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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ X ] 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.
52,646,718 Common Shares as of December 31, 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 X No ______
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 X Item 18 ______
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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 May 18, 2000, the exchange rate was
US$1.00 = Cdn$1.5007. Certain financial information presented in this annual
report has been translated from Canadian dollars to U.S. dollars at an exchange
rate of Cdn$1.444 to US$1.00, the noon buying rate in New York City on December
31, 1999 for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
Year Ended December 31,
Rate 1995 1996 1997 1998 1999
- ---- ---- ---- ---- ---- ----
Last Day of year $.7323 $.7301 $.6999 $.6504 $.6925
Average(1) during .7286 .7332 .7221 .6740 .6744
year
High during year .7527 .7513 .7487 .7105 .6925
Low during year .7023 .7235 .6945 .6341 .6439
(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:
. our future capital needs
. our ability to further develop our business to business relationships and
revenues
. our ability to develop appropriate alliances
. acceptance of our products and services
. competitive factors
. new products and technological changes
. our marketing and sales plans
. our expectations about the markets for our online products and services
. the acceptance of the Internet and/or online auctions as a viable commercial
medium
. the validity of our patent and protection of our proprietary technology
. geographic expansion of our business
We have based these forward-looking statements largely on our expectations.
Forward-looking statements are subject to risks and uncertainties, certain of
which are beyond our control. Actual results could differ materially from those
anticipated as a result of the factors described in the "Risks Factors" section
beginning on page 14, including, among others:
. the timing of our future capital needs and our ability to raise additional
capital when needed
. uncertainty about the acceptance of the Internet and/or online auctions as a
viable commercial medium
. uncertainty of market acceptance of our products and services
. our ability to compete with other online auction businesses and e-commerce
enablers
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. 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 we rely
. our inability, directly and/or through our marketing and advertising
alliances, to attract a sufficient number of customers to our Web site
. our inability to attract and retain key personnel
. risk of system failure or interruption
. implementation and enforcement of government regulations
. problems which may arise in connection with the acquisition or integration of
new businesses, products, services, technologies or other strategic
relationships
We do not undertake any obligation to publicly update or revise any forward-
looking statements contained in this annual report, 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
annual report might not transpire.
Trademarks or trade names of Bid.Com used in this annual report include:
BID.COM(TM); POWERED BY BID.COM(TM); BID.COM(TM), THE ONLINE AUCTION(TM);
INTERNET LIQUIDATORS(TM); BID BUDDY(TM); SEARCH BUDDY(TM); and EXPERIENCE
ENGINE(TM).
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Unless otherwise indicated, all references in this annual report to
"dollars" or "$" are references to Canadian dollars. Our financial statements
are expressed in Canadian dollars. Except as otherwise noted, certain financial
information presented in this annual report has been translated from Canadian
dollars to U.S. dollars at an exchange rate of Cdn$1.444 to US$1.00, the noon
buying rate in New York City on December 31, 1999 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.
Overview
We are a global provider of on-line dynamic pricing solutions for the
business-to-business and business-to-consumer markets. Our dynamic pricing
"powered by Bid.com" solutions include ascending price auctions, live or real-
time Dutch (declining price) auctions, requests for proposal/quote auctions and
fixed price formats together with related consulting, research, training and
implementation services. We offer business-to-consumer auction services at our
Web site www.bid.com. We also provide our auction technology and related
services to business customers to enable them to conduct online auctions and
other ecommerce product and service offerings.
Our auctions run on our proprietary e-commerce platform which we believe is
state-of-the-art. Our platform has a scaleable transactional backbone and an
efficient delivery system. In March 1999, we received a patent from the U.S.
Patent and Trademark Office covering our process for conducting Dutch auctions
over electronic distribution channels. We believe that our capability within
the Dutch auction sector is a key point of differentiation in the online
marketplace. We believe this differentiation will grow in significance as more
online shoppers and businesses become familiar with the Dutch auction format..
Through our business-to-consumer auctions, we sell a broad range of
products at prices that usually are lower than those charged by traditional
retailers. We sell primarily brand name, front-line products under
manufacturers warranty, including:
. computer hardware and software . jewelry
. consumer electronics . collectible sports and entertainment
cards and other memorabilia
. toys, games and sporting goods . travel and entertainment products and
services
From the commencement of our business operations in 1995 through 1998, we
focussed our activities primarily on business-to-consumer auctions. Beginning
in 1999, we began to shift our primary business focus to business-to-business
auctions and related services. We have entered into auction enabling agreements
in several industry sectors including electronic media, travel, wireless
communications, automotive, heavy machinery and art and antiquities. Although
during 1999 a substantial majority of our revenues were derived from business-to
- -consumer auctions and related services, we anticipate that during 2000 and in
future years, an increasingly larger percentage of our revenues will be
generated by technology, services and products we will provide to customers in
the business-to-business market.
Industry Background
The Internet
International Data Corporation has estimated that the number of web users
worldwide grew from 19 million in 1995, to over 200 million by the end of 1999,
and is on track to reach 1 billion people by 2005. We believe that Internet
growth will result from a number of factors, including:
. the large and growing use of personal computers in the workplace and home;
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. increasing reliance on the Internet by the business-to-business sector;
. advances in the performance and speed of personal computers and modems;
. improvements in network infrastructure; and
. easier and cheaper access to the Internet and increased awareness of the
Internet among businesses and consumers.
Jupiter Communications LLC estimates that the number of US households with
an online service will grow from 32 million in 1999 to 57 million in 2002,
representing a penetration rate of over 50%.
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 begun 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, which eliminates the need for a user to dial up
access to the Internet. Forrester Research Inc. 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.
We believe that a significant opportunity exists for online business-to-
business and business-to-consumer trade. In April 2000, Forrester Research
estimated that global internet trade will reach $656 billion in 2000 and $6.9
trillion by 2004. Forrester estimates that the US will account for
approximately 75% of business-to-business trade in 2000, and 46% by 2004 as
international growth accelerates.
While business-to-consumer sales were first to gain widespread adoption
among US households, online business-to-business sales have recently surpassed
it as companies reengineer their sales processes. In two years, an overwhelming
majority of US firms will be transacting business on the Internet. According to
Forrester, more than 90% of firms described plans to buy and sell on the
Internet, which should result in total business e-commerce revenues of $2.7
trillion by 2004. This growth will be accelerated by the rapid development of
e-marketplaces - new models for conducting e-commerce, including auctions,
aggregators, bid systems, and exchanges.
The Internet offers many data management and multimedia features which
enable businesses and consumers to search for products by category or brand. In
addition, the Internet allows businesses and consumers to access a wealth of
information, including reviews and competitive pricing and audio and video
presentations which, enhance static catalog formats. Vendors 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 experience. Internet retailers also offer consumers the
convenience of home shopping and 24-hours-a-day, seven-days-a-week operations,
available to any location, foreign or domestic, that has access to the Internet.
Internet Auctions
We believe that online auctions have a number of characteristics that make
the sale of goods via the Internet particularly attractive as compared to
traditional distributors, vendors and retail stores or to static priced online
stores 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 distributors, vendors and other e-tailers
regarding price-points that are attractive to customers. 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 Communications predicts that by 2004, online business-to-consumer
auctions will increase at an annual rate of 46% per year through 2004, reaching
$4.5 billion in sales per year. Forrester estimates that 3 million people or
35% of online shoppers used an auction site in 1998. Forrester expects this
number to grow to over 14 million (or 35% of shoppers) by 2003.
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Our Business Strategy
Building on our significant experience in the delivery of on-line dynamic
price solutions, our objective is to provide leading businesses in selected
industry verticals with auction enabling and related service capabilities,
thereby allowing them to enjoy the advantages of a new or alternative on-line
distribution strategy. Because of our modular technology and expertise in the
delivery of related services such as implementation, consulting, training and
hosting, we are uniquely positioned to provide customized solutions to meet the
needs of our clients. Our business strategy is comprised of the following key
components:
. Shifting our Primary Business Focus to Business-to-Business Product and
Service Offerings - We have begun to shift our primary business focus to the
business-to-business market from the business-to-consumer market. We believe
that our proprietary technology has wide application in the business-to-business
sector because it enables organizations to efficiently conduct high volume
transactions. We presently provide our auction technology e-commerce platform
and related services to enable companies to conduct business-to-business
auctions in several industry sectors. We plan to continue to pursue
opportunities in the business-to-business sector in North America and
internationally. We also plan to promote our capabilities as an application
service provider or ASP, hosting our software for third parties from our own
locations.
. Maintaining and Enhancing Our Proprietary State-of-the-Art Technology - We
have developed a proprietary state-of-the-art e-commerce platform for the
operation and support of online auctions. We believe our proprietary technology
is competitive with other enablers of business-to-business offerings. In order
that we remain competitive, we must maintain and enhance our technology. We have
recently introduced Request for Proposal/Quote capabilities to our offerings,
and are developing new transaction formats and complementary technologies. In
addition, we are developing wireless applications for our technology.
. Entering into Significant Alliances with Industry Leaders - We seek
to establish marketing and other significant relationships with leading
companies in a broad range of industries. We believe that these relationships
will help provide us with access to important industry participants and will
help increase our brand awareness.
. Continuing our Global Expansion - In 1999, we opened offices in Dublin,
Ireland and Melbourne, Australia, to serve the European and Asia-Pacific
markets, respectively. We plan to expand our markets in European Community
countries from our office in Ireland and through additional sales and marketing
offices we plan to open in Continental Europe during 2000. We expect to expand
our Asia-Pacific presence in a similar fashion,
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as customer relationships are developed. In 2000, we anticipate establishing a
sales and marketing presence on both coasts of the U.S.
. Seeking Acquisitions and Strategic Investments - We plan to continue to expand
by seeking technologies, products, and services that compliment our existing
business. If appropriate opportunities are available, we may acquire
businesses, technologies or products or enter into strategic relationships that
may further diversify revenue sources and product offerings, expand our customer
base or enhance our auction platform.
Our Services and Products
We provide on-line dynamic pricing solutions under our "Powered by Bid.Com"
banner for the business-to-business and business-to-consumer markets. We offer a
number of on-line transaction methods, and are continuing to develop new methods
by which businesses can sell their products and services. Our "dynamic pricing"
methods include:
Rising Price (Top Bid) 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 products and services by
incrementally adjusting their bid positions. Our 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 our BID BUDDY tools to place absentee bids up to a pre-determined
limit. This "intelligent" bidding agent checks bid activity at regular
intervals and increases 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.
The interactive nature of the bid update system encourages continued
customer participation throughout the auction lifecycle. Customers can also use
our SEARCH BUDDY search tool 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 a match is found 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 an affinity engine 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.
Dutch Auctions. In our Dutch auctions, a starting price is set and a
limited time period is allocated for a fixed quantity of the product to be
auctioned. As time advances, the price drops in small increments. The longer
one waits, the lower the price. However, if a bidder 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.
In March 1999, we received a patent from the US Patent and Trademark Office
covering our process for conducting Dutch auctions over electronic distribution
channels. We have a patent application pending in Canada covering the same
technology. This unique format lends itself to a multitude of products and
services and special event auctions. We believe that the Dutch auction format
will have wide application in the business-to-business sector because it
facilitates the efficient conduct of high volume transactions.
Fixed Price Offerings. Our technology enables the sale of products and
services on a fixed price basis. The vendor posts the good or service and the
price. The purchaser has no ability to bid in respect of the price.
Request-for-Quotation Auction. The RFQ system is a transaction method
that allows buyers to post an online offer to purchase such that pre-qualified
suppliers may view the offer download documentation related to it and then bid
on-line. Buyers can let bidders see the details of all other bids, or
alternatively customize the site for confidentiality reasons.
Bidders or vendors can be pre-qualified by the buyer and provided with
access to view and download only the documentation that the buyers specifies.
Bidders can then request additional information from the buyer via a question
and answer module which we provide. The buyer will examine the questions that
the bidder post and then prepare a response document to those questions they
wish to answer which is then posted on-line.
Pre-qualified bidders are notified when the auction for the offer will
begin. Vendors are allowed to place bids while the time-limited auction is
live, and can change the terms and conditions of their initial bids during the
auction. The amount of information they receive regarding other qualified bids
is limited to whatever the buyer wants them to know.
Sealed Bid. Similar to the RFQ system, the sealed bid method allows the
buyer to post its product or service requirements to a multitude of vendors.
The system has the ability to incorporate such features as detailed technical
information, questions and answer forums, and automatic e-mail notification of
amended or new buyer-posted documents.
The sealed bid system differs from the RFQ in that the vendors only have
one opportunity to supply a bid. Other bids placed by competing vendors are not
visible to anyone during the actual auction. Only after the close of the
auction is the buyer able to view the vendor bids.
Application Service Provider (ASP). Our technology allows a customer to
add an auction component to its existing web site by enabling auctions using
software engines that reside in our platform. This model allows our customer
to concentrate on its core competency which we manage and maintain the hardware,
software and connectivity associated with the various pricing methodologies that
we support.
Business-to-Business
In the business-to-business market we provide our auction technology,
e-commerce platform and other services to businesses to enable them to operate
business-to-business and business-to-consumer auctions and other e-commerce
product and service offerings. The modular nature of our software allows us to
tailor our products and services to the needs of each client. The software
includes all of our dynamic pricing methods. We also offer a wide range of
services, including consulting, research, training and implementation services.
Customization and implementation of our technology and products for a client may
take several weeks to several months, depending on the client.
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Business-to-Consumer
We currently operate two national business-to-consumer auction sites at
www.bid.com, one in the United States and one in Canada. We also operate other
private brand local or regional stand-alone auctions. Customers who access the
online auction through our Web site or the Web sites or search engines of our
strategic or advertising partners, are all channeled to one of the two national
auction sites, depending on the geographic location of the customer. Our
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 products and services at constantly changing prices. The U.S.
auction is conducted in U.S. dollars and the Canadian auction is conducted in
Canadian dollars.
To date, we have generated most of our revenues from online auction sales
in the United States. During 1999, revenues from online auction sales in the
U.S. and Canada were approximately 90% and 10%, respectively, of total online
auction sales.
User-Friendly Design. Our 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 us 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 our Web site 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. We use the registration
information for processing successful bids into customer orders. Using this
information, our data systems determine shipping and handling charges and
applicable taxes, charge customer credit cards, print order information,
transmit order information to our contract warehouses and vendors and provide
transaction information for our accounting system. Customers are generally
required to pay for purchased goods by commercial credit card, thereby
significantly reducing our credit risk.
Retail Products. Our 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. We believe
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.
We have offered and will continue to offer lower margin computers, computer
accessories and computer upgrades at our auction sites. However, we continue to
shift our product mix and increase the number and variety of
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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,
we intend to introduce other product categories on a selected basis.
The majority of our products are front-line goods and the remainder are
typically clearance or other end-of-the-line items. We offer products from many
brand name computer, consumer electronics, jewelry and other manufacturers. We
also offer travel packages, gold and precious gem jewelry and authentic sports
collectibles, from multiple sources. Within our broad product categories, we
rotate the products we offer to consumers on a daily basis.
The products supplied to us for sale through our 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. We ourselves provide no warranties on the
products or services sold through our Web sites.
The products sold at our auctions are typically shipped directly by our
suppliers to the winning bidders. From time to time, we may offer our own
fulfillment capability to new suppliers that are not initially equipped to ship
directly to customers. We currently use Purolator Courier, Federal Express and
United Parcel Service to distribute purchased goods and are in the process of
adding other courier services. We do not maintain our own warehouse, but rely on
third party contract warehouses.
Limited Inventory. We normally obtain products for sale in our auctions
from suppliers under arrangements that allow us to purchase merchandise only
after our customer has purchased and paid for the product. These arrangements
typically provide that the supplier will reserve for sale by us specified
quantities of products for a fixed period of time without obligating us to
purchase those products until sales are made to our customers. As a result, we
do not usually stock inventory and consequently have no liability for unsold
merchandise. In certain circumstances, we may place purchase orders in advance
for unique products. As part of our customer satisfaction policy, we may allow
our customers to return merchandise upon payment of a re-stocking fee. The
merchandise is either returned to the supplier for credit or resold by us.
Transactional revenues from the sale of products create gross margins
based on the difference between the actual selling price and the reserve price
negotiated by us with our suppliers. Sold products are usually shipped directly
from the supplier to the customer. Shipping, handling and applicable taxes are
typically added to the auction price and are paid by the customer. Inventory on
our balance sheets reflects sales returns in transit and an insignificant amount
of purchased inventory. We record both items at the lower of costs and net
realizable value.
Customer Support and Service. We believe that our ability to establish and
maintain long-term relationships with our customers and encourage repeat visits
and purchases is dependent, in part, on the strength of our customer service
support and staff. We currently employ a staff of three full-time and two part-
time customer support and service personnel who are responsible for handling
customer inquiries from 8:30 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 our vendors. Under certain circumstances, we
accept returns from our customers but we charge customers a re-stocking fee.
Customers
Business-to-Business
We provide our technology, e-commerce platform and related services to
customers in a variety of industries, including: electronic media, travel,
wireless communications, automotive, heavy machinery and art and antiquities.
Our business-to-business customers typically use our technology and services to
implement and operate on-line business-to-business or business-to-consumer
auctions for their customers or to provide other economic solutions to existing
business activities. We believe that our technology is suited to a broad range
of industries in which companies are seeking alternative distribution channels
or other economic solutions.
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We generate revenue from our business-to-business relationships in several
ways. We typically receive some combination of license, auction enabling,
hosting and service fees for our technology. In addition, we are paid consulting
and other fees when we provide consulting, training and certain other services.
In many cases, we also may receive a percentage of revenues or other
transactional-based fees from on-line transactions. In certain cases, we may
also invest in our customers, in connection with the delivery of our services.
Examples of some of the business-to-business relationships we have entered
into under the "powered by Bid.com" banner include:
. General Electric Capital Corporation GE Capital is a global diversified
financial services company. We have entered into agreements with GE
Capital under which its Commercial Equipment Finance Division uses our
technology and services to remarket assests on-line to its global
customer base. As part of our agreement, the GE Capital Commercial
Equipment Finance Division has also agreed to market Bid.Com's products
and services to other divisions of GE and their partners. Under our
agreement GE Capital Commercial Equipment Finance Division will pay us
implementation and hosting fees and a share of online transaction
revenues. As part of the agreement we have issued 1,000,000 warrants to
GE Capital, of which 200,000 have vested. The remaining 800,000 are
subject to performance based vesting provisions. The agreements with GE
Capital were entered into in April, 2000 and have terms varying between
six months and three years.
. ValueVision Interactive Inc. (VVI or ValueVision). VVI offers live
programming 24 hours per day, 7 days a week and broadcasts, (as of
September 14, 1999) to approximately 32 million cable homes. In
September, 1999 we entered into a three year agreement under which we
will provide a complete E-commerce solution for VVI's Dutch Auction
component of ValueVision's "Snap TV" brand carrying the "powered by
Bid.Com" sub-brand. Under our agreement, ValueVision will pay us
technology service fees for certain of the services we perform and we
will receive a percentage of gross transaction revenues from Snap TV
auction services in North America.
. Point2 Internet Systems Inc. Point2 is an online remarketer of heavy
equipment for the mining, construction, forestry, and oil and gas
industry sectors. We have licensed our on-line auction and e-commerce
technology to Point2, which Point2 uses to conduct auctions through its
Web site catering to manufacturers, dealers and buyers of heavy
equipment. This site also provides a full suite of marketing and
informational services. When we initially entered into the agreement with
Point2, we acquired 25% of Point2's common shares and an option to
acquire an additional 26%. We exercised that option in August 1999 and
currently own 51% of Point2's common shares.
. Megawheels.com Inc. Megawheels offers a leading Canadian E-commerce
solution to automotive dealers which supports one of Canada's
largest automotive online databases. We license our proprietary online
auction and E-commerce technology, including both Dutch and rising price
components, to Megawheels. We also provide the technical services
required for the implementation and operation of Megawheels' online
auctions for the automotive community. Under our agreement with
Megawheels we receive licensing fees and we share in a percentage of
net revenues generated by online transactions. In addition, in connection
with entering into the agreement, we acquired a minority equity interest
in Megawheels. Our agreement expires in 2014.
Business-to-Consumer.
As of May 15, 2000 we had approximately 204,000 registered bidders at our
www.bid.com Web site.
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Marketing
Business-to-Business
Our marketing strategy for the business-to-business market is comprised of the
following elements:
. Enter into marketing alliances with industry leaders - We seek to
enter into marketing alliances with leading consulting and financial
services firms that provide economic and technology services to the
business community. In 1999, we entered into a memorandum of
understanding with CapGemini Consulting Inc., one of
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Europe's leading management consulting and information technology
services groups. Under the terms of our arrangement, we and CapGemini
will jointly market e-commerce solutions and attempt to accelerate the
deployment of online auctions in France. We will provide the technical
services and training required for the implementation, integration and
operation of online auctions for selected current and future of clients
of CapGemini. In May 2000, we entered into a memorandum of understanding
to form a marketing alliance with PricewaterhouseCoopers LLP. Under the
terms of our arrangement, we and PricewaterhouseCoopers will jointly
introduce our dynamic pricing technology to North American clients.
PricewaterhouseCoopers will become the preferred systems integrator for
our customers requiring technology and implementation services.
. Leverage our relationship with business-to-business customers - We intend
to expand and broaden our penetration into existing and new markets by
leveraging our existing customer relationships. For example, under our
relationship with GE Capital, the GE Capital Commercial Equipment Finance
Division has agreed to market our products and services to other
divisions of GE and its partners. We also believe that the credibility of
our customers will strengthen our brand name, enhance our reputation in
the business community and help us enter into future business alliances.
. Expand internationally - We are attempting to expand our business-to-
business market by penetrating markets in Europe, Asia and the Pacific
Rim and, in the future, elsewhere in the world. During 1999, we opened
our Dublin, Ireland office to provide services to the European Community.
During the first quarter of 2000 we added sales professionals in Paris,
France and London, England. In November 1999, we opened an office in
Melbourne, Australia to serve Australia and the Pacific Rim regions. We
intend to grow internationally through market alliances with firms like
CapGemini and by opening additional sales and marketing offices in the
U.S., Europe and elsewhere in the world.
To promote our business-to-business technology and services we maintain a
9 person sales and business development team. We market our services by
participating in e-commerce conferences, and advertising in trade
publications and in other appropriate venues.
Business-to-Consumer
Our marketing strategy in the business-to-consumer market is designed to
increase traffic to our auction website and to promote awareness of our Bid.Com
brand. To implement this strategy, we have:
. Entered into marketing alliances with Internet service providers and
other content providers. In July 1998, we entered into an e-commerce and
promotion services agreement with Rogers Media, a subsidiary of Rogers
Media Communications Inc. and, on November 16, 1998, we launched our co-
designed online auction site. By logging on to the site, Canadians can
experience an authentic Canadian auction event, bidding for bargains on
products such as computers, sports equipment, gifts and vacation
packages. Canadian consumers are offered brand name goods direct from the
manufacturer in Canadian dollars with Canadian warranties usually at
below-retail prices with dedicated Canadian customer service.
Under the agreement, we granted Rogers Media the exclusive right within
Canada to co-brand the Canadian Bid.Com auction. Rogers Media have 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
agreed to generate specified levels of site traffic and advertising revenues,
and 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, their
affiliates and certain non-affiliated media. We are required to pay a minimum
cash amount of Cdn $200,000 annually to Rogers Media to purchase advertising on
Rogers. We share equally with Rogers Media in the revenue from all transaction
and advertising sales generated through the co-branded site in Canada, net of
all taxes, costs, transaction fees, duties, and credits for returns or unpaid
items. The Rogers Media Agreement may be terminated by Rogers Media at any time
upon 90 days written notice us. We may terminate the agreement following a
breach of the agreement by Rogers Media upon 30 days written notice to Rogers
Media.
