all related matters
(including any legal breach by ILII, its officers, directors or
employees under the provisions of any statutes or otherwise).
2. You agree not to make any claim or take proceedings against any
person or corporation who might claim contribution or indemnity from
ILII under the provisions of any statute or otherwise, with respect
to any matter arising up to the time of termination (subject to the
exclusion noted above in subparagraph 1).
3. You agree to indemnify, defend and save ILII harmless from all
claims, actions, causes of actions or demands under the Income Tax
Act in respect of withholding tax, income tax, interest or penalties
relating to your employment or the termination thereof.
<PAGE>
4. You agree that ILII's obligation to continue all or any portion of
your income shall terminate on the breach by you of your non-
competition agreements.
5. Finally, you agree that in the event that you are able to secure
employment at a comparable income level at any time within the two
year period, ILII's obligation under this letter shall immediately
cease and you agree that you will advise ILII properly upon the
commencement of any such employment.
This letter supersedes any like conditions contained in the January 1996
employment letter with you. Please signify you agreement to the forgoing by
signing and returning the enclosed duplicate copy of this letter.
Yours truly,
Internet Liquidators International Inc.
By:
-------------------------------------------
Duly Authorized Officer
By:
-------------------------------------------
Duly Authorized Officer
I acknowledge and agree to the foregoing this _____ day of February. 1997.
- -------------------------------------
Jeffrey Lymburner
<PAGE>
Exhibit 3.28
February 12,1997
Paul Godin
c/o Internet Liquidators International Inc.
5195 Airport Road
Suite 330
Mississauga, Ontario
L4V 1T1
Dear Paul:
Re: Sa1ary Protection
In consideration of your agreeing to execute non-competition agreements, one
with Internet Liquidators International Inc. ("ILII") and Toronto Star Newspaper
Limited and one with ILII and America Online, Inc, both for a period of 24
months following termination of your employment as a condition to their
investments in ILII, and in consideration of your agreement to waive and release
ILII from the performance bonus and option provisions as set out in the January
1, 1996 employment letter with you. ILII agrees that in the event your
employment is terminated by ILII for any reason other than death, disability or
cause (cause to be defined as gross negligence or willful misconduct or illegal
activity) and you are not released from the non-competition provisions contained
in the said Agreements, ILII will provide you with income continuation for a
period of 24 months following termination of your employment at the same level
enjoyed by you in the 12 months prior to your termination, inclusive of bonuses,
but exclusive of stock options, but including the continuation of your employee
benefits and car allowance (but not long term disability).
For your part and as a conditions to ILII's obligation to you above, you agree;
1. At the time of termination, you will execute a full and final
release in a form and content satisfactory to ILII and yourself, on
behalf of yourself and your heirs and executors in favour of ILII,
its officers, directors, employees and agents from any and all
actions, causes of actions, representations, warranties, or demands
for any loss or damage whatsoever in relation to your employment
with ILII, termination of such employment or all related matters
(including any legal breach by ILII, its officers, directors or
employees under the provisions of any statutes or otherwise).
2. You agree not to make any claim or take proceedings against any
person or corporation who might claim contribution or indemnity from
ILII under the provisions of any statute or otherwise, with respect
to any matter arising up to the time of termination (subject to the
exclusion noted above in subparagraph 1).
3. You agree to indemnify, defend and save ILII harmless from all
claims, actions, causes of actions or demands under the Income Tax
Act in respect of withholding tax, income tax, interest or penalties
relating to your employment or the termination thereof.
<PAGE>
4. You agree that ILII's obligation to continue all or any portion of
your income shall terminate on the breach by you of your non-
competition agreements.
5. Finally, you agree that in the event that you are able to secure
employment at a comparable income level at any time within the two
year period, ILII's obligation under this letter shall immediately
cease and you agree that you will advise ILII properly upon the
commencement of any such employment.
This letter supersedes any like conditions contained in the January 1996
employment letter with you. Please signify you agreement to the forgoing by
signing and returning the enclosed duplicate copy of this letter.
Yours truly,
Internet Liquidators International Inc.
By:
---------------------------------------
Duly Authorized Officer
By:
---------------------------------------
Duly Authorized Officer
I acknowledge and agree to the foregoing this _____ day of February. 1997.
- ---------------------------------
Paul Godin