In addition, we anticipate that we may use trade magazines published by
Rogers Media to support the development of our business-to-business online
auctions. Rogers Media's national media properties includes some of Canada's
most widely read publications including: Macleans,; Chatelaine,; Flare,;
Canadian Business,; Profit and Marketing Magazine; and numerous trade and
professional magazines covering a broad range of industries.
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In the past we have entered into other marketing alliances which have
terminated, including our marketing alliance with America Online which
terminated in March, 2000.
. Implemented a lower cost selected marketing approach - In addition to
marketing alliances, we have implemented a more selected marketing approach that
blends brand promotion with lower cost customer acquisitions and retention. We
pursue referral based marketing arrangements which reward individuals and
companies for referring bidders to our website. We also access our own database
of registered bidders to directly market both auction and non-auction products
to purchasers with demonstrated purchasing histories. In addition, we have
entered into key word agreements with internet service providers that promote
Bid.Com when a user searches key words, such as "auction". We also attempt to
stimulate additional e-commerce activity by operating on-line auctions for, or
licensing auction platforms to, charities and special causes.
Technology Platform
Our 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. Our technology
provides product descriptions with catalog quality pictures and graphical
representations. The design allows us to change and upgrade each auction site
with ease, and quickly respond to requests by clients and advertising sponsors
to change the look of products offered. On-screen real-time data provides
information about the current bid status of all bidders in order to facilitate
an interactive auction process. We have received a United States patent for the
process of conducting our Dutch auctions over electronic distribution channels,
and we have a patent application pending in Canada covering the same technology.
We have devoted significant resources to developing our proprietary
software technology. We believe that our success depends, in part, on our
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.
We license commercially available technology whenever possible, rather than
seek a custom-made or internally-developed solution. We believe that this
strategy lowers our operating costs and increases our ability to respond to
changing demands resulting from growth and technological shifts. This approach
also allows us to focus our development efforts on creating and enhancing the
specialized proprietary software that is unique to our business. Our 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. We use Intel-based Hewlett Packard Netservers and DEC Alpha
enterprise servers, which employ symmetrical multiprocessing as the basis of our
hardware systems.
We use what we believe to be leading security and encryption systems to
maintain the security of online purchases and customer data. Each customer who
pre-registers or makes a purchase on the www.bid.com site 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 our toll-free telephone lines to register with Bid.Com.
We have embraced high performance switching technologies, including
Asynchronous Transfer Mode (ATM), to provide end users with what we believe is
the fastest access possible to our Web site. Our access to telecommunications
infrastructure is scaleable on demand and has been proven to provide reliable
transactional support.
In November 1998, we won three Canadian Information Productivity Awards,
for our online auction technology, including an Award of Excellence, Best of
Category Award for Small Business, and top honors with the Best of Show Award.
Our development work received distinction within a group of award-winning IT
solutions which included such organizations as GE Capital, Canadian Pacific
Railways, IBM Canada, National Bank of Canada, Scotiabank, Air Canada, Revenue
Canada, ING Canada, Rogers Media, Cantel and Royal Bank of Canada.
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In September 1999, we introduced a new Web site design featuring improved
navigational features, a new fixed price purchasing option, a brighter image and
new corporate logo. We also improved our customer service section and broadened
product selection for our business-to-consumer auctions. Shoppers are able to
check the status of their orders online and also review their shopping history.
On January 31, 2000 our Web site was further revised to include a section
devoted to our business-to-business offerings.
Our engineering, production and research and development staff currently
consists of 10 software development engineers and three system consultants.
Research and Development
We believe that our proprietary auction management software provides a
competitive advantage over other online auction companies and auction enablers
and that our future success depends, in part, on our ability to continue
developing and enhancing that software. Therefore, we have focused our research
and development efforts on the continued development of our proprietary auction
management software. Our ongoing research and development efforts are aimed at
enhancing the features and functionality of our existing software components,
the development of new software components, and the integration of superior
third party technology into our environment.
Our research and development expenditures were approximately $1.0 million
for the year ended December 31, 1999, $889,000 for the year ended December 31,
1998 and $661,000 for the year ended December 31, 1997, including salaries and
related expenses of our personnel engaged in research and development. Research
and development activities in 1999 included the re-design of our Web page,
redevelopment of a fixed price site and development of business-to-business
auction technology.
Intellectual Property
Our performance and ability to compete are dependent to a significant
degree on our proprietary technology. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as confidentiality
agreements and technical measures, to establish and protect our proprietary
rights. In March 1999, we received a patent from the U.S. Patent and Trademark
Office covering the process whereby we conduct Dutch auctions over electronic
distribution channels. We have a patent application pending in Canada covering
the same technology.
Our proprietary software is subject to common law copyright protection, but
we do not have, and do not intend to pursue, any registered copyrights. Common
law protection may be narrower than that which we could obtain under registered
copyrights. As a result, we may experience difficulty in enforcing our
copyrights against certain third party infringements. The source code for our
proprietary software is protected as a trade secret.
Our major trademarks or tradenames include: BID.COM; POWERED BY BID.COM;
BID.COM, THE ONLINE AUCTION; INTERNET LIQUIDATORS; BID BUDDY; SEARCH BUDDY; and
EXPERIENCE ENGINE. Except for INTERNET LIQUIDATORS, which is registered in
Canada, all of these trademarks and tradenames are the subject of pending
applications for registration in either or both of the United States and Canada.
Our competitive position is also dependent upon our unpatented trade
secrets. In an effort to protect our trade secrets, and as part of our
confidentiality procedures, we generally enter into confidentiality and non-
disclosure agreements with our employees and consultants and generally limit
access to and distribution of our software, documentation and other proprietary
information.
Competition
The online commerce market is new, rapidly evolving and intensely
competitive. We expect that online commerce competition in general, and online
auction competition in particular (both as an intermediary and as an enabler),
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
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competitive.
Business-to-Consumer Competition
Our competitors, determined on the basis of type of merchandise and
sales format offered by such entities to customers, include:
. companies providing business-to-consumer online auctions services such as
Onsale, Inc., First Auction by Internet Shopping Network Inc., uBid, Inc.
Egghead.com, Inc. and Bid.hit, Inc.;
. consumer-to-consumer online auction services such as eBay Inc, Yahoo!,
Auctions Powered by Onsale, Auction Universe, a Times-Mirror Company,
Excite Inc. and a number of small services, including those that serve
specialty markets;
. 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, America Online and Microsoft Corporation;
. companies that offer merchandise similar to that of which we offer but
through physical auctions and with which we compete for sources of
supply;
. catalog companies with substantial customer data bases, which may devote
greater resources to Internet commerce in the future; and
. 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.
We believe that the principal competitive factors in our business-to-
consumer 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. We believe that we are competitive
in each of these areas.
Business-to-Business Competition. The online auction and dynamic solutions
markets are new, rapidly evolving and intensely competitive. The companies we
compete with in this market include:
. companies providing auction software and dynamic commerce solutions such
as Moai Technologies, Opensite Inc., IBM's Websphere product, Trading
Dynamics (recently acquired by Ariba), CommerceBid (recently acquired by
CommerceOne), and Webvision.
. outsourced auction-hosting services that compete with Bid.Com's hosted
auction service such as Fairmarket, Inc., Bidland.com Inc., and
Opensite's Concierge service.
We believe our business model to be unique by combining business-to-
business and consumer auction sales and fixed price sales. We are not aware of
any other business which competes directly with us in all of these areas.
However, because the barriers to the e-commerce industry are minimal, we may in
the future face additional competitors who we cannot currently identify.
We believe that the principal competitive factors in our business-to-
business on-line auction market are variety of pricing methods, quality of
service, reliability, technical expertise and price. We believe that we are
competitive in each of these areas.
Employees
As of April 27, 2000, we employ 64 full-time employees, including 9 in
sales and business development, 14 in engineering support, and operations, 16 in
merchandise acquisition and marketing, 4 in customer support and service, and 21
in finance, administrative and senior management functions. We also employ 5
part-time employees, all of whom are in
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customer support and service and one in engineering support. We also hire
independent contractors for software development, technical documentation,
artistic design, merchandising and administration, as needed. None of our
employees are represented by a labor union, and we consider our employee
relations to be good.
History
Our business 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, we were formed as an Ontario corporation by amalgamation
of Internet Liquidators Inc. and Internet Liquidators International Inc. In
June 1998, we changed our name from Internet Liquidators International Inc. to
Bid.Com International Inc. In March 1998, we converted our consumer brand URL
from www.Internetliquidators.com to www.bid.com.
Our principal business offices are located at 6725 Airport Road, Suite 201,
Mississauga, Ontario L4V 1V2, Canada.
RISK FACTORS
An investment in our common shares is risky. You should carefully consider
the following risks, as well as the other information contained in this annual
report. If any of the following risks actually occur, our business could be
harmed. In that case, the trading price of our common shares could decline, and
you might lose all or part of your investment.
Our limited operating history makes evaluating our business difficult.
We were founded in September 1995 and began conducting business-to-consumer
auctions on the Internet in April 1996. We began to actively advertise our Web
site in 1997 and we introduced our business-to-business auction enabling
strategy and related services during 1999. Accordingly, there is only a limited
operating history for you to base an evaluation of us and our business
prospects. Our business and prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as online commerce. Our business strategy may not be
successful and we may not successfully address those risks.
We will need additional capital in the future, and if we are unable to secure
additional financing when we need it, we may be required to curtail our
operations significantly, which would have a material adverse affect on our
business, financial condition and results of operations.
Since we began our operations, we have funded our operations primarily
through the sale of securities to investors in a series of private placements
and, to a limited extent, through cash flow from operations.
At this time, funds from operations are not sufficient to meet our
anticipated financial requirements. As of May 15, 2000, we had cash on hand and
marketable securities of approximately $10.2 million. Based on current plans,
we believe that current cash balances and anticipated funds from operations will
be sufficient to meet our needs until approximately October 1, 2000. However,
the actual amount of funds that will be required until that time will be
determined by many factors, some of which are beyond our control. As a result,
we may need funds sooner or in greater amounts than currently anticipated.
On May 19, 2000 we signed an agreement with Acqua Wellington Value Fund
Ltd. (which we refer to in this annual report as Acqua Wellington) under which
Acqua Wellington agreed to invest a minimum of U.S.$1.5 million and a maximum of
U.S.$6.5 million in our company. Under certain conditions, the amount which
Acqua Wellington will be required to invest will increase from U.S.$1.5 million
to up to U.S.$3.5 million. At least U.S.$3.0 million and, under certain
conditions, as much as U.S $5.0 million of the investment will be made at the
discretion of Acqua Wellington. Completion of the proposed Acqua Wellington
financing is subject to the satisfaction of various closing conditions and
regulatory and Toronto Stock Exchange approval. We cannot assure you that the
Acqua Wellington financing will be completed in a timely manner or at all, or
the exact amount that Acqua Wellington will invest. Even if Acqua Wellington
completes the investment we anticipate that we will need to raise additional
funds by approximately
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November 1, 2000, if Acqua Wellington invests U.S.$1.5 million, and by
approximately February 1, 2001, if Acqua Wellington invest US.$6.5 million.
Other than the Acqua Wellington financing, we do not have any committed
sources of additional financing at this time and we are uncertain whether
additional funding will be available when we need it on terms that will be
acceptable to us or at all. If we are not able to obtain financing when we need
it, we would be unable to carry out our business plan and would have to
significantly curtail our operations, which would have a material adverse effect
on our business, financial condition and results of operations. If we need to
obtain funds by October 1, 2000, or earlier, potential sources of financing
include strategic relationships, public or private sales of our shares or debt
or other arrangements. If we raise funds by selling additional capital shares,
including common shares or other securities convertible into common shares, the
ownership interests of our existing shareholders will be diluted. Because of our
potential long term capital requirements, we may seek to access the public or
private equity markets whenever conditions are favorable, even if we do not have
an immediate need for additional capital at that time.
We are not profitable and expect to continue to incur losses.
We have accumulated net losses of approximately $56.3 million as of March
31, 2000. For the year ended December 31, 1999 our net loss was approximately
$20.8 million. We have never achieved profitability and expect to continue to
incur losses for the foreseeable future.
Our operating losses, to date, have been attributable, in part, to our
promotional pricing strategy under which products were sold below cost or at
significantly reduced profit margins. We expect to continue 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. The use of promotional pricing strategies will
affect our ability to achieve profitability. We cannot assure you that we will
earn profits or generate positive cash flows from operations in the future.
As a result of our evolving business model, we may generate less revenue from
the business-to-consumer market and we may not be able to replace that
revenue with revenue from the business-to-business market.
During 1999 we began to shift our primary business focus from the
business-to-consumer market to the business-to-business market. During 2000 and
in the future we plan to devote significantly greater marketing resources to
developing our business-to-business related services. As a result, the revenue
we generate from our business-to-consumer auctions may decline and that decline
may be significant. During 1999, a substantial majority of our revenues were
generated from our business-to-consumer auctions and related services. We
cannot assure you that if our business-to-consumer generated revenues decline we
will be able to replace lost revenue with revenue from our business-to-business
services. If we are unable to replace lost revenue, our business, results of
operations, cash flow, financial condition and prospects could be materially
adversely affected.
Our marketing alliance with AOL has terminated which may reduce traffic to our
business-to-consumer Web site; we rely on alliances with other third
parties to drive traffic to our business-to-consumer Web sites, and if those
alliances terminate our business could be harmed.
We rely on alliances with Internet service and content providers and other
marketing partners to drive traffic to our online business-to-consumer auction
sites. These alliances are of limited duration or may be terminated at any time.
For example, our agreement with America Online expired on March 31, 2000. We
estimate that in 1997, 1998 and 1999 we earned a substantial portion of our
auction revenues from customers who accessed our auction site through America
Online. The termination of this agreement may result in a reduction in the
number of visitors to our business-to-consumer Web site, which in turn, may
result in a decrease in our revenues. Our agreement with Rogers Media may be
terminated by Rogers Media at any time upon 90 days' advance written notice,
subject to certain conditions. We cannot be certain that this or any of our
other existing marketing arrangements will be renewed upon expiration on
favorable terms or at all. If these arrangements are terminated prior to
expiration or are not renewed, we will have to enter into arrangements with
other marketing partners. We cannot be certain that we will be able to do so on
favorable terms or at all. The termination of these arrangements may have a
material adverse effect on our results of operations and financial condition if
we are unable to procure suitable substitute marketing arrangements.
To date, most of the marketing alliances we entered into in the United
States have not been exclusive or restricted as to location or technological
environment. Therefore, we have retained the necessary flexibility to
broaden our distribution by increasing the number of marketing alliances and
advertising relationships. We cannot assure you that future alliances with these
partners or others will provide us with the same flexibility.
Potential fluctuations in our Financial Results Makes Financial Forecasting
Difficult
Our 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 our control. Factors that may affect our quarterly operating results
include:
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
. the availability and pricing of merchandise from vendors;
. the announcement or introduction of new sites, services and products by
us or our competitors;
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. the timing of, and our ability to, integrate any future acquisition of
businesses, technologies or products or any strategic investments or
relationships into which we may enter; and
. general economic conditions as well as economic conditions specific to
the Internet and online commerce industries.
As a result of our limited operating history, the emerging nature of the
markets in which we compete and the inherent degree of variability in auctions,
it is difficult for us to accurately forecast our revenues or earnings from
auction and auction enabling activities. In addition, a significant portion of
our net revenues for a particular quarter are derived from auctions that are
conducted during that quarter. Our current and future expense levels are based
largely on our investment plans and estimates of future revenues and are, to a
large extent, fixed. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Any significant shortfall in
revenues relative to our planned expenditures would have an immediate adverse
effect on our business, results of operations, cash flow and financial
condition. Further, as a strategic response to changes in the competitive
environment, we may from time to time make certain pricing, service or marketing
decisions that could have a material adverse effect on our business, results of
operations, financial condition and prospects.
Due to these factors, our quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons of our
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, our operating results will fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common shares would almost certainly be materially adversely affected.
Our business-to-consumer operations would be adversely affected if we are unable
to maintain relationships with vendors.
We are dependent upon third party vendors to supply us with merchandise for
sale in our business-to-consumer Internet auctions. The availability of
merchandise from most suppliers is unpredictable. We do not have long-term
contracts or arrangements with most of our vendors guaranteeing the availability
of merchandise for our auctions. We cannot assure you that our current vendors
will provide merchandise for sale in our auctions or that we will be able to
establish new vendor relationships that ensure merchandise will be available for
auction on our Web site. We also rely on many of our vendors to process and
ship merchandise to customers. We have limited control over the shipping
procedures of our vendors, and shipments by these vendors may be subject to
delays. During 1999, four unrelated suppliers of computers and other products
provided approximately 21%, 15%, 13% and 10%, respectively, of the merchandise
offered for sale in our business-to-consumer auctions. For 2000, we anticipate
that, at any given time, these or other suppliers may continue to supply a
significant percentage of our business-to-consumer product offerings.
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Our markets are highly competitive and we may not be able to compete
effectively.
The online commerce market is new, rapidly evolving and intensely
competitive. We expect 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 and technologies at a relatively low cost. In addition, the broader
retail consumer product industry is intensely competitive. We compete with a
broad range of companies including:
. providers of business-to-business online auction software and dynamic
pricing solutions;
. providers of outsourced auction hosting services;
. providers of business-to-consumer and consumer-to-consumer online
auctions services;
. online communities and services that promote online commerce;
. providers of physical auctions of merchandise similar to ours;
. catalog companies with substantial customer data bases; and
. large retailers and other companies with strong brand recognition and
experience in online commerce.
Many of our competitors have longer operating histories, larger customer
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we. We cannot not assure you that we will be able to
compete effectively.
We have expended significant resources to promote our brand which may not be
accepted by the marketplace.
We believe that strong brand recognition is necessary to achieving
widespread acceptance of our business-to-consumer Web site and to a lesser
extent, our business-to-business offerings. Our ability to promote and position
our brand will depend largely on the success of our marketing efforts and our
ability to offer a broad range of products and provide high quality, easy-to-
use, secure auction services. If vendors do not perceive our Web site as an
effective marketing and sales channel or technology for their goods and
services, or if customers do not perceive our platform as offering a secure and
user-friendly means to purchase goods and services, we will be unsuccessful in
promoting and maintaining our brand. Similarly, if our business-to-business
customers do not perceive our on-line auction technology, e-commerce platform
and related services as an effective means to conduct their auctions, we will
be unsuccessful in promoting and maintaining our brand.
Furthermore, to attract and retain customers for our business-to-consumer
auctions and to promote and maintain the Bid.Com brand, we must expend
significant resources. We cannot assure you that our brand promotion efforts
will result in increased revenues, or that resulting increased revenues would
offset the expenses incurred by us in promoting our brand. If we are unable to
promote or maintain our brand, our business, financial condition, results of
operations, cash flow and prospects would be materially and adversely affected.
We depend on our key personnel and we may not be able to attract or retain the
highly skilled personnel we need.
Our success is substantially dependent on the ability and experience of our
senior management and other key personnel. We do not have long term employment
agreements with any of our key personnel and maintain no "key person" life
insurance policies. Moreover, to accommodate our current size and manage our
anticipated growth, we must maintain and expand our employee base. Competition
for personnel, especially those with software development and other technical
expertise is intense. We cannot be certain we will be able to retain existing
personnel or hire additional, qualified personnel. Our inability to retain and
attract the necessary personnel or the loss of services of any of our key
personnel could have a material adverse effect on us.
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We may not be able to manage our growth.
We have recently experienced, and may continue to experience, growth in our
operations, financial systems and the number of our employees. This growth
places significant demands on our management, administrative, operating and
financial resources. In order to manage our current operations and any future
growth effectively, we will need to continue to implement and improve our
operational, financial and management information systems and to hire, train,
motivate, manage and retain our employees. We cannot assure you that we will be
able to manage our growth effectively, that our management, personnel or systems
will be adequate to support our operations, or that we will be able to achieve
levels of revenue commensurate with the increased levels of operating expenses
associated with such growth.
We plan to continue to expand internationally and are subject to risks
associated with global expansion.
We currently operate in the United States, Canada, Ireland and Australia.
We plan to expand our international presence. We may incur significant costs in
connection with our international expansion. There are also risks inherent in
doing business on a global level, including:
. various laws and regulatory requirements;
. tariffs, customs, duties and other trade barriers;
. longer payment cycles;
. export and import restrictions;
. political risks;
. currency and foreign exchange controls;
. seasonal reductions in business activity during the summer months in
Europe and elsewhere; and
. potentially adverse tax consequences.
Any of these risks could adversely affect the success of our global operations.
Any future acquisitions of companies or technologies may result in disruptions
to our business and/or the distraction of our management.
As part of our business strategy, in the future we may seek to acquire or make
investments in complementary businesses or technologies. We may not be able to
acquire or manage additional businesses profitably or to successfully integrate
any acquired businesses with our business. Businesses that we acquire may have
liabilities that we underestimate or do not discover during our pre-acquisition
investigations. Certain liabilities, even if we do not expressly assume them,
may be imposed on us as the successor to the business. Further, each
acquisition may involve other special risks that could cause the acquired
businesses to fail to meet our expectations. For example:
. the acquired businesses may not achieve expected results;
. we may not be able to retain key personnel of the acquired businesses;
. we may incur substantial, unanticipated costs, delays or other
operational or financial problems when we try to integrate businesses we
acquire with our own;
. our management's attention may be diverted; or
. our management may not be able to manage the combined entity effectively
or to make acquisitions and grow our business internally at the same
time.
In addition, we may incur debt or issue equity securities to pay for any future
acquisitions or investments, which could dilute the ownership interest of our
existing shareholders.
If we are unable to successfully protect our intellectual property or obtain
certain licenses, our competitive position may be harmed.
Our performance and ability to compete are dependent in part on our
proprietary technology. We rely on a combination of patent, copyright,
trademark and trade secret laws as well as confidentiality agreements and
technical measures, to establish and protect our proprietary rights. In March
1999, we received a patent from the U.S. Patent and Trademark Office covering
our process for conducting Dutch auctions over electronic distribution channels.
We have a patent application pending in Canada covering the same technology. We
cannot assure you that the patent under application in Canada will result in a
patent being issued in Canada. In addition, we cannot guarantee that any patents
issued to us will afford meaningful protection for our technology. Competitors
may develop similar technologies which do not conflict with our patents, others
may challenge our patents and, as a result, our patents could be narrowed or
invalidated.
Our 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 we could obtain under registered copyrights. As a
result, we may experience difficulty in enforcing our copyrights against certain
third party infringements. The source code for our proprietary software is
protected as a trade secret. As part of our confidentiality-protection
procedures, we generally enter into agreements with our employees and
consultants and limit access to, and distribution of, our software,
documentation and other proprietary information. We cannot assure you that the
steps taken by us will prevent misappropriation of our technology or that
agreements entered into for that purpose will be enforceable. The laws of other
countries may afford us little or no protection of our intellectual property.
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We also rely on a variety of technology that we license from third
parties, including our database and Internet server software, which is used in
our Web site to perform key functions. We cannot assure you that these third
party technology licenses will continue to be available to us on commercially
reasonable terms, if at all. If we are unable to maintain these licenses or
obtain upgrades to these licenses, we could be delayed in completing some
products or services or unable to complete our proprietary software
enhancements.
Others could claim that we infringe on their intellectual property rights, which
may result in costly and time consuming litigation.
Our success will also depend partly on our ability to operate without
infringing upon the proprietary rights of others, as well as our ability to
prevent others from infringing on our proprietary rights. We may be required at
times to take legal action in order to protect our proprietary rights. Also,
from time to time, we receive notice from third parties claiming that we may
infringe their patent or other proprietary rights. Despite our best efforts, we
may be sued for infringing on the patent or other proprietary rights of others.
Such litigation is costly, and even if we prevail, the cost of such litigation
could harm us. If we do not prevail, in addition to any damages we might have
to pay, we could be required to stop the infringing activity or obtain a
license. We cannot be certain that any required license would be available to
us on acceptable terms, or at all. If we fail to obtain a license, or if the
terms of a license are burdensome to us, our business, financial condition and
results of operations could be materially harmed.
Changes in government regulations may result in increased expenses, which could
decrease the demand for our services and negatively impact our results.
We are not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally and laws and
regulations directly applicable to access to or commerce on, the Internet.
However, a number of legislative and regulatory proposals under consideration by
federal, state, provincial, local and foreign governmental organizations may
lead to laws or regulations concerning various aspects of the Internet,
including but not limited to, on-line content, user privacy, taxation, access
charges and liability for third-party activities. Additionally, it is uncertain
how existing laws governing issues such as property ownership, copyright, trade
secrets, libel and personal privacy will be applied to the Internet. The
adoption of new laws or the broader application of existing laws may expose us
to significant liabilities and additional operational requirements and expenses
and may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our products and increase our cost of doing business.
Our business may be affected by evolving tax regulations.
With the exception of sales to bidders in Florida, California and Georgia,
the states in which we have, or in the past had, a physical presence, we do not
collect sales or other similar taxes in respect of goods sold through our hosted
auctions. However, one or more states may seek to impose sales tax collection
obligations on out-of-state companies that engage in or facilitate online
commerce. Also, 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 our opportunity to
derive financial benefit from such activities.
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. It is possible that the moratorium may 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 our business, financial condition,
results of operation, cash flow and prospects.
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If we are unable to expand our systems to meet demand our business would suffer.
Any substantial increase in the traffic volume on our Web site will require
us to expand our technology, transaction processing systems and network
infrastructure. We may not be able to project accurately the rate or timing of
increases in the use of our services or expand our systems and infrastructure in
a timely manner to accommodate such increases. If we are unable to expand our
systems in a timely manner we may lose customers, we may be unable to attract
new systems and our operating results will suffer.
We may have to expend significant resources to keep pace with 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 of these could render our existing
Web site and proprietary technology obsolete. Our performance will depend, in
part, on our ability to:
. develop new proprietary technology that address the increasingly
sophisticated and varied needs of our existing and prospective
customers;
. respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis;
. continually improve the performance, features and reliability of our
services in response to evolving market demands; and
. license leading technologies;
We may be required to make substantial expenditures to accomplish the
foregoing and to modify or adapt our services or infrastructure.
Our long-term viability is substantially dependent upon the widespread
acceptance and use by consumers and businesses of the Internet as a medium of
commerce.
Our future success depends in part on the continued growth and reliance by
consumers and businesses on the Internet, particularly the growth of online
auctions in the consumer and business-to-business markets. Use and growth of
the Internet will depend in significant part on continued rapid growth in the
number of households and commercial, educational and governmental institutions
with access to the Internet. The use and growth of the Internet will also
depend on the number and quality of products and services designed for use on
the Internet.
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Because use of the Internet as a source of information, products and services is
a relatively recent phenomenon, it is difficult to predict whether the number of
users drawn to the Internet will continue to increase and whether the market for
commercial use of the Internet will continue to develop and expand. Internet use
patterns may decline as the novelty of the medium recedes. We 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.
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 support the Internet also could
result in slower response times and adversely affect usage of the Internet
generally and our business 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, our business would be materially and
adversely affected.
In addition, even if consumers and businesses accept the use of the
Internet as a viable medium of commerce, we cannot assure you that Internet
auctions generally 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, our business,
financial condition, results of operations, cash flow and prospects would be
materially adversely affected.
If the Web infrastructure is unable to support user demand or if our connection
to the Internet is interrupted our business may be harmed.
The success of our branded auction service and our business-to-business
offerings 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. 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, we do not own a
gateway onto the Internet. Instead, we rely on Internet service providers to
connect our Web site to the Internet. From time to time, we have experienced
temporary interruptions in our Web site connection and in our telecommunications
access. Continuous or prolonged interruptions in our Web site connection or in
our telecommunications access would have a material adverse effect on our
operations.
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, our business,
results of operations, cash flow and financial condition will be materially and
adversely affected.
Systems failures or breaches of security could cause a significant disruption to
our business, damage our reputation and expose us to liability.
We believe our reputation for providing reliable and efficient services is
critical to our future success. Our systems are vulnerable to a number of
factors that may cause interruptions in our auctions and our ability to enable
or host third party auctions and our other services, including, among others:
. damage from human error, tampering and vandalism;
. breaches of security;
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. fire and power losses;
. telecommunications failures and capacity limitations; and
. software or hardware defects.
We have developed a redundant system and a formal disaster recovery plan.
Despite the precautions we have taken and plan to take, the occurrence of any of
these events or other unanticipated problems could result in service
interruptions, which could damage our reputation, subject us to loss of business
and significant repair costs. Advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments may
result in a compromise or breach of the algorithms we use to protect customer
transaction data, including credit card information. Security breaches could
expose us to a risk of loss or litigation and possible liability for failing to
secure confidential customer information. These factors could expose us to
liabilities which could exceed our insurance coverage. Service disruptions
could also damage our reputation, cause us to lose existing customers and make
it difficult to attract new ones. Extensive repair costs could also affect our
ability to operate. Although we continue to take steps to enhance the security
and redundancy of our systems, our systems are not now, nor will they ever be,
fully secure and redundant.
We are subject to risks associated with exchange rate fluctuations.
We transact substantially all of our purchases and sales in U.S. dollars
while the majority of our operating expenses are in Canadian dollars. We have
recently opened offices in Ireland and Australia and plan to expand to other
countries. As a result in the future we may earn revenues and incur expenditures
in the currencies of these countries and in other foreign currencies. We do 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 or the exchange rate of other currencies
against the U.S. or Canadian dollars could have a material adverse effect on our
earnings and cash flows.
Potential Year 2000 Problems could harm our business or the businesses of some
of our significant suppliers or customers or damage our reputation and force us
to divert resources away from the operation our business.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates due to the two-
digit date fields used by many systems. Most reports to date, however, are that
computer systems are functioning normally and the compliance and remediation
work accomplished leading up to January 1, 2000 was effective to prevent any
problems. Computer experts have nevertheless warned that there may still be
residual consequences of the change in centuries.
We have not experienced any material Year 2000 problems to date and we are
not aware of any material Year 2000 problems which our significant suppliers
have experienced that are reasonably likely to materially affect our business.
Nevertheless, in the future, our equipment and technology or that of our
significant suppliers could be significantly impaired or cease to operate due to
Year 2000 problems or we or our significant suppliers could experience other
Year 2000 problems. Any residual Year 2000 difficulties or problems which we or
our significant suppliers experience could materially harm our business.
Our preference shares could prevent or delay a takeover that some or a majority
of shareholders consider favorable.
Our board of directors, without any further vote of our shareholders, may
issue preference shares and determine the price, preferences, rights and
restrictions of those shares. 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. That means,
for example, that we can issue preference shares with more voting rights, higher
dividend payments or more favorable rights upon distribution of common shares.
If we issue certain types of preference shares in the future, it may also be
more difficult for a third party to acquire a majority of our outstanding voting
shares and may, in certain circumstances, deter or delay mergers, tender offers
or other possible transactions that may be favored by some or a majority of our
shareholders.
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The volatility of our share price could adversely affect our shareholders.
Our common shares are listed on The Toronto Stock Exchange under the symbol
BII and are quoted on the Nasdaq National Market under the symbol BIDS. The
trading price of our common shares on The Toronto Stock Exchange and Nasdaq has
fluctuated significantly in the past and may be highly volatile and could be
subject to wide fluctuations in the future. Further, the stock markets, in
general, 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
companies. Broad market and industry factors may materially and adversely
affect the market price of our common shares, regardless of our operating
performance.
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 that company. Such litigation, if instituted against us,
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on our business, results
of operations, cash flow, financial condition and prospects.
Our common shares may become subject to "penny stock" regulations which may
affect your liquidity in our common shares.
Our common shares were first quoted on the Nasdaq National Market on April
20, 1999. Since then, our common shares have traded at prices below US$5.00 from
time to time. Should our common shares continue to be traded below U.S.$5.00,
our 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 U.S.$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:
. net tangible assets of at least US$2,000,000, if such issuer has been in
continuous operation for three years
. net tangible assets of at least US$5,000,000, if such issuer has been in
continuous operation for less than three years; or
. average annual revenue of at least US$6,000,000, if such issuer has been
in continuous operation for less than three years
Unless an exception is available, the regulations require that, prior to
any transaction involving a penny stock, delivery 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 our common
shares by limiting the ability of broker/dealers to trade the shares and the
ability of purchasers of our common shares to sell in the secondary market.
U.S. investors in our company could suffer adverse tax consequences if we are
characterized as a passive foreign investment company.
We may be treated as a passive foreign investment company, or PFIC, for
United States federal income tax purposes during our 2000 tax year or in
subsequent years. We would be a PFIC if 75% or more of our gross income in a
taxable year is passive income. We would also be a PFIC if at least 50% of our
assets averaged over the taxable year produce, or are held for the production
of, passive income. For these purposes, the value of our assets would be
calculated based on our market capitalization. Passive income includes, among
other items, interest, dividends, royalties, rents and annuities. We may be
deemed a PFIC because previous financings combined with proceeds of future
financings may produce, or be deemed to be held to produce, passive income.
If we are or become a PFIC, many of our U.S. shareholders will be subject
to the following adverse tax consequences:
. they will be taxed at the highest ordinary income tax rates in effect
during their holding period on certain distributions on our capital
shares, and gains from the sale or other disposition of our capital
shares;
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. they will be required to pay interest on taxes allocable to prior
periods; and
. the tax basis of our capital shares will not be increased to fair market
value at the date of their death.
If we become a PFIC, U.S. shareholders could avoid these tax consequences
by making a qualified electing fund election or a mark-to-market election.
These elections would need to be in effect for all taxable years during which we
were a PFIC and during which you held our capital shares. A U.S. shareholder
who makes a qualified electing fund election, will be taxed currently on our
ordinary income and net capital gain (unless a deferral election is in effect).
A U.S. shareholder who makes a mark-to-market election will include as ordinary
income each year an amount equal to the excess of the fair market value of our
capital shares over the adjusted tax basis as of the close of each year (with
certain adjustments for prior years).
If we become a PFIC, our U.S. shareholders will generally be unable to
exchange our capital shares for shares of an acquiring corporation on a tax-
deferred basis under the reorganization rules of the Internal Revenue Code, and
the benefits of many other nonrecognition provisions of the Internal Revenue
Code will not apply to transfers of our capital shares. In addition, if we
become a PFIC, pledges of our capital shares will be treated as sales for U.S.
federal income tax purposes. U.S. citizens should note that state and local
taxes may also apply if amounts are included in U.S. federal taxable income
under the PFIC rules of the Internal Revenue Code. The PFIC rules are very
complex. U.S. citizens are strongly encouraged to consult with their tax
advisors concerning all of the tax consequences of investing in our common
shares and the possible benefits of making a tax election given their
circumstances. Additionally, U.S. citizens should review the section entitled
"Taxation--U.S. Federal Income Tax Considerations--Tax Status of the Company--
Passive Foreign Investment Companies" contained in this annual report for a more
detailed description of the PFIC rules and how those rules may affect their
ownership of our capital shares.
Future sales by existing shareholders may lower the price of our common shares
which could result in losses to our shareholders.
As of April 27, 2000, there were 53,028,854 common shares outstanding. Of
these shares, 48,608,833 common shares are freely tradable. The remaining
common shares and common shares issuable upon exercise of options and warrants
outstanding are eligible for sale to the public market in the United States as
follows:
. Our affiliates own 2,047,150 shares that may be sold subject to volume
restrictions imposed by Rule 144. Our affiliates also own options to acquire
an additional 2,265,000 shares. The shares to be issued upon exercise of
these options may be freely sold under Rule 701, to the extent applicable. In
addition, we plan to file a registration statement on Form S-8 covering all
of these shares. After the registration statement is filed all of these
shares may be freely sold when issued.
. Our employees and consultants who are not deemed affiliates hold options to
buy a total of 1,107,650 shares. The shares to be issued by exercise of these
options may be sold freely under Rule 701, to the extent applicable. The
remaining shares may be freely sold after we file our registration statement
on Form S-8.
. We may issue options to purchase up to an additional 3,134,800 shares under
our stock option plans. The shares to be issued upon exercise of these
options may be freely sold when issued, provided that we have filed a
registration statement on Form S-8.
. We have issued an additional 2,372,871 shares to non-affiliates which will
become eligible for resale under Rule 144 at various times over the next 10
months.
. We have issued warrants to purchase a total of 2,490,146 shares. We have
registered 2,040,146 shares issuable upon execution of warrants for resale in
Canada. The shares issued upon exercise of the outstanding warrants may be
freely sold subject to the provisions of Rule 144, beginning one year after
issuance.
In addition, we have agreed with Acqua Wellington to register the common
shares which they will purchase in the Acqua Wellington financing. Upon
completion of the registration, all of the shares which they purchase may be
freely sold.
Sale of substantial amounts of shares into the public market may lower the
market price of our common shares.
In general, under Rule 144 as currently in effect, 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 our common shares then outstanding (approximately 530,288 shares)
or (ii) the average weekly trading volume of our 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
us. Under Rule 144(k), a person who is not deemed to have been an affiliate of
us 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 permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions of Rule 144,
including the holding period requirement. Any of our employees, officers,
directors or consultants who, prior to April 14, 1999, purchased his or her
shares or received options to purchase common shares, pursuant to a written
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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.
It may be difficult for you to enforce civil liabilities on us or our officers
or directors.
We are incorporated under the laws of the Province of Ontario, Canada.
Certain of our directors and officers are residents of Canada and a substantial
part of our assets and all or a substantial portion of the assets of such
persons are located outside the United States. 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. We believe, based on advice of our 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, we believe, 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.
We have never paid dividends.
We have paid no cash dividends on any of our shares of capital stock and
have no plans to pay dividends in the foreseeable future. We currently intend
to retain all earnings, if any, for working capital and general corporate
purposes.
ITEM 2 - DESCRIPTION OF PROPERTY
Our principal administrative, engineering, merchandising and marketing
facilities total approximately 10,165 square feet and are located on two floors
of an office building in Mississauga, Ontario, Canada, under a lease that
terminates on October 31, 2001. We also lease offices in Tampa, Florida where
four employees are located. We believe that we have adequate space for our
current needs. As we expand, we expect that suitable additional space will be
available on commercially reasonable terms. We also maintain offices in Dublin,
Ireland with -4 employees and Melbourne, Australia with one employee. We do not
own any real estate nor do we currently own or lease warehouse space. We rely,
instead, on direct shipments from vendors or contract warehouses for our
fulfillment and logistics requirements.
ITEM 3 - LEGAL PROCEEDINGS
Neither we, nor any of our subsidiaries, is a party to, or the subject of,
any material legal proceedings.
ITEM 4 - CONTROL OF REGISTRANT
To our knowledge, no person beneficially owns, directly or indirectly, or
exercises control or direction over more than 10% of our issued and outstanding
common shares. As of April 27, 2000, our directors and officers as a group (12
persons) owned 4,002,983 common shares, representing 7.6% of our shares. This
includes a total of 1,955,833 common shares issuable upon exercise of options
and warrants exercisable within 60 days from April 27, 2000 by certain directors
and executive officers. It does not include a total of 409,167 shares issuable
upon exercise
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of options and warrants held by directors and officers that are first
exercisable more than 60 days after April 27, 2000.
We are not aware of any arrangements which may result in a change in
control of our company.
ITEM 5 NATURE OF TRADING MARKET
Our common shares are quoted on the Nasdaq National Market and are listed
on The Toronto Stock Exchange. Our common shares have been quoted on Nasdaq
since April 20, 1999 under the symbol "BIDS." Our common shares began trading
on The Toronto Stock Exchange on February 9, 1998 under the symbol "ILI" and,
since July 18, 1998, our common shares traded under the symbol "BII". From June
6, 1996 to February 9, 1998, our common shares were quoted for trading on the
Canadian Dealing Network under the symbol "ILII."
The following tables set forth the range of high and low sales prices
(rounded to the nearest hundredth) as reported by Canadian Dealing Network
(through February 8, 1998), The Toronto Stock Exchange (beginning February 8,
1998) and Nasdaq (beginning April 20, 1999) during the calendar quarters
indicated:
The Toronto Stock Exchange
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 17.60 3.65
2nd Quarter 33.65 10.65
3rd Quarter 13.05 4.90
4th Quarter 8.95 5.65
2000 High Low
---- ---- ---
(Cdn $) (Cdn $)
1st Quarter 13.10 5.85
2nd Quarter 9.20 3.11
(April 1, 2000 to
May 18, 2000)
Nasdaq
1999 High Low High Low
---- ---- --- ---- ---
(Cdn$) (Cdn$) (US$) (US$)
2nd Quarter 28.56 10.72 19.13 7.13
3rd Quarter 12.54 5.59 8.53 3.75
4th Quarter 8.85 5.63 6.00 3.84
2000 High Low High Low
---- ---- --- ---- ---
(Cdn$) (Cdn$) (US$) (US$)
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1st Quarter 13.30 5.75 9.13 3.70
2nd Quarter 9.69 3.01 6.50 2.06
(April 1, 2000 to
May 18, 2000)
United States dollar amounts are converted to Canadian dollars at 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 for the
date of such sales prices.
As of April 28, 2000, we had 1,360 shareholders of record holding
53,028,854 common shares, of which 369 shareholders holding 6,109,392 common
shares had an address of record in the United States. Common shares held by the
principal depositary in the United States on such date amounted to 5,426,188 or
10.2% of our issued common shares, which shares are held for participants'
accounts.
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.
There is no limitation imposed by Canadian law or by the articles or other
charter documents on the right of a non-resident to hold or vote common shares
or preference shares with voting rights, other than as provided in the
Investment Canada Act, as amended by the World Trade Organization Agreement
Implementation Act. The Investment Canada 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 Canada 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 our voting shares by a non-Canadian (other than a "World
Trade Organization Investor," as defined below) would be reviewable under the
Investment Canada Act if it were an investment to acquire direct control of our
company, and the value of our assets were $5.0 million or more. An investment
in our voting shares by a World Trade Organization Investor would be reviewable
under the Investment Canada Act if it were an investment to acquire direct
control of our company, and the value of our assets equaled or exceeded $192.0
million. A non-Canadian, whether a World Trade Organization Investor or
otherwise, would acquire control of us for purposes of the Investment Canada Act
if he or she acquired a majority of our voting shares. The acquisition of less
than a majority, but at least one-third of our voting shares, would be presumed
to be an acquisition of control of our company, unless it could be established
that we were not controlled in fact by the acquirer through the ownership of
voting shares. In general, an individual is a World Trade Organization Investor
if he or she is a "national" of a country (other than Canada) that is a member
of the World Trade Organization ("World Trade Organization Member") or has a
right of permanent residence in a World Trade Organization Member. A
corporation or other entity will be a World Trade Organization investor if it is
a "World Trade Organization investor-controlled entity" pursuant to detailed
rules set out in the Investment Canada Act. The United States is a World Trade
Organization Member.
Certain transactions involving our voting shares would be exempt from the
Investment Canada Act, including: (a) an acquisition of our voting shares 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 our 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 Canada Act; and (c) an acquisition of control of our company by
reason of an amalgamation, merger, consolidation or corporate reorganization,
following which the ultimate direct or indirect control in fact of our company,
through the ownership of voting interests, remains unchanged.
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ITEM 7 TAXATION
Canadian Federal Income Tax Considerations
The following summary describes material Canadian federal income tax
consequences generally applicable to a holder of our common shares who is not a
resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i)
holds such shares as capital property and (ii) deals at arm's length with us.
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 Income Tax Act and
the regulations thereunder and on an understanding of the published
administrative practices of the Canadian Customs and Revenue Agency. 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
our common shares.
Taxation of Dividends.
A holder of a common share who is not resident in Canada for purposes of
the Income Tax Act will be subject to Canadian withholding tax on dividends paid
or credited, or deemed under the Income Tax Act to be paid or credited, to the
holder of the common share. The rate of withholding tax under the Income Tax Act
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. Under the tax treaty that Canada has entered into with the United
States, 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 shares. 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. 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
organizations 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 Income Tax Act 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 Income Tax Act). Shares of a
corporation that are listed on a prescribed stock exchange (which includes
shares traded on a U.S. stock exchange and the Nasdaq are generally not
considered to be taxable Canadian property. However, such shares can be taxable
Canadian property if, at any time during the 60 month period immediately
preceding their disposition, 25% or more of our issued shares of any class
belong to the non-resident together with persons with whom the non-resident did
not deal at arm's length.
An option to acquire common shares or other securities convertible into or
exchangeable for common shares, or otherwise having an interest in common
shares, could constitute taxable Canadian property if the common shares that
could be acquired upon the exercise of the option, the conversion or exchange
rights or in which there is
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such interest. Taxable Canadian property also includes any common share held by
a non-resident 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 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.
Two-thirds of any capital gain realized by a holder (a taxable capital
gain) will be included in computing the holder's income. Two-thirds 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 Income Tax Act.
A purchase by us of our common shares (other than a purchase of our common
shares 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 Income Tax Act equal to the difference between the
amount we paid on the purchase and the paid-up capital of such shares determined
in accordance with the Income Tax Act. 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 Income Tax Act 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 Income Tax Act.
Even if the common shares 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 Income Tax Act 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.
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, 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 annual report and all of which
are subject to change, possibly on a retroactive basis. 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 any particular taxpayer based on such
taxpayer's particular circumstances (including potential application of the
alternative minimum tax), to particular classes of taxpayers (including
financial institutions, broker-dealers, insurance companies, taxpayers who have
elected mark-to-market accounting, tax-exempt organizations, taxpayers who hold
ordinary shares as part of a straddle, "hedge" or "conversion transaction" with
other investments, investors who own (directly, indirectly or through
attribution) 10% or more of our company's outstanding voting stock, taxpayers
whose functional currency is not the U.S. dollar, 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) or
any aspect of state, local or non-United States tax laws. Additionally, the
discussion does not consider the tax treatment of persons who hold common shares
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through a partnership or other pass-through entity or the possible application
of United States federal gift or estate tax. 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 our 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, (iii) an estate, the income of which is includable
in gross income for United States federal income tax purposes regardless of
source, or (iv) a trust, if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the trust (a
"U.S. Holder"). This summary is for general information purposes only and does
not purport to be a comprehensive description of all of the tax considerations
that may be relevant to a decision to purchase common shares. This summary
generally considers only U.S. Holders that will own their common shares as
capital assets.
Each shareholder should consult with such shareholder's own tax advisor as
to the particular tax consequences to such shareholder of the purchase,
ownership and sale of their 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 Companies," a distribution by our 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 our 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 our 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 our company will pay dividends in the
foreseeable future, the gross amount of any distribution from our 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 our 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 of the distribution,
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 the distribution. 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 distribution.
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 our
company with respect to the common shares will generally constitute "passive
income." Foreign income taxes exceeding a shareholder's credit limitation for
the year of payment or accrual of such tax can be carried back for two taxable
years and forward for five taxable years, subject to the credit limitation
applicable in each of such years. Additionally, the foreign tax credit in any
taxable year may not offset more than 90% of a shareholder's liability for
United States individual or corporate alternative minimum tax. The total amount
of allowable foreign tax credits in any year generally cannot exceed regular
U.S. tax liability for the year attributable to foreign source taxable income. A
U.S. Holder will be denied a foreign tax credit with respect to Canadian income
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tax withheld from dividends received on the common shares to the extent such
U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day
period beginning on the date which is 15 days before the ex-dividend date or to
the extent such U.S. Holder is under an obligation to make certain related
payments with respect to substantially similar or related property. Any days
during which a U.S. Holder has substantially diminished its risk of loss on the
common shares are not counted toward meeting the 16 day holding period required
by the statute.
Sale or Exchange of a Common Share
Subject to the discussion below under "Tax Status Of The Company - Passive
Foreign Investment Companies," the sale or exchange by a U.S. Holder of a common
share generally 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 a 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%. Gains
recognized by a U.S. Holder on a sale, exchange or other disposition of common
shares generally will be treated as United States source income for United
States foreign tax credit purposes. A loss recognized by a U.S. Holder on the
sale, exchange or other disposition of common shares generally is allocated to
U.S. source income under recently finalized regulations. However, those
regulations require such loss to be allocated to foreign source income to the
extent certain dividends were received by the taxpayer within the 24-month
period preceding the date on which the taxpayer recognized the loss. The
deductibility of a capital loss recognized on the sale, exchange or other
disposition of common shares is subject to limitations. A U.S. Holder that
receives foreign currency upon disposition of common shares and subsequently
converts the foreign currency into U.S. dollars generally will have foreign
exchange gain or loss based on any appreciation or depreciation in the value of
the foreign currency against the U.S. dollar. 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.
Tax Status of the Company
Personal Holding Companies. A non-U.S. corporation may be classified as a
personal holding company 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 and
(ii) 60% or more of such non-U.S. corporation's gross income derived from U.S.
sources or effectively connected with a U.S. trade or business, as specifically
adjusted, is from certain passive sources such as dividends and royalty
payments. Such a corporation generally is taxed (currently at a rate of 39.6% of
"undistributed personal holding company income") on the amounts of such passive
source income, after making adjustments such as deducting dividends paid and
income taxes, that are not distributed to shareholders. We believe that our
company was not a personal holding company in 1999 and is not currently a
personal holding company. 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 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% if previously an foreign personal holding
company) of its gross income (regardless of source), as specifically adjusted,
from certain passive sources. If such a corporation is classified as a foreign
personal holding company, 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 foreign personal holding company. 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
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rules. We believe that our company was not a personal holding company in 1999
and is not currently a personal holding company. However, no assurance can be
given that our company will not qualify as a foreign personal holding company in
the future.
Passive Foreign Investment Companies. A company will be a passive foreign
investment company 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 passive foreign investment company 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. For
these purposes, the value of our assets is calculated based on our market
capitalization. Passive income generally includes, among others, interest,
dividends, royalties, rents and annuities.
If our company is a passive foreign investment company for any taxable
year, a U.S. Holders, in the absence of an election by such U.S. Holder to treat
our company as a "qualified electing fund" (a "QEF election"), as discussed
below, would, upon certain distributions by our company and upon disposition of
the common shares at a gain, be liable to pay tax at the highest tax rate on
ordinary income in effect for each period to which the income is allocated, plus
interest on the tax, as if the distribution or gain had been recognized ratably
over the days in the U.S. Holder's holding period for the common shares during
which our company was a passive foreign investment company. Additionally, if our
company is a passive foreign investment company, U.S. Holders who acquire
ordinary shares from decedents would be denied the normally available step-up of
the income tax basis for such common shares to fair market value at the date of
death and instead would have a tax basis equal to the decedent's basis, if
lower.
If our company is treated as a passive foreign investment company for any
taxable year, U.S. Holders should consider whether to make a QEF election for
United States federal income tax purposes. If a U.S. Holder has a QEF election
in effect for all taxable years that such U.S. Holder has held the common shares
and our company was a passive foreign investment company, distributions and gain
will not be recognized ratably over the U.S. Holder's holding period or subject
to an interest charge, gain on the sale of common shares will be characterized
as capital gain and the denial of basis step-up at death described above would
not apply. Instead, each such U.S. Holder is required for each taxable year that
our company is a qualified electing fund to include in income a pro rata share
of the ordinary earnings of our company as ordinary income and a pro rata share
of the net capital gain of our company as long-term capital gain, subject to a
separate election to defer payment of taxes, which deferral is subject to an
interest charge. Consequently, in order to comply with the requirements of a QEF
election, a U.S. Holder must receive from our company certain information. We
intend to supply U.S. Holders with the information needed to report income and
gain pursuant to a QEF election in the event our company is classified as a
passive foreign investment company. The QEF election is made on a shareholder-
by-shareholder basis and can be revoked only with the consent of the Internal
Revenue Service. A shareholder makes a QEF election by attaching a completed
IRS Form 8621 (including the passive foreign investment company annual
information statement) to a timely filed United States federal income tax return
and by filing such form with the IRS Service Center in Philadelphia,
Pennsylvania. Even if a QEF election is not made, a shareholder in a passive
foreign investment company who is a U.S. Holder must file a completed IRS Form
8621 every year.
As an alternative to making a QEF election, a U.S. Holder may elect to make
a mark-to-market election with respect to the common shares owned by him. If the
mark-to-market election were made, then the rules set forth above would not
apply for periods covered by the election. 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 such U.S. Holder as of the close of the taxable year over the
U.S. Holder's adjusted basis in such shares. The U.S. Holder would be entitled
to a deduction for the excess, if any, of such U.S. 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 under the election 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
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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 common 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 IRS consents to the revocation of the election.
We do not believe our company was a passive foreign investment company
during 1999. However, there can be no assurance that our company will not be
classified as a passive foreign investment company in 2000 or thereafter because
the tests for determining passive foreign investment company status are applied
annually and it is difficult to make accurate predictions of future income and
assets, which are relevant to this determination. U.S. Holders who hold common
shares during a period when our company is a passive foreign investment company
will be subject to the foregoing rules, even if our company ceases to be a
passive foreign investment company, subject to certain exceptions for U.S.
Holders who made a QEF 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 passive foreign investment company rules.
Back-Up Withholding and Information Reporting
U.S. Holders generally are subject to information reporting requirements
with respect to dividends paid in the United States on common shares. Under
existing regulations, such dividends are not subject to back-up withholding.
U.S. Holders generally are subject to information reporting and back-up
withholding at a rate of 31% on proceeds paid from the disposition of common
shares unless the U.S. Holder provides IRS Form W-9 or otherwise establishes an
exemption.
Treasury regulations generally effective January 1, 2001 may alter the
rules regarding information reporting and back-up withholding. In particular,
those regulations generally would impose back-up withholding on dividends paid
in the United States on common shares unless the U.S. Holder provides IRS Form
W-9 or otherwise establishes an exemption. Prospective investors should consult
their tax advisors concerning the effect, if any, of these Treasury regulations
on an investment in common shares. The amount of any back-up withholding will be
allowed as a credit against a U.S. or Non-U.S. Holder's United States federal
income tax liability and may entitle such Holder to a refund, provided that
certain 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, our consolidated financial statements,
and notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in this annual report.
The consolidated statement of operations data for the years ended 1997, 1998 and
1999 and consolidated balance sheet data as of December 31, 1998 and 1999, as
set forth below, are derived from our consolidated audited financial statements,
including the notes thereto, included elsewhere in this annual report. The
consolidated statement of operations data for the year ended 1996 and for the
four months ended December 31, 1995 and the consolidated balance sheet data as
at December 31, 1996 and 1995 have been derived from our audited financial
statements not included in this annual report. We have prepared our audited
financial statements in accordance with accounting principles generally accepted
in Canada, which differ in certain respects from generally accepted accounting
principles in the United States. However, as applied to us, for all fiscal
periods for which financial data are presented in this annual report, Canadian
GAAP and U.S. GAAP were substantially identical in all material respects, except
as disclosed in Note 14 to our consolidated financial statements and as
described below.
Our 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, 1999 has been translated from
Canadian dollars into U.S. dollars for convenience purposes at the
representative exchange rates of $1.444 to US$1.00, the noon buying rate in New
York City on December 31, 1999 for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York. Such
translation should not be construed as a representation that the Canadian dollar
amount represents, or has been converted into, U.S. dollars at this or any other
rate.
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<TABLE>
<CAPTION>
Statement of Operations
Data:
Year Ended Year Ended Four
December 31 ----------- Months
----------- December 31 Ended
----------- Dec 31
1999 1999 1998 1997 1996 1995(1)
---- ---- ---- ---- ---- -------
(Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (Cdn$)
<S> <C> <C> <C> <C> <C> <C>
(Audited)
(in thousands except for per share data)
Revenues................ 31,001 21,469 20,001 2,619 51 -
Expenses 26,696 18,488 19,361 2,916 12 -
Direct expenses.........
Advertising and 11,870 8,220 12,594 2,521 403 12
promotion..............
General & administrative 12,405 8,591 5,751 3,157 1,453 112
Software development 1,001 693 889 661 194 10
and technology..........
Depreciation and 621 430 201 122 100 1
amortization
Interest (income) (767) (531) (88) (33) - -
Total expenses.......... 51,826 35,891 38,708 9,344 2,162 135
Loss from operations.... (20,825) (14,422) (18,707) (6,725) (2,111) (135)
Net (loss).............. (20,825) (14,422) (18,707) (6,725) (2,111) (135)
Loss per common share... (0.42) (0.29) (0.79) (0.55) (0.21) (0.01)
Weighted average number 50,682 50,682 23,819 12,297 9,598 3,375
of
common shares
Balance Sheet Data:(2)
</TABLE>
<TABLE>
<CAPTION>
As at December 31
--------------------------------------------------
1999 1999 1998 1997 1996 1995
------- ------- ------- ------ ------ ------
(Cdn$) (U.S.$) (Cdn$) (Cdn$) (Cdn$) (Cdn$)
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
Working capital........................ 21,523 14,905 17,929 5,088 (559) 62
Total assets........................... 36,743 25,445 21,047 6,886 471 145
Long-term Deferred Revenue............. 1,289 893 - - - -
Shareholders equity.................... 28,985 20,072 18,622 5,563 (209) 116
____________________________
(1) We commenced our present business in September 1995.
(2) We have not paid dividends since our formation.
</TABLE>
34
<PAGE>
ITEM 9 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
We offer auction enabling technology and related services for the business-
to-business market directly and through a series of strategic partnerships and
alliances and for the business-to-consumer market through our Web site located
at www.bid.com.
We offer a comprehensive suite of services, including fixed price,
traditional rising price auction, real time or live Dutch auction, and request
for quotation/proposal formats.
In September 1995, our business was commenced by Internet Liquidators Inc.,
an Ontario corporation. In May 1996, Internet Liquidators USA Inc., a wholly
owned subsidiary of Internet Liquidators 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, our
Company formed, as an Ontario corporation, by amalgamation of Internet
Liquidators Inc. and Internet Liquidators International Inc. In June 1998, we
changed our name from Internet Liquidators International Inc. to Bid.Com
International Inc.
From incorporation through April 1996, we had no revenues. During this
period, we focused on development of our proprietary technology and computer
infrastructure and the initial planning and development of our Web site and
operations. We launched our auction Web site in April 1996 under the URL
www.internetliquidators.com, but did not begin to actively promote or advertise
our Web site until May 1997. From April 1996 until May 1997, we focused on
securing our initial relationships with America Online and The Toronto Star,
which were concluded in February 1997, and developing an advertising and
promotion plan for our business, while continuing to develop our technology and
Web site and build our business infrastructure. We generated only minimal
revenues during this period.
In May 1997, we initiated our marketing and advertising campaign and, as a
result, began generating more significant commercial revenues for auctions
conducted at our Web site. In March 1998, we changed our Web site address to
www.bid.com. Since launching our Bid.Com brand name, our customer base has
increased significantly. As of May 15, 2000, we had approximately 204,000
registered bidders, representing a 716% increase in registered bidders from
January 1, 1998.
Business-to-Business. Building on our significant experience in the
delivery of on-line dynamic price solutions, we enable other businesses to enjoy
the advantages of an on-line distribution strategy. Because of the modular
nature of our software, the mix of products and services may be tailored to the
needs of each client. Our software includes an ascending auction, live or real-
time Dutch auction, request for proposal/quote auction, or fixed price format.
We also offer a wide range of services, including consulting, research, training
and implementation services. Customization and implementation may, depending
upon the client, take several months, depending upon the objective of the
customer, the complexity of the customer's information technology environments,
and the resources directed by the customers to the implementation projects. The
revenue structures and particular services provided vary depending upon the
needs of the client, and we typically participate in a share of revenue or net
revenue from each auction. The term of the agreements vary, and revenue from
software licenses is deferred and amortized
Commencing in 1999, we began to refocus our strategic sales agenda in favor
of an international entry to business-to-business markets. New business to
business alliances were created in which we typically secured an ongoing revenue
sharing arrangement. We also established new offices in Dublin and Melbourne.
For a further discussion of the impact of this shift in our primary business
focus, see "Item 1 - Description of Our Business - Overview" and "Risk Factors -
As a result of our evolving business model, we may generate less revenue from
the business-to-consumer market and we may not be able to replace the revenue
with revenues from the business-to-business market: and " - Our marketing
alliance with AOL has terminated which may reduce traffic to our
business-to-consumer Web site; we rely on alliances with other third parties to
drive traffic to our business-to-consumer Web sites, and if those alliances
terminate our business could be harmed."
Business-to-Consumer. Our policy is, generally, not to purchase
inventory from merchandise vendors for resale on our auctions at www.bid.com.
Rather, we usually acquire the right to sell the merchandise under
35
<PAGE>
arrangements with our vendors. These arrangements typically provide that the
supplier will reserve for sale by us specified quantities of products for a
fixed period of time without obligating us to purchase these products until
sales are made to our customers. Prior to sale, we negotiate a reserve price
with a particular vendor. When an auction is completed, we charge the successful
bidder's credit card. We typically purchase merchandise from suppliers only
after a customer has purchased and paid for the product. Title to the inventory
passes to us at the time the goods are shipped to the customer. We record the
gross amount as revenue upon verification of the credit card authorization and
shipment of the merchandise to the customer. Inventory on our balance sheets
reflect sales returns in transit and some inventory for resale. Both are valued
at the lower of cost and net realizable value. Sales returns in transit may, at
our option, be returned to suppliers for credit or held for resale.
Historically, we have offered lower margin categories of products, such as
computers, computer accessories and computer upgrades. While we plan to
continue offering these product categories, we have shifted our product mix and
increased 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.
In connection with the introduction of our marketing program in the third
and fourth quarters of 1997, we initiated a promotional pricing strategy under
which products were sold below cost or at significantly reduced profit margins.
Due to competitive pressures we continued that approach throughout most of 1998
and 1999. As a result, our earnings were significantly impacted. We recorded
advertising and promotional expenses related to our promotional pricing strategy
of $698,000 for the year ended December 31, 1997, $3.52 million for the year
ended December 31, 1998 and $4.0 million for the year ended December 31, 1999.
We further expect that we may, in the future, in response to competitive
pressures or for other business reasons, from time to time use promotional
pricing programs and free shipping programs. In such cases, we anticipate that
our earnings will be reduced and such reductions may be significant.
We have entered into agreements to market a variety of new consumer items,
including jewelry, talking sports memorabilia and video games, on our consumer
auction site. In November 1999, we reached a significant milestone with the two
millionth visitor to our Canadian consumer Web site in November, 1999.
Results of Operations
Comparison of Years Ended December 31, 1999 and December 31, 1998
Revenues. Revenues are comprised of services and auction enabling
activities, and the sale of merchandise plus shipping revenue. Revenues
increased to $31.001 million for the year ended December 31, 1999 from $20.001
million for the year ended December 31,1998, an increase of 55.0%. The increase
is due to higher revenues from our Web site and from service and auction
enabling activities during the year. From January 1, 1999 to December 31, 1999,
our customer base grew substantially as reflected by a 106% increase in
registered bidders from approximately 87,000 to almost 179,000. Quarterly
revenues for 1999 were $5.015 million in the first quarter, $6.250 million in
the second quarter, $8.330 million in the third quarter, and $11.406 million in
the fourth quarter representing quarter over quarter growth of over 24.6% in the
second quarter, 33.3% in the third quarter, and 36.9% in the fourth quarter.
Direct Expenses. Direct expenses reflect negotiated reserve prices with
vendors for the supply of goods sold by us. Direct expenses were $26.696
million (86.1% of revenues) for the year ended December 31, 1999, as compared to
$19.361 million (96.8% of revenues) for the year ended December 31, 1998. The
increase in direct expenses reflects the significant growth of revenues during
the year ended December 31, 1999 as compared to the year ended December 31,
1998. We anticipate that our direct expenses will vary as a percentage of
revenues in future quarters as we attempt to continue to reduce the number of
high cost/low contribution products and increased services and auction enabling
activities.
Advertising and Promotion Expenses. Advertising and promotion expenses
consist primarily of advertising and marketing fees, promotional pricing
expenses, and expenses paid to strategic and marketing partners and other third
parties from which we purchase advertising space, but does not include salaries
and related expenses of our sales and marketing personnel which are included in
general and administrative expenses. Advertising and promotion expenses were
$11.870 million for the year ended December 31, 1999, as compared to $12.594
million
36
<PAGE>
for the year ended December 31, 1998, a decrease of 5.7%. As a percentage of
revenues, advertising and promotion expenses fell to 38.3% of revenues for the
year ended December 31, 1999 from 63.0% during the year ended December 31, 1998.
Advertising and promotion expenses for the year ended December 31, 1999 include
$4.044 million (13.0% of revenue) attributable to promotional pricing expenses
and $3.548 million (11.4% of revenue) for expenses related to America Online in
accordance with our marketing agreement with America Online. Advertising and
promotion expenses for the year ended December 31, 1998 included $3.520 million
(17.6% of revenue) for promotional pricing expenses and $7.0 million (35.0% of
revenue) for expenses related to America Online in accordance with the America
Online marketing agreement. The decrease in advertising and promotional pricing
expenses during 1999, reflects the substantial impact of advertising and
marketing which the Company undertook in 1998 to promote the Bid.Com brand name,
attract track traffic to our Web site and enlarge our customer base. Reduction
of advertising and promotion expenses as a percentage of revenue reflects the
significant growth in revenues from 1999 over 1998. Payments to America Online
ceased March 31, 2000 with the expiry of the America Online agreement.
General and Administrative Expenses. General and administrative expenses
include, primarily: all salaries and related expenses (including benefits and
payroll taxes) other than fees to independent contractors for research and
development, and technology staff compensation, 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 $12.405 million for the year
ended December 31, 1999 from $5.751 million for the year ended December 31,
1998, an increase of 115.7%. As a percentage of revenues, general and
administrative expenses increased to 40.0% of revenues for the year ended
December 31, 1999 from 28.8% of revenues for the year ended December 31, 1998.
The increase in general and administrative expenses is attributable to an
increase in salary and related expenses resulting from staff hired to
accommodate the growth in business and increased focus on business-to-business
opportunities during 1999, increased legal and other fees relating to the
attainment of a Nasdaq listing, regulatory filing fees, investor relations fees,
live video streaming production expenses, rent, communication and other
ancillary costs due primarily to the Company's growth during 1999.
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
our personnel engaged in these activities. Software development and technology
expenses increased to $1.001 million for the year ended December 31, 1999 from
$889,000 for the year ended December 31, 1998, a 12.6% increase. As a
percentage of revenues, software development and technology expenses decreased
to 3.2% of revenues during 1999 from 4.4% during 1998. The increase in software
development and technology expenses is attributable primarily to the increased
expenses incurred in connection with the redesign of our Web page, development
of a fixed price site and the development of business-to-business auction
technology. The decrease in software development and technology expense as a
percentage of revenues is attributable to the significant growth in revenues
during the period.
Depreciation and Amortization. Depreciation and amortization expense was
$621,000 for the year ended December 31, 1999 as compared to $201,000 for the
year ended December 31, 1998, an increase of 209.0%. This increase was
primarily due to amortization expenses relating to goodwill as a result of the
investment in Point 2 Internet Systems Inc. as well as a significant increase in
equipment, computers, furniture and fixtures acquired by us during 1999 as the
result of our growth.
Interest Income. Interest income was $767,000 for the year ended December
31, 1999 as compared to $88,000 for the year ended December 31, 1998. Interest
income reflects interest from investments in cash and marketable securities.
Comparison of Years Ended December 31, 1998 and December 31, 1997
Revenues. Revenues were comprised of transactional revenues from the sale
of merchandise plus shipping revenue. Revenues (excluding interest income)
increased to $20.001 million for the year ended December 31, 1998 from $2.619
million for the year ended December 31, 1997, an increase of 663.7%. The
increase reflected commercial sales for the full year ending December 31, 1998
as compared to only eight months (May to December)
37
<PAGE>
during the period ended December 31, 1997. In addition, the increase was
attributable to the introduction of our 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, our 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 us. Direct expenses were $19.361
million (96.8% of revenues) for the year ended December 31, 1998 resulting in a
gross margin of $640,000 or 3.2%, as compared to $2.916 million (111.3% of
revenues) for the year ended December 31, 1997, resulting in a negative gross
margin of $297,000 or 11.3%. The increase in direct expenses reflected 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 reflected the commencement of our efforts
to change our 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 5.6% in the fourth quarter.
Advertising and Promotion Expenses. Advertising and promotion expenses
consisted primarily of advertising and marketing fees, promotional pricing
expenses, and expenses paid to strategic and marketing partners and other third
parties from which we purchase advertising space, but did not include salaries
and related expenses of our sales and marketing personnel which are included in
general and administrative expenses. Advertising and promotion expenses were
$12.594 million for the year ended December 31, 1998, as compared to $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 63.0% of
revenues for the year ended December 31, 1998 from 96.3% during the year ended
December 31, 1997. Advertising and promotion expenses for the year ended
December 31, 1998 included $3.52 million (17.6% of revenue) attributable to
promotional pricing expenses and $7.0 million (35.0% of revenue) paid to America
Online pursuant to the America Online Marketing Agreement. Advertising and
promotion expenses for the year ended December 31, 1997 included $698,000 (26.7%
of revenue for the year ended December 31, 1997) for promotional pricing
expenses and $442,000 (16.9% of revenue) for payments to America Online pursuant
to the America Online Marketing Agreement. The increase in advertising and
promotion expenses reflected the substantial increase in advertising and
marketing which we undertook in order to promote our Bid.Com brand name, attract
track traffic to our Web site and enlarge our 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.
General and Administrative Expenses. General and administrative expenses
include, primarily: all salaries and related expenses (including benefits and
payroll taxes) other than fees to independent contractors for research and
development, and technology staff compensation, 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 $5.751 million during the year
ended December 31, 1998 from $3.157 million in the year ended December 31, 1997,
an increase of 82.2%. As a percentage of revenues, general and administrative
expenses decreased to 28.8% of revenues in 1998 from 120.5% of revenues in 1997.
The increase in general and administrative expenses was attributable to 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 our
growth during 1998, and losses due to foreign exchange expenses. The reduction
in general and administrative expenses as a percentage of sales reflected
economies of scale achieved as a result of a significant growth of revenues
during the year ended December 31, 1998.
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
our personnel engaged in these activities. Software development and technology
expenses increased to $889,000 for the year ended December 31, 1998 from
$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 25.2% during
the year ended December 31, 1997. The increase in software development and
technology expenses was attributable primarily to the increased expenses
incurred in connection with the
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<PAGE>
redevelopment of our 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 was attributable to the significant growth in revenues
during the period, and resulting economies of scale.
Depreciation and Amortization. Depreciation and amortization expense was
$201,000 for the year ended December 31, 1998 as compared to $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 us during 1997 as the result of our growth.
Liquidity and Capital Resources
Funding to Date. We have been funded to date primarily through a series of
private placements of equity, in one instance a convertible debenture, sales of
equity to and investments from strategic partners and cash flow from operations.
We have received aggregate gross proceeds of $77.9 million through our private
offerings, including, $16.0 million of net proceeds from the sale of the special
warrants in December 1999 and an aggregate of $34.7 million during 1999 from the
exercise of options and common share purchase warrants sold in private
offerings.
During 1998, we issued a common share warrant for an aggregate purchase
price of $1.9 million and 1,500,000 common shares for no additional
consideration to Rogers Media. The common share purchase warrant entitled
Rogers Media to acquire up to 100,000 common shares at a price of $1.40 per
common share. These warrants were fully exercised by September 30, 1999.
We also sold in a private placement a total of 8,100,000 special warrants
at a price of $1.40 per special warrant for aggregate gross proceeds of $11.3
million. 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 $1.65 per share. These warrants were fully
exercised by September 30, 1999 resulting in aggregate proceeds to us of $6.682
million.
We also granted to Yorkton Securities Inc., 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 $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 us of $1.204 million. These warrants were fully
exercised by September 30, 1999 resulting in proceeds to us of $709,500.
On November 30, 1998, we sold in a private placement 5,714,984 special
warrants at a price of $1.75 per special warrant. We received proceeds of
$10.001 million. The special warrants issued by us 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 $1.75 per share. As at December 31,
1999, all remaining share purchase warrants had been exercised.
We also granted to Yorkton, the placement agent for this offering,
compensation warrants which entitled Yorkton to receive, without payment of
additional consideration, options to purchase up to 611,498 units at a price of
$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 purchase warrants, each exercisable to purchase one common share at
$1.75 per share, resulting in proceeds to us of $1,070,122. These share
purchase warrants were fully exercised by September 30, 1999 resulting in
proceeds to us of $267,531.
On September 30, 1999, we issued 1,854,678 special warrants at a price of
$9.25 per warrant which were exchangeable into 1,854,678 common shares and
1,854,678 share purchase warrants for no additional consideration. The share
purchase warrants, if and when exercised, are exercisable at a price of $10.00
per warrant until September 30, 2001 into an equivalent number of common shares.
Gross proceeds were $17,155,772 from which was deducted commission of $857,789
(5%) and estimated expenses of approximately $250,000 to yield net proceeds of
$16,047,983.
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<PAGE>
Fixed Assets. Additions to fixed assets during 1997 were $247,000,
respectively, primarily for computer hardware. During 1998, we invested
$351,000 in fixed assets, primarily for computer hardware, leasehold
improvements and furniture and fixtures, and $68,000 for trademarks. During
1999 we invested $693,000 in fixed assets primarily for computer hardware,
equipment, furniture and fixtures and leasehold improvements.
Other. In addition, during 1999 we issued $2.5 million of share capital for
a strategic investment in Point 2 Internet Systems Inc. in a heavy equipment
listing service company, resulting in goodwill of $2.0 million. We also made
strategic investments in SCS Solars, Megawheels.Com, and Globalstore.com.
We have an agreement with a financial institution that settles credit card
transactions for online auction sales. Under this agreement, we are 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, 1999, we were required
to maintain $1.52 million in this account.
Current Status. We have not earned profits to date and, at December 31,
1999, we had an accumulated deficit of $48.5 million. We also have incurred
negative cash flow from operations since inception and we have expended and
expect to continue to expend substantial funds to continue to develop our
technology, business-to-business auctions, multimedia auction platforms, the
distribution of specialty products and other areas of our business including the
acquisition of, or strategic investments in, complementary products, businesses
or technologies. As a result, we expect to incur losses for the foreseeable
future and there can be no assurance that we 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 our control.
As of December 31, 1999 and May 15, 2000, we had cash on hand and
marketable securities of approximately $21.5 million and $11.5 million,
respectively. At this time, funds from operations are not sufficient to meet
our anticipated financial requirements. Based on current plans, we believe that
current cash balances and anticipated funds from operations will be sufficient
to meet our needs until approximately October 1, 2000. However, the actual
amount of funds that will be required during the interim period will be
determined by many factors, some of which are beyond our control. As a result,
we may need funds sooner or in greater amounts than currently anticipated.
On May 19, 2000 we signed an agreement with Acqua Wellington Value Fund
Ltd. under which Acqua Wellington agreed to invest a minimum of U.S.$1.5 million
and a maximum of U.S.$6.5 million in our company. Under certain conditions, the
amount which Acqua Wellington will be required to invest will increase from
U.S.$1.5 million to up to U.S.$3.5 million. At least U.S.$3.0 million and, under
certain conditions, as much as U.S $5.0 million of the investment will be made
at the discretion of Acqua Wellington. In exchange for its investment, we will
issue to Acqua Wellington units to acquire one common share and four-tenth (.4)
of a common share purchase warrant. Upon exercise of a whole purchase warrant,
we will issue one common share. The warrants will be exercisable for two years
at an exercise price equal to 115% of the purchase price of the unit. The
purchase price of a unit will be determined based on a market-based price
formula. Completion of the proposed Acqua Wellington financing is subject to the
satisfaction of various closing conditions, including regulatory and Toronto
Stock Exchange approval. We cannot assure you that the Acqua Wellington
financing will be completed in a timely manner or at all or the exact amount
that Acqua Wellington will invest. Even if Acqua Wellington completes the
investment we anticipate that we will need to raise additional funds by
approximately November 1, 2000, if Acqua Wellington invests U.S.$1.5 million,
and by approximately February 1, 2001, if Acqua Wellington invests US.$6.5
million.
Other than the Acqua Wellington financing, do not have committed sources of
financing at this time and we cannot assure you that we will be able to obtain
financing when needed on commercially reasonable terms or at all. If adequate
funds are not available or not available on acceptable terms when needed, our
business, operations, financial condition and future prospects will be
materially adversely affected. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
our shareholders will be reduced, shareholders may experience additional
dilution and such securities may have rights, preferences and privileges senior
to those of our common shares.
Net Operating Losses for Tax Purposes. We have available an aggregate of
approximately $48.8 million of net operating losses for tax purposes that may be
used to reduce taxable income in future years, of which $113,000 expires in
2002, $1.9 million expires in 2003, $6.4 million expires in 2004 and $19.8
million expires in 2005 and
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<PAGE>
$20.5 million expires in 2006. Our net operating losses are subject to
assessment of our tax returns by taxation authorities.
Year 2000
In 1999, as the Year 2000 approached, an issue existed for companies that
relied 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 have properly
recognized calendar dates beginning in the Year 2000. If not corrected, these
applications and programs could have failed or created erroneous results. To
correctly identify the Year 2000, a four-digit year code field was required to
be what is commonly termed "Year 2000 compliant."
During 1999, we conducted a comprehensive examination of our information
technology and communications systems and software applications to determine
Year 2000 compliance. We hired a Year 2000 consultant to review our examination
and the consultant's review was completed in November, 1999 assigning a low risk
rating to our operations. We contacted significant suppliers and third-party
service providers to identify Year 2000 problems and develop contingency plans
to prevent the disruption of our business activities.
Total costs attributable to Year 2000 compliance efforts, were
approximately $260,000. As of April 27, 2000, we have experienced no
detrimental effects as a result of the Year 2000 compliance issue.
Foreign Currency Fluctuations
We purchase substantially all of our products from suppliers, and sell
substantially all of our products to customers, in U.S. dollars. We also incur
a significant amount of advertising and marketing expenses in U.S. dollars.
However, the majority of our other operating expenses are in Canadian dollars.
Fluctuations in the U.S./Canadian dollar exchange rate with respect to our
operations are a function, primarily, of:
the relative value of the Canadian dollar to the U.S. dollar at any given time,
and
the relationship between the amount of revenues and financing received by us in
U.S. dollars and the amount of our expenditures being paid in Canadian dollars,
on the one hand, and the amount of revenues and financing received by us in
Canadian dollars and the amount of our expenditures being paid in U.S. dollars,
on the other hand.
We do not have any hedging programs in place to manage the potential
exposure to fluctuations in the U.S./Canadian dollar exchange rate.
We incurred net losses from foreign currency exchange fluctuations of
$271,000 in the year ended December 31, 1999, $675,000 in 1998 and $39,000 in
1997. The decrease in losses resulted from the overall increase in the value of
the Canadian dollar compared to the U.S. dollar during the year ended December
31, 1999 as compared to 1998.
Euro Conversion
In June 1999, we opened an office in Dublin, Ireland to provide auction
enabling and related services to European-based companies. Effective January 1,
1999, 11 of the 15 member countries of the European Union adopted the euro as
their common legal currency and each participant established fixed conversion
rates between their sovereign, or legacy currencies and the common euro
currency. The legacy currencies of the individual countries are scheduled to
remain legal tender as denominations of the euro until January 1, 2002 (the
"transition period"), when euro-denominated bills and coins will be introduced.
During the transition period, public and private parties may choose to pay for
goods and services using either the euro or the participating country's legacy
currency. However, conversion rates no longer will be computed directly from
one legacy currency to another. Instead, a "triangular" calculation must be
utilized whereby an amount denominated in one legacy currency is first converted
into a euro amount, and then the euro amount is converted into the second legacy
currency. By July 1, 2002, the legacy currencies will be phased out entirely as
legal tender.
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<PAGE>
We currently conduct business operations in U.S. and Canadian dollars.
Since our information systems and processes generally accommodate multiple
currencies, we anticipate that any necessary modifications to our information
systems, equipment and processes to accommodate euro transactions will be made
on a timely basis and do not expect any failures that would have a material
adverse effect on our financial position or results of operations, or that the
costs of such modifications will have a material effect on our financial
position or results of operations. We spent approximately $422,000 during 1999
to open and operate the Dublin office, including salaries, office rent and other
expenses, including computers and telephones. These expenses included
purchasing or modifying appropriate business software and arranging for banking
relationships to allow us to invoice and accept payments, and pay our own
suppliers, in legacy currencies and in euro.
The auction enabling software that we provide in Europe is designed to be
multi-currency capable. The software is capable of performing multiple currency
conversions, including triangular conversions. During the euro transition
period, we anticipate that partners to whom we will provide our auction enabling
services will initially designate the currency zones in which they operate, and
we can supplementally add zones to the auction software platform as these
partners expand or move operations into other European countries. The cost of
including the initial currency zones and of adding zones will be included within
the fees. Licensees will therefore be able to price auction products in legacy
currencies and euro denominations. In order to accept credit card payments in
euro and legacy currencies, our customers will be required to enter into
arrangements with local banking vendors that can support their auction
operations with respect to euro transactions on a timely basis.
We do not have in place any hedging programs to manage the potential
exposure to fluctuations in the euro/Canadian dollar exchange rate. As European
operations expand, we may need to evaluate our currency exchange costs and rate
exposure with respect to the euro during and after the transition period.
42
<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.
ITEM 10 - DIRECTORS AND OFFICERS OF REGISTRANT
The following table sets forth the name, age and position of each of our
directors and executive officers.
Name Age Position
- ---- --- --------
Paul Godin4 47 Chairman of the Board of Directors
Jeffrey Lymburner 43 Director, President and Chief Executive
Officer
T. Christopher Bulger1,2 42 Director
Dr. Duncan Copeland1,2,3 43 Director
Azim Fancy 58 Director
David Pamenter3 52 Director and Assistant Secretary
Charles S. Walker1,2 64 Director
Jim Moskos 37 Director, President, Bid.Com Technology Group
Mark Wallace 41 Chief Operating Officer
Paul Hart 44 Chief Financial Officer
Peter Sprukulis 40 Senior Vice-President, Sales, Marketing and
Business Development
Robert W.A. Joynt 51 Vice President, Consumer Sales and Marketing
John Mackie 35 Vice President, General Counsel and Secretary
David Kirkconnell 39 Vice-President, Human Resources
Gregory Bewsh 48 Vice-President, Investor Relations
________________________
(1) Member of Audit Committee
(2) Member of the Management Resources and Compensation Committee
(3) Member of the Corporate Governance Committee. There is presently one
vacancy on this committee.
(4) Mr. Godin has indicated that he will resign as Chairman of the Board
effective June 14, 2000.
Mr. Godin will remain a director.
The business experience of each of our directors and executive officers for
at least the last five years is as follows:
Paul Godin has served as Chairman of the board of directors since June 17, 1996
and is one of our founding shareholders. Mr. Godin served as Chief Executive
Officer from August 28, 1998 until August 1, 1999 and served as our President
from September 1995 until August 28, 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
43
<PAGE>
Canadian Airlines, H.J. Heinz, and Clarion Canada. Mr. Godin has indicated that
he will step down as Chairman effective June 14, 2000. Mr. Godin is the founding
shareholder, and a director and officer of The Art Vault International Limited.
Jeffrey Lymburner is our Chief Executive Officer and one of our founding
shareholders. Mr. Lymburner became Chief Executive Officer on August 1, 1999,
has served as our President from August 28, 1998, our Executive Vice President
from September 1995 until August 1998 and has served as a director since
September 1995. Mr. Lymburner is also President of Internet Liquidators USA
Inc., our subsidiary operating as Bid.Com, USA. 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, a Canadian
consumer electronics retail chain.
T. Christopher Bulger has served as a director since June 1996. He has served
as our Executive Vice President from September 1998 to December 1, 1999 and as
Assistant Secretary from September 1996 to December 1, 1999. Mr. Bulger served
as our Chief Financial Officer from April 1996 to September 1998. Mr. Bulger was
an officer and a partner with HDL Capital Corporation, a Toronto-based merchant
bank from 1993 until 1999. Mr. Bulger is currently the Chief Executive Officer
and a director of eLab Technology Ventures Inc.
Dr. Duncan Copeland has served as a director since September 1995. Dr. Copeland
is the President of Copeland & Company, a Washington D.C.-based international
consultancy firm, and served as Visiting Professor of business at Georgetown
University from September 1997 to May 1999. 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.
Azim Fancy became a director on October 14, 1999. Mr. Fancy started his
business career as Managing Director with the Steel Corporation of Pakistan in
1967. From 1972 to 1977, Mr. Fancy served as President of the Gulf Group of
Companies. In 1977, Mr. Fancy established International Trading and Sales Inc.
based in New York City, New York. The company owned and chartered vessels for
the movement of its bulk cargoes throughout the world. Mr. Fancy has also been
extremely active on several professional, community and charitable boards. Most
recently, Mr. Fancy was appointed to the Board of Directors of the Ontario Film
Development Corporation as well as an Advisory Board Member to SCS Solars
Computing Systems Inc. Mr. Fancy is a director of The Art Vault International
Limited.
David Pamenter has served as our Director 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.
Charles S. Walker has served as our Director 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. Mr. Walker is currently a director of Megawheels.com
Inc. and a director of SCS Solars Computing Systems Inc.
Jim Moskos has served as a director and President of the Bid.Com Technology
Group since October 19, 1999. Mr. Moskos served as the Vice President--
Technology of the Company from September 1997 to October 19, 1999. 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.
Mark Wallace became our Chief Operating Officer in November, 1999 and was
previously Executive Vice-President, General Counsel and Secretary of the
Company. Prior to joining the Company in May 1999, Mr. Wallace was Vice-
President, General Counsel and Secretary of AT&T Canada Long Distance Services
Company. In that capacity, he was principal advisor to that company on all
legal, regulatory and corporate governance issues, and served as corporate
secretary to its board of directors. Mr. Wallace joined AT&T Canada in 1991.
Prior to joining AT&T Canada, Mark worked for 4 years in private practice as a
corporate commercial lawyer.
44
<PAGE>
Paul Hart has served as our Chief Financial Officer 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.
Peter Sprukulis joined us in December 1999 as Senior Vice President of Sales,
Marketing and Business Development. In this position, Mr. Sprukulis is
responsible for all activities relating to the development of our global
business-to-business group. From March 1999 to December 1999, Mr. Sprukulis was
the Global Vice President of Marketing for Hummingbird Communications Inc.
responsible for the global efforts in Business Intelligence. From January, 1996
to March 1999, Mr. Sprukulis was the Vice President of Marketing for Oracle
Corporation responsible for Canada and Latin America. Prior to January 1996, he
was Manager of Communications and Campaign Strategies for the Software Division
of IBM Canada Ltd.
Robert W.A. Joynt has served as our Vice President--Consumer Sales and Marketing
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.
John Mackie joined us in November, 1999 as Vice-President, General Counsel and
Corporate Secretary. Prior to joining us, Mr. Mackie was Assistant General
Counsel and Assistant Secretary for Imax Corporation. From August 1997 to June
1998, Mr. Mackie was a member of the legal department of AT&T Canada Long
Distance Services Company (now AT&T Canada Corp.), serving as Associate General
Counsel from January 1998 to June 1998. Prior to August 1997, Mr. Mackie was an
associate with the law firm of Fraser & Beatty (now Fraser Milner).
David Kirkconnell has been our Vice-President, Human Resources since February
2000. Mr. Kirkconnell has approximately fourteen years human resource management
experience in a variety of industries. He acted as a consultant to various
businesses on Human Resources matters from October 1998 to February 2000. Prior
to that time, he served as VP, Human Resources (from February 1997 to May 1998)
and Director Human Resources (from October 1991 to February 1997) for Ault Foods
Ltd. Mr. Kirkconnell holds an Economics degree from the University of Western
Ontario and a Master of Industrial Relations from the University of Toronto.
Gregory Bewsh is our Vice-President, Investor Relations. Mr. Bewsh has
approximately 20 years experience in finance, treasury and investor relations.
He was Vice-President and Treasurer of Chemical Bank of Canada from 1985 to
1994; Managing Director, Commercial Banking of Canadian Imperial Bank of
Commerce from 1994 to 1997 and Director, Investor Relations of Clearnet
Communications Inc. from 1997 to 1999. Mr. Bewsh holds an MBA in Finance.
Under Canadian law, a majority of our board of directors must be residents
of Canada. Each of our directors holds office until the next annual meeting of
shareholders or until his successor has been elected and qualified. Our
executive officers are appointed by our board of directors and serve at the
discretion of our board of directors.
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, 1999 by our Chief Executive Officer and the five
highest paid executives who earned in excess of $100,000.
<TABLE>
<CAPTION>
<S> <C> <C>
Annual Compensation Long Term Compensation
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Awards Payouts
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other Restricted
Annual Shares or All Other
Compen- Options Restricted LTIP Compen
Name And Principal Year Salary Bonus sations Granted Share Payout sation
Position ($) ($) ($)(2) (#) Units ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Paul Godin 1999 260,000 Nil 12,000 160,000 Nil Nil Nil
Chairman(3) 1998 178,300 Nil 250,000(1.2,000 50,000 Nil Nil Nil
1997 135,000 11,500 75,000 Nil Nil Nil
- -----------------------------------------------------------------------------------------------------------------
Jeffrey Lymburner 1999 225,684 Nil Nil 170,000 Nil Nil Nil
President and CEO 1998 170,500 Nil Nil 100,000 Nil Nil Nil
1997 135,000 200,000(1) 7,000 50,000 Nil Nil Nil
- -----------------------------------------------------------------------------------------------------------------
Christopher Bulger 1999 175,017 Nil 11,000 160,000 Nil Nil Nil
Director(4) 1998 132,000 100,000 12,000 125,000 Nil Nil Nil
1997 111,500 Nil 2,000 75,000 Nil Nil Nil
- -----------------------------------------------------------------------------------------------------------------
Robert W.A. Joynt 1999 163,022 Nil 6,000 55,000 Nil Nil Nil
Vice-President, Consumer 1998 154,300 8,500 6,000 35,000 Nil Nil Nil
Sales and Marketing 1997 103,700 Nil 3,000 25,000 Nil Nil Nil
- -----------------------------------------------------------------------------------------------------------------
James I. Moskos(5) 1999 188,500 Nil 12,000 225,000 Nil Nil Nil
President, Technology 1998 102,000 Nil 4,500 100,000 Nil Nil Nil
Group
- -----------------------------------------------------------------------------------------------------------------
Paul Hart(6) 1999 132,290 14,374 12,000 50,000 Nil Nil Nil
Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
__________
(1) Received upon the waiver of rights to the historically established 10%
profit sharing plan, to certain performance operations pursuant to
employment contracts, and to the exercise of pre-emptive rights co-incident
with the special warrants issued pursuant to the subscription agreements
accepted by Bid.Com International Inc. on October 3, 1997.
(2) Received on account of car reimbursement expenses and other expenses.
(3) Has indicated his intention to resign as Chairman of our board of directors
effective June 14, 2000.
(4) Resigned December 1, 1999 as Executive Vice -President, Business
Development.
(5) Joined our company in September 1997.
(6) Joined our company in August 1998.
During 1999, we did not provide any pension, retirement or similar benefits
to our directors and officers.
Each of Paul Godin and Jeffrey Lymburner has entered into a non-competition
and salary protection agreement with our company, dated February 21, 1997, which
provides, among other things, that he (i) will not compete with our company for
a period of 12 months, which may be extended by us to 24 months, following the
termination of his employment with our company, in consideration of which we
will pay his full annual salary during such period; and (ii) if his employment
with us is terminated other than by reason of death, disability or cause (as
such terms are defined in such agreements), we will continue to pay his full
annual salary for 12 months (or 24 months if we exercise our option to extend
the non-competition restrictions for 24 months) following the date of
termination.
Mark Wallace, our Chief Operating Officer has entered into a written
agreement with our company which provides, among other things, that in the event
of termination of his employment other than by death, disability or cause, his
previous 12 months salary level is guaranteed for the 12 months after
termination.
46
<PAGE>
Stock Option Plan
We have adopted a stock option plan pursuant to which we grant options to
purchase our common shares. The purpose of the stock option plan is to afford
directors, executive officers and key employees of our Company and subsidiaries
who are responsible for our continued growth an opportunity to acquire an
ownership interest in us, and, thus, create in such persons an increased
interest in, and a greater concern for, the welfare of our Company and that of
our subsidiaries.
The stock option plan is administered by our board of directors under the
guidance of the management resources and compensation committee of the board.
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 the
date of the grant.
There are 4,961,168 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 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 under 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 following the termination of an option holder's
employment with us. Subject to shareholder approval in most cases, the board of
directors may amend the stock option plan.
We have granted options to purchase a total of 4,960,700 common shares
under this plan of which 2,918,150 are outstanding. The exercise price for such
options range from $1.00 to $12.45 and they expire at different times between
June 30, 2000 and November 26, 2003. An aggregate of 2,265,000 options are held
by our officers and directors as a group. We have also granted options to
purchase 604,500 common shares outside the plan. We intend, upon shareholder
approval of the amendment to the plan described below, to deem these and any
further options granted outside of the plan to be subject to its terms and
conditions.
The board of directors has approved an increase in the number of shares
reserved for issue under the plan from 4,961,168 to 8,700,000 subject to the
approval of our shareholders at the annual and special shareholders meeting
scheduled for June 14, 2000.
Options Granted to Executive Officers During Fiscal Year Ended December 31, 1999
The following table sets forth the stock options granted to the Executive
Officers pursuant to the stock option plan during the fiscal year ended December
31, 1999.
<TABLE>
<CAPTION>
Market Value of
Securities
% of Total Underlying
Securities Underlying Options/SARs Options/SARs
Options/SARs Granted to Exercise or Base on the Date of
Granted Employees in Price Per Grant Expiration
Name (#) Fiscal Year ($/Security) ($/Security) Date
- ---- --- ----------- ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
Paul Godin 60,000 2.5% 5.05 5.05 1/25/02
100,000 4.2% 6.10 6.10 8/12/02
Jeffrey Lymburner 70,000 2.9% 5.05 5.05 1/25/02
100,000 4.2% 6.10 6.10 8/12/02
Christopher Bulger 60,000 2.5% 5.05 5.05 1/25/02
100,000 4.2% 6.10 6.10 8/12/02
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Market Value of
Securities
% of Total Underlying
Securities Underlying Options/SARs Options/SARs
Options/SARs Granted to Exercise or Base on the Date of
Granted Employees in Price Per Grant Expiration
Name (#) Fiscal Year ($/Security) ($/Security) Date
- ---- --- ----------- ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
Robert W. A. Joynt 5,000 0.2% 5.05 5.05 1/25/02
50,000 2.1% 6.10 6.10 8/12/02
James I. Moskos 50,000 2.1% 5.05 5.05 1/25/02
75,000 3.1% 6.10 6.10 8/12/02
100,000 4.2% 5.95 5.95 11/11/02
Paul Hart 50,000 2.1% 6.10 6.10 8/12/02
</TABLE>
Options Exercised By Executive Officers During Fiscal Year Ended December 31,
1999
The following table sets forth certain information regarding stock options
exercised by our executive officers during the fiscal year ended December 31,
1999.
<TABLE>
<CAPTION>
Value of
Unexercised
in-the-Money
Unexercised Options/SARs
Options/SARs at at FY End
Securities FY-End ($)
Acquired Aggregate Value
On Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- --- --- ------------- -------------
<S> <C> <C> <C> <C>
Paul Godin 100,000 534,750 210,000/0 319,000/0
Jeffrey Lymburner 75,000 380,000 270,000/0 523,000/0
T. Christopher Bulger 300,000 1,473,500 160,000/0 79,000/0
Robert W. A. Joynt 22,500 389,650 80,000/0 107,000/0
James I. Moskos 125,000 2,322,000 250,000/0 210,000/0
Paul Hart 10,000 189,000 90,000/50,000 213,000/260,000
(1) Aggregate value realized is calculated as the difference between market value at exercise and the exercise price.
</TABLE>
ITEM 12 OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
As of April 27, 2000, options and warrants to purchase 6,512,796 common
shares (see Note 1 below) were outstanding as follows:
<TABLE>
<CAPTION>
Issued Under Stock Option Plan
Optionee Number of Shares Date of Grant Exercise Price $ Expiry Date
<S> <C> <C> <C> <C>
- -------- ---------------- ------------- ---------------- -----------
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Issued Under Stock Option Plan
Exercise
Number of Price
Optionee Shares Date of Grant ($) Expiry Date
- -------- --------- --------------------- ------------ ------------------------
<S> <C> <C> <C> <C>
Executive Officers 75,000 June 23, 1998 1.40 June 30, 2000
(9 persons) 125,000 January 25, 1999 5.05 January 25, 2002
90,000 October 22, 1998 1.00 August 16, 2002
100,000 April 22, 1999 10.00 April 22, 2002
50,000 July 12, 1999 6.10 July 12, 2002
350,000 August 12, 1999 6.10 August 12, 2002
450,000 November 11, 1999 5.95 November 11, 2002
150,000 November 26, 1999 6.15 November 26, 2000
50,000 January 31, 2000 6.65 January 31, 2004
25,000 February 8, 2000 6.35 February 8, 2003
85,000 March 1, 2000 7.60 March 1, 2003
---------
1,550,000
Directors who are not 65,000 June 23, 1998 1.40 June 30, 2000
Executive Officers 165,000 January 25, 1999 5.05 January 25, 2002
(6 persons) 285,000 August 12, 1999 6.10 August 12, 2002
25,000 August 12, 1999 9.25 August 12, 2002
25,000 August 13, 1999 7.10 August 13, 2002
250,000 February 8, 2000 6.35 February 8, 2003
-------
815,000
Other 30,600 June 23, 1998 1.40 June 30, 2000
(38 persons) 14,800 January 25, 1999 5.05 January 25, 2002
20,000 April 22, 1999 12.45 April 22, 2002
31,250 July 1, 1999 6.10 June 15, 2001
193,500 August 12, 1999 6.10 August 12, 2002
18,000 August 12, 1999 7.00 August 12, 2002
75,000 August 12, 1999 9.25 August 12, 2002
100,000 August 12, 1999 10.00 August 12, 2002
20,000 November 11, 1999 6.20 November 11, 2002
50,000 November 11, 1999 6.50 November 11, 2002
-------
553,150
<CAPTION>
Issued Under Other Securities Exemptions
Exercise
Number of Price
Optionee Shares Date of Grant ($) Expiry Date
- -------- --------- --------------------- ------------ ------------------------
<S> <C> <C> <C> <C>
Note 1 Note 1 June 28, 1999 Note 1 December 28, 2000
Canaccord Capital Corporation 185,468 September 30, 1999 9.25 September 30, 2001
Note 2 1,854,678 September 30, 1999 10.00 September 30, 2001
Employees Outside Plan 484,500 March 1, 2000 7.60 March 1, 2003
Employees Outside Plan 70,000 March 8, 2000 11.50 March 8, 2004
General Electric Capital 1,000,000 April 10, 2000 7.90 April 10, 2003
Corporation (Commercial
Equipment Finance Division)
-----------
3,594,646(1)
-----------
6,512,796(1)
-----------
</TABLE>
(1) A warrant which is exerciseable into $1,000,000 of our common shares was
issued to shareholders of Point2 Internet Systems Inc. in connection with our
acquisition of a controlling interest in Point2. These warrants are exercisable
for no additional consideration.
(2) Share purchase warrants issued in connection with our September 30, 1999
Canaccord Capital Corporation financing.
ITEM 13 - INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
We have entered into a 15 year agreement with The Art Vault International
Limited under which we will provide our online auction technology and related
services to enable the implementation of The Art Vault's online auction of art
and antiquities. In consideration for our license and services, subsequent to
year-end, we received 2,500,000 shares of The Art Vault (approximately 12.7% of
The Art Vault's outstanding common shares) and a share of future profits. Mr.
Paul Godin, the Chairman of the Corporation, is the founding shareholder, sole
officer and director of The Art Vault. Mr. Azim Fancy, our director is
49
<PAGE>
a director and shareholder of The Art Vault. Messrs. Charles Walker and James
Moskos are directors of our company and shareholders of The Art Vault.
In June 1999, we entered into a strategic alliance with SCS Solars
Computing Systems Inc., a developer and marketer of online travel information. A
newly formed and wholly owned subsidiary of SCS Solars has licensed our online
auction technology, which will allow travel consolidators to offer travel agents
these discount travel products. We will host and enable these transactions. Mr.
Charles Walker, our director, is a director and shareholder of SCS Solars.
PART II
ITEM 14 - DESCRIPTION OF SECURITIES TO BE REGISTERED
Not Applicable.
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 Annual Report.
<TABLE>
<CAPTION>
Auditors' Report for the periods ended December 31, 1999 and 1998.................................. F-1
<S> <C>
Consolidated Balance Sheets as at December 31, 1999 and 1998....................................... F-2
Consolidated Statements of Operations for the periods ended December 31, 1999, 1998 and 1997...
F-3
Consolidated Statements of Deficit for the periods ended December 31, 1999,
1998 and 1997...................................................................................... F-4
Consolidated Statements of Cash Flows for the periods ended December 31, 1999, 1998 and 1997.....
F-5
Notes to the Consolidated Financial Statements for the periods ended December 31, 1999,
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1998 and 1997......................................................................................
F-6
</TABLE>
(b) Exhibits filed as part of this Annual Report.
1.1 Articles of Incorporation of the Company.(1)
1.2 By-laws of the Company.(2)
3.1 Underwriting Agreement dated September 30, 1999, between the Company
and Canaccord Capital Corporation.
3.2 Warrant Indenture dated September 30, 1999, between the Company and
CIBC Mellon Trust Company.
3.3 Special Warrant Indenture dated September 30, 1999, between the
Company and CIBC Mellon Trust Company.
3.4 Supplemental Warrant Indenture dated December 8, 1999, between the
Company and CIBC Mellon Trust Company.
3.5 Supplemental Special Warrant Indenture dated December 8, 1999, between
the Company and CIBC Mellon Trust Company.
____________________
(1) Incorporated by reference from Exhibit 1.1 of Amendment No. 1 to the
Company's Registration Statement on Form 20-F, File No. 001-14835,
filed with the Securities and Exchange Commission on March 29, 1999.
(2) Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the
Company's Registration Statement on Form 20-F, File No. 001-14835,
filed with the Securities and Exchange Commission on March 29, 1999.
51
<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 annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BID.COM INTERNATIONAL INC.
Dated: May 19, 2000 By: /s/ Jeffrey Lymburner
----------------------
Name: Jeffrey Lymburner
Title: President and Chief Executive
Officer
<PAGE>
Auditors' Report
To the Shareholders of
Bid.Com International Inc.
We have audited the consolidated balance sheets of Bid.Com International Inc. as
at December 31, 1999 and 1998, and the consolidated statements of operations,
deficit and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in Canada. 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, 1999
and 1998 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in accordance with accounting
principles generally accepted in Canada.
Chartered Accountants
Toronto, Ontario
February 18, 2000
F-1
<PAGE>
<TABLE>
<CAPTION>
BID.COM INTERNATIONAL INC.
Consolidated Balance Sheets
(in thousands of Canadian dollars)
=========================================================================================================
December 31,
1999 1999 1998
- ---------------------------------------------------------------------------------------------------------
Convenience
translation into
U.S. $ (Note 16)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT
Cash $ 5,019 $ 3,476 $ 9,792
Marketable securities 16,478 11,411 6,806
Accounts receivable 1,761 1,220 1,102
Special warrants receivable (Note 6) - - 2,311
Inventory (Note 3) 155 107 169
Deposits and prepaid expenses 4,579 3,171 174
- ---------------------------------------------------------------------------------------------------------
27,992 19,385 20,354
- ---------------------------------------------------------------------------------------------------------
CAPITAL ASSETS - AT COST 1,758 1,218 1,049
Less accumulated depreciation 781 541 404
- ---------------------------------------------------------------------------------------------------------
977 677 645
- ---------------------------------------------------------------------------------------------------------
INVESTMENTS 5,386 3,730 -
TRADEMARKS AND INTELLECTUAL
PROPERTY (NET) 503 348 48
GOODWILL (NET) 1,885 1,305 -
- ---------------------------------------------------------------------------------------------------------
7,774 5,383 48
- ---------------------------------------------------------------------------------------------------------
$ 36,743 $ 25,445 $ 21,047
=========================================================================================================
LIABILITIES
CURRENT
Accounts payable $ 3,604 $ 2,496 $ 2,155
Accrued liabilities 1,900 1,316 133
Deferred revenue 965 668 137
- ---------------------------------------------------------------------------------------------------------
$ 6,469 $ 4,480 $ 2,425
- ---------------------------------------------------------------------------------------------------------
NON CURRENT DEFERRED REVENUE $ 1,289 893 -
- ---------------------------------------------------------------------------------------------------------
$ 7,758 $ 5,373 2,425
=========================================================================================================
SHAREHOLDERS' EQUITY
Share capital (Note 5) 77,488 53,662 37,217
Special warrants - - 9,083
Deficit (48,503) (33,590) (27,678)
- ---------------------------------------------------------------------------------------------------------
28,985 20,072 18,622
- ---------------------------------------------------------------------------------------------------------
$ 36,743 $ 25,445 $ 21,047
=========================================================================================================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
BID.COM INTERNATIONAL INC.
Consolidated Statement of Operations
(in thousands of Canadian dollars, except per share amount)
====================================================================================================================
Year ended December 31,
- --------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
Convenience
translation into
U.S.$
(Note 16)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 31,001 $ 21,469 $ 20,001 $ 2,619
- --------------------------------------------------------------------------------------------------------------------
Direct expenses 26,696 18,488 19,361 2,916
Advertising and promotion (Note 11) 11,870 8,220 12,594 2,521
General and administrative 12,405 8,591 5,751 3,157
Software development and
Technology expense 1,001 693 889 661
Depreciation and amortization 621 430 201 122
Interest expense (767) (531) (88) (33)
- --------------------------------------------------------------------------------------------------------------------
$ 51,826 $ 35,891 $ 38,708 $ 9,344
- --------------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE YEAR $(20,825) $(14,422) $(18,707) $(6,725)
====================================================================================================================
LOSS PER SHARE $ (0.42) $ (0.29) $ (0.79) $ (0.55)
====================================================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
BID.COM INTERNATIONAL INC.
Consolidated Statement of Deficit
(in thousands of Canadian dollars)
=================================================================================================================
Year ended December 31,
- -----------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Convenience
translation
into U.S.$
(Note 16)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DEFICIT, BEGINNING OF YEAR $(27,678) $(19,168) $ (8,971) $(2,246)
NET LOSS FOR THE YEAR (20,825) (14,422) (18,707) (6,725)
=================================================================================================================
DEFICIT, END OF YEAR $(48,503) $(33,590) $(27,678) $(8,971)
=================================================================================================================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
BID.COM INTERNATIONAL INC.
Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
======================================================================================================================
Year ended December 31,
- ----------------------------------------------------------------------------------------------------------------------
1999 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
Convenience
translation into
U.S.$
(Note 16)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE
FOLLOWING ACTIVITIES
OPERATING
Net loss for the year $(20,825) $(14,422) $(18,707) $(6,725)
Item not affecting cash
Depreciation and amortization 621 430 201 122
- ----------------------------------------------------------------------------------------------------------------------
(20,204) (13,992) (18,506) (6,603)
Changes in non-cash operating
working capital items (Note 10) 738 511 1,702 (1,085)
- ----------------------------------------------------------------------------------------------------------------------
(19,466) (13,481) (16,804) (7,688)
- ----------------------------------------------------------------------------------------------------------------------
INVESTING
Purchase of capital assets (693) (480) (351) (247)
Investments (5,386) (3,730) - -
Purchase of trademarks and intellectual
property (555) (384) (68) -
Marketable securities (9,672) (6,698) (5,648) (1,158)
- ----------------------------------------------------------------------------------------------------------------------
(16,306) (11,292) (6,067) (1,405)
- ----------------------------------------------------------------------------------------------------------------------
FINANCING
Issuance of common shares (Note 5) 37,771 26,157 31,077 4,103
Issuance of special warrants
(net of expenses) (Note 6) (9,083) (6,290) 689 8,394
Special warrants receivable 2,311 1,601 (122) (2,189)
Loan payable - - - (258)
- ----------------------------------------------------------------------------------------------------------------------
30,999 21,468 31,644 10,050
- ----------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW (OUTFLOW)
DURING THE YEAR (4,773) (3,305) 8,773 957
CASH, BEGINNING OF YEAR 9,792 6,781 1,019 62
======================================================================================================================
CASH, END OF YEAR $ 5,019 $ 3,476 $ 9,792 $ 1,019
======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF
CASH PAYMENTS
Interest Expense $ - $ - $ - $ -
Income Taxes - - - -
Fixed Assets 693 480 351 247
</TABLE>
F-5
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
1. DESCRIPTION OF BUSINESS
Bid.Com International Inc. ("Bid.Com") is a sales and marketing company
striving to become the pre-eminent online auction service and a leading E-
tailer. The Company has completed the development of a business-to-business
auction service and intends to operate business-to-business auctions in
selected vertical industry sectors. The Company seeks to license its
proprietary online auction technology to support private brand online
auctions and the implementation of global e-commerce solutions for business
clients. The Company also operates business-to-consumer online auctions at
its Web site, www.bid.com and at other URLs.
The Company is constituted under the laws of Ontario by Articles of
Amalgamation dated January 9, 1997, which amalgamated Internet Liquidators
Inc., and Internet Liquidators International Inc. Internet Liquidators Inc.
was incorporated by Articles of Incorporation under the laws of Ontario on
September 1, 1995. The business of the Company was developed and carried on
by Internet Liquidators Inc. prior to the formation of Internet Liquidators
International Inc. Internet Liquidators International Inc. changed its name
to Bid.Com International Inc. pursuant to Articles of Amendment dated June
25, 1998.
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 (United States GAAP) (see Note 14).
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries and its proportionate share
of the assets, liabilities, revenues and expenses of a jointly controlled
company. All material inter-company transactions have been eliminated.
Marketable Securities
Marketable Securities consist of interest bearing certificates carried at
cost plus accrued interest which also represents market value.
Inventory
The Company's operating policy is not to purchase inventory for resale but
to ship direct from suppliers. Title to the inventory passes to the Company
at the time that the goods are shipped to the customer. Inventory of sales
returns in transit 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.
Inventory purchased for resale is valued at the lower of cost determined on
the first-in first-out basis and net realizable value.
F-6
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Capital assets and depreciation
Capital assets are carried at cost less accumulated depreciation.
Depreciation is calculated on a 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
Investments
Investments are carried at cost. Management has assessed the carrying value
of the investments and determined that no permanent impairment exists.
Trademarks and intellectual property
Trademarks and intellectual property are recorded at cost and amortized on
a straight-line basis over two years.
Goodwill
The excess of the cost over the net assets arising on the acquisition of
the jointly controlled company acquired in 1999 is being amortized over 7
years. Management has assessed the carrying value of the goodwill and
determined that no permanent impairment exists based on future income
expectations.
Software development costs
The costs of acquired software and internally developed software are
expensed as incurred.
F-7
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 operations.
Loss per share
The basic loss per share calculation is based on the weighted average
number of shares outstanding during the year. No fully diluted calculation
is included, as it would reduce the loss per share.
Revenue Recognition
a) Sale of products and related activities
Revenue from product sales, commissions, shipping and handling are
recognized when the goods are shipped to customers.
b) License revenues
License revenues consist primarily of revenues from software license
agreements and are amortized over the lesser of three years and the
term of the agreement. Revenue from net revenue sharing arrangements is
recorded as received.
c) Service revenues
Service revenues consist of professional services from contracts to
develop applications, conduct research and provide implementation,
consulting services, training, etc. Contract revenues are recognized
based on percentage of completion for each phase of the project plan.
Deferred Revenue
Deferred revenue is comprised of payments received on goods which have
not been shipped to customers and of the unrecognized portion of
license fees and service contracts.
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.
F-8
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
3. INVENTORY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Inventory purchased for resale $ 14 $ - $ -
Inventory held for resale or refund 141 169 201
-------------------------------------------------------------------------------------------
$ 155 $ 169 $ 201
-------------------------------------------------------------------------------------------
</TABLE>
4. INCOME TAXES
The Company's non-capital loss carryforwards as at December 31, 1999, the
benefit of which has not been recognized in the financial statements,
expire as follows:
(in thousands)
2002 $ 113
2003 1,924
2004 6,401
2005 19,828
2006 20,500
-------
$48,766
=======
5. SHARE CAPITAL
a) Authorized
Unlimited number of common shares
Unlimited number of preference shares - issuable in series
F-9
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
5. SHARE CAPITAL (continued)
b) Common shares
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------------------------
Common Common
Shares Amount Shares Amount
---------------------------------------------------------------------
(in thousands of shares and dollars)
<S> <C> <C> <C> <C>
Opening balance 37,167 $37,217 14,188 $ 6,140
Issued for Cash:
Exercise of options (Notes 5(c) 1,434 2,164 615 681
Exercise of warrants (Note 5(d) 6,262 10,521 5,989 9,393
Exercise of special warrants 7,570 25,086 14,435 18,578
Other - - 1,940 2,425
Acquisition of Point 2 214 2,500 - -
(see Note 12 (ii))
-----------------------------------------------------------------------------------------------------------
Closing balance 52,647 $77,488 37,167 $37,217
===========================================================================================================
</TABLE>
c) Stock options
(i) 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,
1999 was approximately $15.0 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 1999
are exercisable immediately while the remainder have vesting periods
attached which range from six months to thirty-two months. The
options expire between 1999 and 2002.
F-10
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
c) Stock options (continued)
A summary of changes in the stock option plan for the two years ended
December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Number of Options Average Price
----------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Opening balance 1,441 651 $1.55 $1.15
Granted 2,290 916 5.91 1.76
Exercised (1,004) (115) 1.69 .98
Cancelled (8) (11) 1.72 2.35
-------------------------------------------------------------------------------------------------------
Closing balance 2,719 1,441 $5.51 $1.55
=======================================================================================================
Exercisable,
end of year 1,575 1,251 $5.11 $1.60
=======================================================================================================
Shares reserved for
issuance under
stock option plan 410 326 - -
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Number Weighted Number
Outstanding -Average Weighted Exercisable Weighted
Range of at Remaining -Average at -Average
Exercise December 31, Contractual Exercise December 31, Exercise
Prices 1999 Life Price 1999 Price
=================================================================================================
<S> <C> <C> <C> <C> <C>
$1-$3 473,500 0.4 years $1.61 423,400 $ 1.69
$3-$6 759,300 2.4 years $2.78 309,300 $ 5.05
$6-$9 1,261,500 2.7 years $6.14 792,000 $ 6.11
$9-$10 225,000 2.5 years $9.92 50,000 $10.00
=================================================================================================
Totals 2,719,300 1,574,700
=================================================================================================
</TABLE>
(ii) The Company also had stock options outstanding to third parties for
the year ended December 31, 1999. The aggregate purchase price for
third party stock options outstanding at December 31, 1999 was $
943,000. These options expire in 2002.
F-11
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
5. SHARE CAPITAL (continued)
c) Stock options (continued)
(iii) A summary of changes in the stock options to third parties for
the two years ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Number of Options Average Price
----------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Opening balance 490 640 $1.08 $1.14
Granted 95 350 9.92 1.06
Exercised (430) (500) 1.10 1.14
Cancelled (60) - 1.00 -
----------------------------------------------------------------------------------------------------
Closing balance 95 490 $9.92 $1.08
====================================================================================================
Exercisable,
end of year 95 490 - -
====================================================================================================
</TABLE>
d) Share purchase warrants under private placement equity issues.
A summary of changes in the warrants to investors for the two years
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------------------------
Warrants Amounts Warrants Amounts
-------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Opening balance 6,135 $ 10,305 4,301 $ 6,802
Granted 1,855 18,550 7,823 12,896
Cancelled (69) (121) - -
Exercised (6,066) (10,184) (5,989) (9,393)
-------------------------------------------------------------------------------------------------------------
Closing balance 1,855 $ 18,550 6,135 $10,305
=============================================================================================================
</TABLE>
At December 31, 1998 a further 43,000 share purchase warrants
exercisable at $1.65 and 152,875 share purchase warrants exercisable
at $1.75 were subject to issuance upon the exercise of outstanding
compensation warrants and are not included in the above table. As of
December 31, 1999 these share purchase warrants have been exercised.
F-12
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
5. SHARE CAPITAL (continued)
e) As of December 31, 1999 there were two outstanding warrants, each of
which is exercisable, for no additional consideration, into $1,000,000
of common shares of Bid.Com (see Note 12 (ii)).
f) Compensation Warrants under private placement equity issues
As of December 31, 1999, there were 185,468 outstanding Compensation
Warrants, which will entitle the holder to receive Compensation
Options which were issued to an Underwriter for the September 30, 1999
private placement (see Note 6 (c)). These Compensation Options entitle
the Underwriter to acquire up to 185,468 units at a price of $9.25 per
unit at any time until September 30, 2001. Each unit consists of one
Common Share and one Share Purchase Warrant.
6. SPECIAL WARRANTS
(a) On November 30, 1998 the Company closed a private placement of
$10,001,000 in equity for net proceeds of $6,863,000 with the
remaining $2,311,000 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.
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.
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.
(b) On September 30, 1999, Bid.Com issued 1,854,678 Special Warrants at a
price of $9.25 per warrant for a total net proceeds of $16,047,000
(after deducting the costs of issue estimated to be $251,000) to the
Company. Pursuant to the issuance of the Special Warrants, the Company
agreed to pay the underwriter a fee of $858,000, being 5% of the issue
price of the Special Warrants. Each Special Warrant entitles the
holder to acquire one unit for no additional consideration. Each unit
consists of one Common Share and one Share Purchase Warrant. Each
whole Share Purchase Warrant can be exercised to acquire one
additional common share at an exercise price of $10.00 up until
September 30, 2001.
On December 9, 1999, the final prospectus was filed resulting in the
conversion of 1,854,678 special warrants into 1,854,678 common shares
and the issue of 1,854,678 common share purchase warrants.
F-13
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
6. SPECIAL WARRANTS (continued)
(c) The Company has also issued Compensation Warrants to the Underwriter
entitling the Underwriter to receive Compensation Options. The
Compensation Options entitle the Underwriter to acquire up to 185,468
units at a price of $9.25 per unit at any time until September 30,
2001. Each unit consists of one Common Share and one Share Purchase
Warrant.
7. 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.
8. 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, 1999, the Company
was required to maintain $1,520,000 in this reserve account (December
31, 1998 -$1,500,000).
(b) Minimum lease payments during the next three years are as follows:
2000 $369,000
2001 345,000
2002 74,000
F-14
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
8. COMMITMENTS AND CONTINGENCIES (continued)
(c) The Company is committed under an Interactive Marketing Agreement with
America On Line ("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.
(d) The Company is committed during the term of the Agreement with Rogers
Media, to spend $200,000 annually on advertising.
9. 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 which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
10. CHANGE IN NON-CASH OPERATING WORKING CAPITAL
1999 1998 1997
---- ---- ----
(in thousands)
Accounts receivable $ (543) $ (936) $ (117)
Inventory 14 32 (200)
Deposits and prepaid expenses (4,289) 1,504 (1,668)
Accounts payable 1,913 939 819
Accrued liabilities 1,525 26 81
Deferred revenue 2,118 - -
- ------------------------------------------------------------------------------
$ 738 $1,702 $(1,085)
- ------------------------------------------------------------------------------
11. OPERATIONS
In June 1997, the Company introduced special promotional pricing in order
to stimulate new bidder registrations and first time sales. This special
promotional pricing cost the Company approximately $4,044,000 in 1999,
$3,520,000 in 1998 and $698,000 in 1997 and has been included in
advertising and promotion.
F-15
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
11. OPERATIONS (continued)
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 AOL Agreement is scheduled to expire in March, 2000.
In March 1998 the Company launched its new consumer brand "BID.COM".
12. ACQUISITION, LICENSING AND SERVICE AGREEMENTS
(i) During 1999 the Company entered into various agreements. The
agreements provide for a combination of up-front payments for services
provided license fees, and net revenue sharing arrangements. Payment
was in the form of either cash, promissory notes, common shares or a
combination thereof.
(ii) In June, 1999 and August, 1999 the Company issued $2,500,000 of common
shares and exercised an option to acquire a 51% interest in Point2
Internet Systems Inc. ("Point2"). Under the agreement, two warrants
for Bid.Com shares were issued each of which is exercisable into
$1,000,000 of common shares of Bid.Com for no additional consideration
and are exercisable by the shareholders of Point2 between December 28,
1999 and June 28, 2000 and after June 28, 2000 and before December 28,
2000 respectively, based on achieving certain targets consisting of
new dealers and total revenues.
Pursuant to the shareholders agreement among the Company and the
shareholders of Point2, the Company acquired 51% of the shares but can
only elect 50% of the board of directors. The investment in the
jointly controlled company is accounted for on a proportionate
consolidation basis and the Company has recorded its proportionate
shares of revenue and expenses since the date of acquisition. Of the
total purchase price, $134,000 was allocated to current assets,
$521,000 to non-current assets and $28,000 to current liabilities
resulting in goodwill of $2,044,000.
For the four months ended December 31, 1999, Point2 reported revenues
of $221,000, a net loss of $222,000 and a change in cash resources of
($185,000). A condensed balance sheet at December 31, 1999 was
comprised of current assets of $131,000, capital assets of
$102,000, intellectual property $905,000, current liabilities
$141,000, shareholder advances $80,000, and shareholders equity
$917,000.
(iii) In June, 1999 the Company entered into an agreement to enable the
online auction capability of a developer and marketer of online travel
information, thereby allowing travel consolidators to offer travel
agents discount travel products in an online auction format. The
agreement is valued at $1,500,000 and a share of net online auction
revenues.
F-16
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
12. ACQUISITION, LICENSING AND SERVICE AGREEMENTS (continued)
(iv) In September, 1999, an agreement was entered into with ValueVision
Interactive Inc. ("VV"), a U.S. corporation, for an initial term
ending September 30, 2002 with automatic additional one year renewal
periods unless 90 days prior notice is provided before the initial or
subsequent term(s). "VV" is pursuing the delivery of the brand
SnapTV.com as the first live, interactive, web-based shopping
experience in the U.S. Pursuant to the agreement, the Company will not
enter into any licensing, technology sharing or marketing agreements
with any home shopping television programming entity and will not
operate a separate Dutch Auction on its' U.S. web-site. In
consideration, the Company will receive a percentage of gross
transaction revenues, based on a declining amount as revenues
increase, from the SnapTV auction service. Technology service fees
will be paid by ValueVision to the Company at standard industry rates.
(v) In September, 1999 the Company invested $735,400 (US $500,000) to
acquire 490,909 common shares of Quackware Inc., a California based
company. Quackware is focused on leading edge application of voice
recognition technology and advanced internet spidering technology to
make the information of the internet accessible via the telephone. See
subsequent note 13 (c).
(vi) In September, 1999 the Company agreed to invest $1,000,000 in a
special warrant financing of Megawheels.Com Inc. Each special warrant
is comprised of a unit consisting of one common share and a warrant to
acquire an additional share at $1.50. In addition, the Company entered
into an agreement to enable the online auction capability of
Megawheels. The agreement is valued at $2,000,000 and a share of net
online auction revenues.
13. SUBSEQUENT EVENT
(a) Stock Option Plan
(i) The Stock Option Committee of the Board of Directors approved the
issue of 50,000 options to an employee on January 31, 2000,
exercisable at $6.65 per share until February 2, 2003.
(ii) During the period from January 1, 2000 to February 18, 2000, the
Company issued 213,900 common shares upon the exercise of options
at prices ranging from $1.40 to $6.10 per share for aggregate
consideration of $521,065.
(b) Related Party
In February, 2000, the Company entered into an agreement, valued at
C$1,500,000 in shares in Art Vault Limited, plus a hosting fee and a
share of net online auction revenues, under which it will provide its
online auction technology and related services to Art Vault in which
certain Directors and Officers of Bid.Com, in aggregate, have a
controlling interest.
F-17
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
13. SUBSEQUENT EVENT (continued)
(c) Investments
On January 18, 2000 the Company entered into an Agreement to purchase
a convertible subordinated debenture due January 18, 2001 for U.S.
$182,000. Under the terms of the debenture the outstanding principal
and all accrued and unpaid interest may be converted into shares of
Class A or Class B common stock at $0.01 par value per share.
14. 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:
1999 1998 1997
----------------------------------------
Dividend yield - - -
Risk free interest rate 5.50% 4.80% 4.90%
Expected term, in years 2.51 1.18 1.40
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>
1999 1998 1997
-----------------------------------------
(in thousands)
<S> <C> <C> <C>
Loss attributable to common shareholders
(in thousands)
As reported $(20,825) $(18,707) $(6,725)
Pro forma $(34,191) $(19,941) $(8,134)
Basic and diluted net loss per share:
As reported $ (0.42) $ (0.79) $ (0.55)
Pro forma $ (0.69) $ (0.84) $ (0.66)
</TABLE>
F-18
<PAGE>
BID.COM INTERNATIONAL INC.
Notes to the Consolidated Financial Statements
================================================================================
14. RECONCILIATION OF UNITED STATES GAAP (continued)
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 adoption of this
pronouncement did not have any effect upon its financial statements.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"): The Financial
Accounting Standards Board ("FASB") has issued FAS 133 to be effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. FAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of
a derivative will depend on the intended use of the derivative and the
resulting designation. The Company is currently evaluating the impact of
FAS 133.
15. RECLASSIFICATION OF PRIOR YEARS
Certain prior year amounts have been reclassified to conform to the current
period basis of presentation.
16. CONVENIENCE TRANSLATION
The financial statements as at December 31, 1999 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, 1999 as published by the Federal Reserve Bank
of New York (U.S. $1.000 = Cdn. $1.444). 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-19
<PAGE>
EXHIBIT 3.1
UNDERWRITING AGREEMENT
September 30,1999
Bid.Com International Inc.
6725 Airport Road, Suite 201
Mississauga, ON
L4V 1V2
Attention: Mr. Paul Godin
Chairman
Dear Sirs:
Canaccord Capital Corporation (the "Underwriter") understands that
Bid.Com International Inc. (the "Corporation") proposes to create, issue and
sell a minimum of 810,811 and a maximum of 2,702,703 special warrants (the
"Special Warrants") at a price (the "Offering Price") of $9.25 per Special
Warrant for aggregate proceeds of a minimum of $7,500,001 and a maximum of
$25,000,002. The Underwriter hereby offers to purchase from the Corporation
810,811 Special Warrants and to act as the Corporation's exclusive agent to
assist the Corporation to offer for sale up to an additional 1,891,892 Special
Warrants (the "Agency Special Warrants"), subject to the terms and conditions
set forth below.
The Corporation understands that although the offer to purchase
810,811 Special Warrants is presented on behalf of the Underwriter as the
purchaser, the Underwriter will endeavour (if the Corporation accepts this
offer) to arrange for substituted purchasers (the "Substituted Purchasers") to
purchase the Special Warrants directly from the Corporation. It is further
agreed that, subject to the conditions referred to herein being satisfied, the
Underwriter is fully committed to purchase or cause to be purchased 810,811
Special Warrants with respect to which the Underwriter is not able to arrange
Substituted Purchasers and this commitment is not subject to the Underwriter
being able to arrange Substituted Purchasers subject to the terms and conditions
set forth below that allow the Underwriter to terminate its obligations
hereunder. The Underwriter's commitment to purchase Special Warrants shall be
reduced by the number of Special Warrants with respect to which Subscription
Agreements (defined below) are delivered to the Corporation on behalf of the
Substituted Purchasers by the Underwriter. Any reference to "Purchasers" herein
shall be a reference to the Underwriter as the initial purchaser of 810,811
Special Warrants, to the Substituted Purchasers, if any, and to the purchasers
of the Agency Special Warrants offered for sale by the Corporation.
The Underwriter may form and manage a group of investment dealers (the
"Dealers") to offer the Special Warrants for sale provided that any fees paid or
to be paid to members of such group of Dealers shall be for the account of and
paid by the Underwriter. The Corporation understands that the Underwriter is not
obliged under any circumstances to purchase any of the Agency Special Warrants,
but that the Underwriter or any Dealer may choose to do so in its sole
discretion.
Terms and Conditions
The terms and conditions relating to the purchase and sale of the
Special Warrants are as follows:
<PAGE>
-2-
1. Special Warrants - The material attributes and characteristics of the
Special Warrants shall be substantially as described herein and in the term
sheet attached hereto as Schedule "A".
Each Special Warrant will be exercisable, at the option of the holder,
into one unit (singularly, a "Unit" and collectively, the "Units") consisting of
one common share in the capital of the Corporation (singularly, a "Share" and
collectively, the "Shares") and one-half of one transferable common share
purchase warrant without additional payment. Each whole common share purchase
warrant (singularly, a "Purchase Warrant" and collectively, the "Purchase
Warrants") will entitle the holder thereof to purchase one Share for $12.00 at
any time on or before the date which is two years following the Closing Date
(defined below).
In the event that the Prospectus Qualification (defined below) has not
occurred prior to the date which is 90 days following the Closing Date (the
"Qualification Deadline"), each holder of Special Warrants shall receive 1.1
Units (in lieu of one Unit) upon the exercise of each Special Warrant.
The Special Warrants will be exercisable at any time on or before 5:00
p.m. (Toronto time) on the earlier of (the "Expiry Time"): (a) the date which is
12 months following the Closing Date; and (b) the date which is five Business
Days after the date of the receipt issued by the last of the securities
regulatory authorities in each of the provinces of Canada in which purchasers of
the Special Warrants reside (the "Qualifying Provinces") for a (final)
prospectus of the Corporation (the "Prospectus") qualifying the distribution of
the Shares and Purchase Warrants (the "Subject Securities") to be issued on the
exercise of the Special Warrants (the "Prospectus Qualification"). Any Special
Warrants not exercised on or before the Expiry Time will be exercised by the
Warrant Agent (defined below) by or on behalf of the holders thereof immediately
prior thereto without further action by the holder thereof. For the purpose of
this Agreement, "Business Day" shall mean any day except Saturday, Sunday or a
statutory holiday in Toronto, Ontario.
The Special Warrants shall be issued pursuant to the provisions of a
warrant indenture (the "Special Warrant Indenture") to be entered into between
the Corporation and CIBC Mellon Trust Corporation as warrant agent (the "Warrant
Agent") and the Purchase Warrants shall be issued pursuant to the provisions of
a share purchase warrant indenture (the "Share Purchase Warrant Indenture") to
be entered into between the Corporation and the Warrant Agent. The terms and
conditions of the Special Warrant Indenture and the Share Purchase Warrant
Indenture shall be satisfactory to the Corporation and the Underwriter and
consistent with the terms of this Agreement.
The Corporation agrees to use its best efforts to file with all
relevant securities regulatory authorities in each Qualifying Province a
preliminary prospectus (the "Preliminary Prospectus") qualifying the
distribution of the Subject Securities within 45 days following the Closing
Date, and, upon resolution of all regulatory comments and deficiencies, to use
its best efforts to file the Prospectus and obtain receipts therefor by the
Qualification Deadline. The Corporation also agrees to cause the Shares
comprising the Units and issuable upon exercise of the Purchase Warrants and
Compensation Warrants (defined below) to be conditionally listed for trading on
The Toronto Stock Exchange (the "TSE") by the Closing Date.
2. Offering
(a) Sale on Exempt Basis - The Underwriter shall offer for sale and sell
the Special Warrants (the "Offering") in the Provinces of Ontario,
Alberta and British Columbia and such other provinces of Canada as may
be agreed to between the
<PAGE>
-3-
Corporation and the Underwriter and jurisdictions outside of Canada
(collectively, the "Selling Jurisdictions") in compliance with all
applicable securities laws. The sale of the Special Warrants to
Purchasers shall be effected in a manner exempt from the prospectus
and offering memorandum requirements of the Securities Act (Ontario)
and the Regulation and Rules thereunder and the analogous provisions
of securities legislation of any other Canadian provinces in which the
Underwriter may solicit offers to purchase Special Warrants. Each
Purchaser of the Special Warrants resident in Ontario and outside
Canada shall purchase under subsection 72(1)(a), (c) or (d) of the
Securities Act (Ontario) as qualified in the case of subsection
72(1)(d) by Rule 45-501 thereto, each Purchaser of Special Warrants
resident in British Columbia and outside Canada shall purchase under
subsection 74(2)(1), 74(2)(3) or 74(2)(4) of the Securities Act
(British Columbia), each Purchaser of Special Warrants resident in
Alberta shall purchase under subsection 107(1)(a), (c) or (d) of the
Securities Act (Alberta) and each Purchaser of Special Warrants
resident in any province of Canada other than Ontario, Alberta or
British Columbia shall purchase under the analogous provisions of
securities legislation of such province. All offers and sales of the
Special Warrants in the United States will be effected through
Canaccord Capital U.S.A., a division of Noram Investment, Inc. (the
"U.S. Agent") as subagent for Canaccord Capital Corporation pursuant
to the exemptions from the registration requirements of the United
States Securities Act of 1933, as amended (the "1933 Act") provided by
Section 4(2) of the 1933 Act ("Section 4(2)"), in accordance with
Schedule "D" hereto.
(b) Underwriting Fee - The Corporation agrees to pay to the Underwriter at
the Time of Closing (defined below) a fee of $0.4625 per Special
Warrant equal to 5% of the purchase price of the Special Warrants sold
(the "Underwriting Fee") in consideration of the services to be
rendered by the Underwriter in connection with the sale of the Special
Warrants (the "Offering"), which services shall include:
(i) endeavoring to arrange for Purchasers for the Special Warrants;
(ii) assisting in the preparation of the Prospectus and the
Preliminary Prospectus qualifying the distribution of the
Subject Securities, together with any documents supplemental
thereto or any amending or supplementary prospectus or other
supplemental documents or any similar document (collectively
the "Supplementary Material") required to be filed under the
legislation of any Qualifying Province;
(iii) advising the Corporation in respect of the Prospectus
Qualification;
(iv) assisting in the preparation of the form of subscription
agreements (the "Subscription Agreements") to be entered into
by the Purchasers of the Special Warrants;
(v) assisting in the preparation of the Special Warrant Indenture
and Share Purchase Warrant Indenture; and
(vi) otherwise advising the Corporation with respect to the
Offering.
In addition to the Underwriting Fee, as additional consideration for
the performance of its obligations hereunder, the Corporation shall
issue to the Underwriter at the Time of Closing, non-transferable
special brokers' warrants
<PAGE>
-4-
(the "Brokers' Warrants"), in form and substance satisfactory to the
Underwriter, entitling the holder thereof to acquire on or before the
Expiry Time, without additional consideration, compensation warrants
(the "Compensation Warrants"), which, in the aggregate, will entitle
the holder thereof to purchase, for a period of 24 months following
the Closing Date, that number of Units that is equal to 10% of the
number of Special Warrants issued at a price of $9.25 per Unit. The
distribution of the Compensation Warrants issuable pursuant to the
exercise of the Brokers' Warrants will, subject to regulatory
approval, be qualified by the Prospectus to the extent permitted under
applicable securities laws. The Brokers' Warrants will be deemed to be
exercised and converted by the Corporation into the Compensation
Warrants on behalf of the Underwriter, without any action on the part
of the Underwriter, immediately prior to the Expiry Time. As used
herein, "Subject Securities" includes the Compensation Warrants
issuable upon exercise of the Brokers' Warrants.
(d) Covenants of Underwriter - The Underwriter covenants, represents and
warrants to the Corporation that: (i) it will comply with all
applicable securities legislation in connection with the Offering and
the Prospectus Qualification; (ii) it will not offer or sell Special
Warrants so as to require registration thereof, filing of a prospectus
with respect thereto or require the Corporation to become subject to
ongoing reporting requirements under the laws of any jurisdiction
other than that of the Qualifying Provinces or those to which the
Corporation is already subject or as otherwise agreed with the
Corporation; (iii) it, or its duly appointed agents, are duly
qualified in the Qualifying Provinces in which it acts as Underwriter
for the Corporation in connection with the Offering and the Prospectus
Qualification; (iv) it will obtain from each Purchaser an executed
Subscription Agreement in the appropriate form agreed to by the
Corporation and the Underwriter together with all requisite forms,
undertakings and materials including, where applicable, certificate of
foreign portfolio manager, relating to the transactions herein
contemplated; (v) upon the Corporation obtaining the necessary
receipts for the Prospectus relating to the Prospectus Qualification
from the securities regulatory authorities in each of the Qualifying
Provinces, it will deliver one copy of the Prospectus to each
Purchaser of the Special Warrants; (vi) it will not solicit
subscriptions for Special Warrants or otherwise do any act in
furtherance of a trade of the Special Warrants outside the Selling
Jurisdictions; (vii) it will not make available to prospective
Purchasers of the Special Warrants any documents which would
constitute an offering memorandum as defined under the securities
legislation of the Qualifying Provinces and not advertise the proposed
sale of the Special Warrants in printed media of general and regular
paid circulation, radio or television or otherwise; (viii) it will not
make any representations or warranties in respect of the Corporation
as agents or otherwise except as permitted in writing by the
Corporation; (ix) it will not solicit subscriptions for Special
Warrants except in accordance with the terms and conditions of this
Agreement; and (x) it will offer and sell Special Warrants in the
United States in accordance with Schedule "D" hereto.
3. Representations of the Corporation - The Corporation represents and
warrants to the Underwriter and acknowledges that the Underwriter is relying
upon such representations and warranties, as follows:
(a) each of the Corporation and the Subsidiaries has been duly amalgamated
or incorporated, as the case may be, and organized and is validly
existing under the laws of the jurisdiction of its incorporation and
has all requisite corporate
<PAGE>
-5-
capacity, power and authority to carry on its business as now
conducted by it and as is presently proposed to be conducted by it and
to own, lease and operate its assets;
(b) each of the Corporation and the Subsidiaries is duly qualified to
carry on business under the laws of the jurisdictions in which it
carries on its business and is in good standing in each such
jurisdiction;
(c) the Corporation has (and, in the case of the Prospectus Qualification,
will have) full corporate power and authority to undertake the
Offering, the Prospectus Qualification and all other transactions
contemplated herein;
(d) each of the Corporation and the Subsidiaries is current and up-to-date
with all filings required to be made by it under the corporate laws of
its jurisdiction of incorporation and the securities laws of the
provinces of Canada where it is a reporting issuer or its equivalent,
as applicable;
(e) the Corporation is a reporting issuer not in default of its
obligations under the securities laws of British Columbia, Alberta and
Ontario and no material change relating to the Corporation has
occurred with respect to which the requisite material change report
has not been filed under the securities laws of British Columbia,
Alberta or Ontario and no such disclosure has been made on a
confidential basis;
(f) none of the materials filed by or on behalf of the Corporation with
the applicable securities commissions or the stock exchanges (the
"Public Record") contain a misrepresentation (as defined in the
Securities Act (Ontario)) as at the date of such filing which has not
been corrected;
(g) the authorized capital of the Corporation consists of an unlimited
number of Shares and an unlimited number of preference shares,
issuable in series, of which at the date hereof 50,605,444 Shares (and
no other shares) are issued and outstanding as fully paid and non-
assessable;
(h) except as set out in Schedule "B" hereto, the Corporation is not a
party to and has not granted any agreement, warrant, option or right
or privilege capable of becoming an agreement, for the purchase,
subscription or issuance of any Shares or securities convertible into
or exchangeable for Shares;
(i) each of this Agreement, the Subscription Agreements, the Special
Warrant Indenture, the Share Purchase Warrant Indenture, the Brokers'
Warrants and the Compensation Warrants has been, or will be upon
execution (and in the case of the Subscription Agreements, acceptance)
thereof, duly authorized, executed and delivered by the Corporation
and constitutes, or will constitute when executed, a legal, valid and
binding obligation of the Corporation enforceable in accordance with
their respective terms except that: (i) the enforcement thereof may be
limited by bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally, (ii) rights of indemnity,
contribution and waiver of contribution thereunder may be limited
under applicable law and (iii) equitable remedies, including, without
limitation, specific performance and injunctive relief, may be granted
only in the discretion of a court of competent jurisdiction;
<PAGE>
-6-
(j) the entering into of each of this Agreement, the Subscription
Agreements, the Special Warrant Indenture, the Share Purchase Warrant
Indenture, and the issuance of the Special Warrants, Purchase
Warrants, Brokers' Warrants, Compensation Warrants and the Shares
issuable upon exercise of the Special Warrants, Purchase Warrants and
Compensation Warrants and the performance of the transactions
contemplated hereby and thereby will not result in a breach of, and do
not create a state of facts which, after notice or lapse of time or
both, will result in a breach of, and do not and will not conflict
with, any of the terms, conditions or provisions of the constating
documents or by-laws of the Corporation (or any of the Subsidiaries)
or any material trust indenture, agreement or instrument to which the
Corporation (or any of the Subsidiaries) is a party or by which the
Corporation (or any of the Subsidiaries) is or will be contractually
bound as of the Time of Closing except in connection with, the right
of first refusal (the "Right of First Refusal") granted to Yorkton
Securities Inc. pursuant to Section 17 of the underwriting agreement
dated November 30, 1998 among the Corporation, 1184041 Ontario Inc.
and Yorkton Securities Inc., in which case the Corporation represents
as follows: (i) the Right of first Refusal does not contain a code of
conduct or procedure for its exercise (either express or implied,
either as a result of conduct by the parties or as a result of any
discussions or correspondence or pursuant to any agreement to which
the Corporation is bound or to which it is a party); (ii) Yorkton
Securities Inc. is aware of the Offering of securities contemplated
herein (the "Offering"); (iii) the Corporation has not received from
Yorkton Securities Inc. any notice or indication (verbal or written)
that it intends to exercise its rights pursuant to the Right of First
Refusal to act as lead or co-lead manager of the offering; and (iv)
the Corporation is of the view that the Right of First Refusal is not
enforceable by Yorkton Securities Inc. in all the circumstances.
(k) each of the Corporation and the Subsidiaries has conducted and is
conducting its business in compliance with all applicable laws, by-
laws, rules and regulations of each jurisdiction in which its business
is carried on and possesses all certificates, authority, permits or
licenses issued by the appropriate state, provincial, municipal or
federal regulatory agencies or bodies necessary to conduct the
business now operated by it and all such certificates, authorities,
permits and licenses are valid and subsisting and in good standing and
the Corporation has not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority,
permit or license which, if the subject of an unfavourable decision,
ruling or finding would adversely affect the conduct of the business,
operations, financial condition or income of the Corporation and the
Subsidiaries, taken as a whole;
(l) no legal or governmental proceedings are pending or, to the knowledge
of the Corporation, are contemplated or threatened to which the
Corporation and/or any of the Subsidiaries is a party or to which the
property of the Corporation and/or any of the Subsidiaries is subject
that would result individually or in the aggregate in any adverse
change in the operation, business or condition of the Corporation and
the Subsidiaries, taken as a whole, except as disclosed to the
Underwriter prior to the execution of this Agreement;
(m) the audited consolidated annual financial statements of the
Corporation and its Subsidiaries as at and for the year ended December
31, 1998 contained in the Corporation's annual report for the year
ended December 31, 1998:
<PAGE>
-7-
(i) have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with those
of preceding fiscal periods;
(ii) represent fully, fairly and correctly the consolidated assets,
liabilities and financial condition of the Corporation as at
December 31, 1998 and the consolidated results of its
operations and the changes in its financial position for the
year then ended;
(iii) are in accordance with the books and records of the
Corporation; and
(iv) contain and reflect all necessary adjustments for the fair
presentation of the results of operations and the financial
condition of the business of the Corporation on a consolidated
basis for the period covered thereby,
and there has not been any material adverse change in the financial
position of the Corporation, or its business, assets, liabilities or
undertaking since December 31, 1998 other than as specified in the
Public Record;
(n) the unaudited consolidated interim financial statements of the
Corporation and its Subsidiaries as at and for the six months ended
June 30, 1999:
(i) have, to the best of the Corporation's knowledge, been prepared
in accordance with generally accepted accounting principles
applied on a basis consistent with those of preceding periods;
(ii) represent fully, fairly and correctly the consolidated assets,
liabilities and financial condition of the Corporation as at
June 30, 1999 and the consolidated results of its operations
and the changes in its financial position for the period then
ended;
(iii) are in accordance with the books and records of the
Corporation; and
(iv) contain and reflect all necessary adjustments for the fair
presentation of the results of operations and the financial
condition of the business of the Corporation on a consolidated
basis for the period covered thereby,
and there has not been any material adverse change in the financial
position of the Corporation, or its business, assets, liabilities or
undertaking since June 30, 1999 other than as specified in the Public
Record;
(o) the auditors of the Corporation who audited the consolidated financial
statements for the year ended December 31, 1998 and who provided their
audit report thereon are independent public accountants as required
under applicable Canadian securities laws;
(p) there has never been any reportable disagreement (within the meaning
of National Policy Statement No. 31) with the present or any former
auditors of the Corporation;
(q) each of the Corporation and the Subsidiaries has filed all necessary
tax returns and has paid all applicable taxes of whatever nature for
all tax years to the date hereof to the extent such taxes have become
due or have been alleged to be due and there
<PAGE>
-8-
are no tax deficiencies or interest or penalties accrued or accruing,
or alleged to be accrued or accruing, thereon with respect to the
Corporation or any of the Subsidiaries where, in any of the above
cases, it might reasonably be expected to result in an adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Corporation or the Subsidiaries,
taken as a whole;
(r) other than the Underwriter, there is no person, firm or corporation
acting or purporting to act at the request of the Corporation, who is
entitled to any brokerage or finder's fee in connection with the
transactions contemplated herein. In the event that any person, firm
or corporation acting or purporting to act for the Corporation
including, without limitation, Yorkton Securities Inc., establishes a
claim for any fee from the Underwriter, the Corporation covenants to
indemnify and hold harmless the Underwriter with respect thereto and
with respect to all costs reasonably incurred in the defence thereof;
(s) at the Time of Closing, the Shares will not constitute "foreign
property" within the meaning of the Income Tax Act (Canada), or any
amendments thereto publicly announced by the Minister of Finance prior
to that time;
(t) all of the Corporation's issued and outstanding Shares and Shares
reserved or allotted for issue (except for the Shares issuable upon
exercise of the Special Warrants, Purchase Warrants and Compensation
Warrants) are listed for trading on the TSE and listed for quotation
on NASDAQ;
(u) the only subsidiaries of the Corporation are Bid-Com U.S.A Inc.,
Bid.Com International Limited and Point2 Computing Systems Inc.
(collectively, the "Subsidiaries") and the Corporation, either
directly or indirectly, beneficially owns all of the issued and
outstanding shares of each such Subsidiary other than Point2 Computing
Systems Inc. and beneficially owns 51% of the issued and outstanding
shares of Point2 Computing Systems Inc. free and clear of all
mortgages, liens, charges, pledges, security interests, encumbrances,
claims or demands of any kind whatsoever, all of such shares have been
duly authorized and validly issued and are outstanding as fully paid
and non-assessable shares and no person has any right, agreement or
option, present or future, contingent or absolute, of any right
capable of becoming a right, agreement or option, for the purchase
from the Corporation of any interest in any of such shares or for the
issue or allotment of any unissued shares in the capital of the
Subsidiaries or any other security convertible into or exchangeable
for any such shares;
(v) the use of the business names, trademarks, service marks and other
industrial or intellectual property of the Corporation and the
Subsidiaries does not infringe upon or breach any business names,
trademarks, service marks and other intellectual property rights of
any other person and the Corporation has no knowledge of any
infringement or violation of any of its rights in such intellectual
property and is not aware of any state of facts that casts doubt on
the validity or enforceability of any of such intellectual property
rights;
(w) the Corporation owns or possesses adequate enforceable rights to use
all patents, patent applications, trademarks, service marks,
copyrights, software, source codes, trade secrets, processes,
formulations and other intellectual property used or proposed to be
used in the conduct of its business subject to the restrictions
<PAGE>
-9-
contained in the licence agreements under which the Corporation
licences various intellectual property;
(x) the Corporation has not withheld, and will not withhold, from the
Underwriter any facts relating to the Corporation or to the Offering
that would be material to a prospective purchaser of the Special
Warrants;
(y) except as disclosed in the Public Record or disclosed in writing to
the Underwriter prior to the execution of this Agreement, there are no
material contracts or arrangements to which the Corporation or any of
the Subsidiaries is a party or by which the Corporation or any of the
Subsidiaries is bound or to which the Corporation or any of the
Subsidiaries expects to become a party or bound before the Prospectus
Qualification other than the agreements relating to the Offering and
the Corporation and the Subsidiaries are in compliance in all respects
with all terms and provisions of all contracts, agreements,
indentures, leases, policies, instruments and licenses in connection
with the conduct of its business and all such contracts, agreements,
indentures, leases, policies, instruments and licenses are valid and
binding in accordance with their terms and in full force and effect,
and no breach or default by the Corporation or its Subsidiaries or
event which, with notice or lapse or both, could constitute a breach
or default by the Corporation or the Subsidiaries, exists with respect
thereto;
(z) no order ceasing or suspending trading in securities of the
Corporation or prohibiting the sale of securities by the Corporation
has been issued and, to the knowledge of the Corporation, no
proceedings for this purpose have been instituted, are pending,
contemplated or threatened;
(aa) the Corporation has not, directly or indirectly, declared or paid any
dividend or declared or made any other distribution on any of its
Shares or other securities or, directly or indirectly, redeemed,
purchased or otherwise acquired any of its Shares or other securities
or agreed to do any of the foregoing;
(bb) there is not in the constating documents of the Corporation or in any
agreement, mortgage, note, debenture, indenture or other instrument or
document to which the Corporation is a party, any restriction upon or
impediment to the declaration or payment of dividends by the directors
of the Corporation or the payment of dividends by the Corporation to
the holders of its Shares;
(cc) the Corporation does not owe any money to, nor has the Corporation any
present loans to, or borrowed any monies from, or is otherwise
indebted to any officer, director, employee, shareholder or any person
not dealing "arm's length" (as such term is defined in the Income Tax
Act (Canada) with the Corporation except for usual employee
reimbursements and compensation paid in the ordinary and normal course
of the business of the Corporation;
(dd) (i) the Corporation has adopted and is diligently implementing a Year
2000 compliance plan which plan accurately sets out the current
status of activities undertaken by the Corporation to prevent a
Year 2000 Problem (as defined below) and such plan includes an
analysis as to (A) which of the assets are, as of the date
hereof, are Year 2000 Compliant (as defined below), (B) which of
the assets are not Year 2000 Compliant as of the date hereof, and
(C) what third party remediation, testing and certification
efforts have been undertaken to date;
<PAGE>
-10-
(ii) (A) All required remediation, testing and certification will be
completed by no later than December 31, 1999, (B) the Year 2000
compliance plan, including the remediation efforts and
contingency plans therein, are reasonable and prudent in the
opinion of the Corporation, (C) all work undertaken or required
by the Year 2000 compliance plan will not require the
expenditure by the Corporation to third parties of any material
amount and (D) the Corporation will not be materially affected
by a change in the millennium;
(iii) all products and services supplied by the Corporation are Year
2000 Compliant; and
(iv) the representations, warranties, covenants and commitments
relating to the Year 2000 Problem or the products and services
of the Corporation being Year 2000 Compliant which have been
made or given by the Corporation to any person are true and
correct;
"Year 2000 Problem" means any failure of a computer system,
hardware, software, firmware, microchip, integrated circuit or
similar device to correctly: (i) process date and time related
data without causing any processing interruptions, abnormal
terminations, or changes in performance characteristics, and
(ii) process and manipulate all date and time related functions
correctly;
"Year 2000 Compliant" means, with respect to any of the assets
of the Corporation including without limitation all computer
systems, hardware, software, firmware, microchip, integrated
circuit or similar device, that such assets are in all material
respects able to correctly: (i) process date and time related
data without causing any processing interruptions, abnormal
terminations, or changes in performance characteristics, and
(ii) process and manipulate all date and time related
functions. Without limiting the generality of the foregoing,
the assets of the Corporation will correctly: (i) process date
and time related data before, during and after January 1, 2000,
including, but not limited to, accepting date and time input,
providing date and time output, and performing ongoing
operations on dates and times and portions of dates and times
including, but not limited to, calculating, comparing and
sequencing of dates and times (in both forward and backward
operations spanning century boundaries); (ii) process leap year
calculations including, but not limited to, identification of
leap years, interval calculations (in both forward and backward
operations spanning century boundaries), day-in-year
calculation, day-of-the-week calculations, and week-of-the-year
calculations; (iii) manipulate all date and time related input
in a manner that resolves ambiguity as to century; and (iv)
store, retrieve and provide output of date and time related
data in a matter that is unambiguous as to century;
(ee) the Warrant Agent, at its offices in Toronto, has been duly appointed
as the transfer agent and registrar for all of the outstanding Shares
and as at the Closing will have been duly appointed as warrant agent
in respect of the Special Warrants and Purchase Warrants;
<PAGE>
-11-
(ff) the Corporation has obtained or at the Closing will have obtained
conditional listing approval from the TSE and shall have filed a
NASDAQ National Market Notification Form for Listing of Additional
Securities and paid the applicable fee therefor with and to NASDAQ
with respect to the Shares comprising the Units and the Shares
issuable upon exercise of the Purchase Warrants and the Compensation
Warrants; and
(gg) the Corporation has not received any verbal or written communication
from Yorkton Securities Inc. in respect of the Right of First Refusal.
4. Covenants of the Corporation - The Corporation hereby covenants to and
with the Underwriter that it will:
(a) fulfill all legal requirements to permit the creation, issuance,
offering and sale of the Special Warrants, the issuance of the Shares
comprising the Units, the creation and issuance of the Purchase
Warrants comprising the Units, the creation and issuance of the
Brokers' Warrants, the creation and issuance of the Compensation
Warrants and the issuance of the Shares issuable upon exercise of the
Purchase Warrants and Compensation Warrants including, without
limitation, compliance with all applicable securities legislation to
enable the Special Warrants to be offered for sale and sold without
the necessity of filing a prospectus to Purchasers in the Selling
Jurisdictions through, in the case of the Qualifying Provinces,
registrants registered under the applicable legislation of such
Qualifying Provinces who have complied with the relevant provisions of
such legislation;
(b) use its best efforts to obtain the necessary regulatory consents from
the TSE and NASDAQ to the Offering on such terms as are mutually
acceptable to the Underwriter and the Corporation, acting reasonably;
(c) use its best efforts to arrange for the conditional listing for
trading of the Shares issuable upon exercise of the Special Warrants,
the Purchase Warrants and the Compensation Warrants on the TSE and to
make all necessary filings and to pay all required fees as required by
NASDAQ before the Closing;
(d) use its best efforts to maintain the listing of the Shares on the TSE
and NASDAQ and its status as reporting issuer and its equivalent under
the securities legislation of the Qualifying Provinces until the
earlier of the date which is one year after the Expiry Time and the
date which is two years from the Closing Date;
(e) use its best efforts, to prepare and file in each of the Qualifying
Provinces the Preliminary Prospectus and other related documents
relating to the proposed distribution of Subject Securities to holders
of Special Warrants and of the Compensation Warrants to the
Underwriter within 45 days following the Closing Date;
(f) use its best efforts to obtain receipts for the Preliminary Prospectus
in each of the Qualifying Provinces as soon as reasonably practicable
after the filing thereof;
(g) resolve as soon as reasonably practicable any regulatory deficiencies
in respect of the Preliminary Prospectus on a basis acceptable to the
Underwriter, acting reasonably, and, as soon as reasonably practicable
after such deficiencies have been resolved or satisfied, prepare, file
and use its best efforts to obtain receipts
<PAGE>
-12-
under the applicable legislation of each of the Qualifying Provinces
for the Prospectus and take all other reasonable steps and proceedings
that may be necessary in order to complete the Prospectus
Qualification by the Qualification Deadline;
(h) prior to the Closing and prior to the filing of the Preliminary
Prospectus and thereafter and prior to the filing of the Prospectus
and any Supplementary Material, permit the Underwriter and its counsel
to participate fully in the preparation of such documents and allow
the Underwriter and its counsel to conduct all due diligence which the
Underwriter may reasonably require to conduct in order to fulfill
their obligations under applicable securities legislation and in order
to enable the Underwriter responsibly to execute any certificate
required to be executed by the Underwriter in connection with the
Preliminary Prospectus, the Prospectus or any Supplementary Material;
(i) ensure that at the respective times of filing and at all times
subsequent to the filing thereof until completion of the distribution
of the Subject Securities, the Preliminary Prospectus, Prospectus and
any Supplementary Material will fully comply with the requirements of
applicable securities legislation, provided that the foregoing shall
not apply with respect to statements contained in such documents
relating solely to or provided by the Underwriter;
(j) deliver in Toronto, within three (3) Business Days of the issue of a
receipt for the Preliminary Prospectus and the Prospectus, as the case
may be, and within three Business Days of execution of any
Supplementary Material, without charge to the Underwriter as many
copies of the Preliminary Prospectus, the Prospectus and any
Supplementary Material as the Underwriter may reasonably request for
the purposes contemplated hereunder and contemplated by the Securities
Act (Ontario), and such delivery shall constitute: (A) the consent of
the Corporation to use such documents in connection with the
distribution or the distribution to the public, as the case may be, of
the Subject Securities subject to the provisions of the securities
legislation of the Qualifying Provinces; and (B) the Corporation's
representation and warranty to the Underwriter that, at the time of
delivery, the information and statements contained therein (except
information and statements relating solely to or provided by the
Underwriter) contain no misrepresentation and constitute full, true
and plain disclosure of all material facts (as defined in the
Securities Act (Ontario)) relating to the Offering, the Corporation,
the Special Warrants and the Subject Securities;
(k) cause to be delivered to the Underwriter concurrently with the filing
of the Prospectus and any Supplementary Material, comfort letters of
the auditors of the Corporation in each case dated the date of the
Prospectus or the Supplementary Material to which such letter relates
(as the case may be) addressed to the Underwriter and to the directors
of the Corporation, in form and substance satisfactory to the
Underwriter acting reasonably, relating to the financial statements to
be included in the Prospectus and any Supplementary Material and
verifying in accordance with the Canadian Institute of Chartered
Accountants Handbook the financial information, accounting data and
other numerical data contained in the Prospectus or any Supplementary
Material and matters involving changes or developments since the
respective dates as of which specified financial information is given
in the Prospectus on the Supplementary Material to a date not more
than two (2) Business Days prior to the date of such letter;
<PAGE>
-13-
(l) not, without the prior written consent of the Underwriter, such
consent not to be unreasonably withheld, issue or announce the
issuance of any Shares or any securities convertible into or
exchangeable for or exercisable to acquire Shares during a period
commencing on September 15, 1999 and expiring 180 days following the
Closing Date, other than pursuant to:
(i) presently outstanding rights, including options, warrants and
other convertible securities and including any such rights which
have been granted or issued subject to regulatory approval;
(ii) options granted to officers, directors or employees of the
Corporation or any subsidiary thereof pursuant to existing stock
option plans; or
(iii) in connection with the acquisition by the Corporation of shares
or assets of an arm's length person to the Corporation.
(m) ensure that at Closing the Shares do not constitute "foreign property"
within the meaning of the Income Tax Act (Canada) or any amendments
thereto publicly announced by the Minister of Finance from time to
time;
(n) use the net proceeds of the Offering for general working capital
purposes and to pursue acquisition opportunities; and
(o) comply with the provisions of the term sheet attached hereto as
Schedule "A".
5. Conditions of Closing - The obligations of the Underwriter and the
Purchasers to complete the purchase of the Special Warrants contemplated hereby
shall be conditional upon the fulfillment at or before the Time of Closing (as
herein defined) of the following conditions:
(a) the Corporation having obtained all requisite regulatory approvals
required to be obtained by the Corporation in respect of the Offering
on terms mutually acceptable to the Corporation and the Underwriter,
acting reasonably;
(b) the Corporation and the Underwriter having complied fully with all
relevant statutory and regulatory requirements required to be complied
with prior to the Time of Closing (including without limitation those
of the TSE and NASDAQ in connection with the Offering);
(c) the Corporation having received the approval of the TSE to proceed
with the Offering and to conditionally list the Shares issuable upon
the exercise of the Special Warrants, the Purchase Warrants and the
Compensation Warrants subject to the usual conditions;
(d) the Corporation having taken all necessary corporate action to
authorize and approve this Agreement, the Subscription Agreements, the
Special Warrant Indenture, the Share Purchase Warrant Indenture, the
issuance of the Special Warrants, the Brokers' Warrants, the
Compensation Warrants, the Subject Securities and the Shares issuable
upon exercise of the Purchase Warrants and the Compensation Warrants
and all other matters relating thereto;
(e) the Underwriter having received a favourable legal opinion of the
Corporation's counsel or from counsel in appropriate jurisdictions
addressed to the Underwriter,
<PAGE>
-14-
counsel to the Underwriters and the Purchasers, acceptable in all
reasonable respects to counsel to the Underwriter, with respect to the
matters set forth in Schedule "C" hereto;
In giving the opinions contemplated by Schedule "C", counsel to the
Corporation shall be entitled to rely, where appropriate, as to
matters of fact, upon the representations and warranties of Purchasers
contained in the executed Subscription Agreements and other support
documents, the representations, warranties and covenants of the
Underwriter as contained herein, a certificate of fact of the
Corporation signed by officers in a position to have knowledge of such
facts and their accuracy and certificates of such public officials and
other persons as are necessary or desirable;
(f) the Underwriter having received a favourable legal opinion of the
Subsidiaries' counsel addressed to the Underwriter, counsel to the
Underwriter and each of the Purchasers, acceptable in all reasonable
respects to counsel to the Underwriter, to the effect that:
(i) each of the Subsidiaries is a corporation validly existing under
the laws of its jurisdiction of incorporation and is qualified
to carry on business and own its assets under the laws of each
jurisdiction in which it carries on business and owns its
assets;
(ii) each of the Subsidiaries has all requisite corporate capacity,
power and authority to carry on its business as is now conducted
by it and to own its assets;
(iii) as to the authorized capital of each of the Subsidiaries; and
(iv) the registered holder of all of the issued and outstanding
shares in the capital of the Subsidiaries is the Corporation;
(g) the Underwriter shall have received a favourable legal opinion from
Baer Marks & Upham LLP, United States counsel to the Corporation, such
opinion to be addressed to the Corporation, the counsel to the
Corporation, the Underwriter and counsel to the Underwriter, in form
and substance satisfactory to counsel to the Underwriter, to the
effect that the offer and sale to purchasers in the United States of
the Special Warrants, has been made in accordance with Section 4(2);
(h) the Underwriter and the Purchasers having received a certificate of
the Corporation signed by the Chief Executive Officer of the
Corporation and the Chief Financial Officer of the Corporation or by
such other officers acceptable to the Underwriter certifying as to
certain matters reasonably requested by the Underwriter including
certification that:
(i) the Corporation has complied with all covenants and satisfied all
terms and conditions of this Agreement on its part to be complied
with and satisfied up to the Time of Closing;
(ii) all of the representations and warranties contained in this
Agreement are true and correct as of the Closing Date with the
same force and effect as if made at and as of the Closing Date,
after giving effect to the transactions contemplated hereby;
<PAGE>
-15-
(iii) since the date hereof, there has been no material adverse change
(actual, proposed or prospective, whether financial or
otherwise) in the business, affairs, operations, assets,
liabilities (contingent or otherwise) or capital of the
Corporation and its Subsidiaries, taken as a whole;
(iv) no order, ruling or determination having the effect of ceasing
or suspending trading in any securities of the Corporation
(including the Special Warrants and the Subject Securities) has
been issued and no proceedings for such purposes are pending,
or, to the knowledge of such officers, pending, contemplated or
threatened; and
(v) the Corporation is a "reporting issuer" not in default under the
securities laws of each of the provinces in which it is a
reporting issuer and no material change relating to the
Corporation has occurred with respect to which the requisite
material change statement has not been filed unless the Offering
contemplated hereby constitutes a material change and currently
no disclosure of any material change has been made on a
confidential basis;
(i) the Corporation shall have delivered to the Underwriter a certificate
of CIBC Mellon Trust Corporation as registrar and transfer agent which
certifies the number of outstanding Shares as at the Closing Date;
(j) the Special Warrant Indenture and Share Purchase Warrant Indenture in
form acceptable to the Underwriter, acting reasonably, shall have been
executed and delivered by the Corporation and the Warrant Agent for
the holders of the Special Warrants and Purchase Warrants; and
(k) the Underwriter shall be satisfied in its sole discretion with such
due diligence of the Corporation as the Underwriter or its
representatives deem appropriate.
6. Closing - The purchase and sale of the Special Warrants (the
"Closing") shall be completed at the offices of the Corporation's counsel in
Toronto, Ontario, at 10:00 a.m. (Toronto time) (the "Time of Closing") on
September 30, 1999 or at such other time or on such other date as the
Corporation and the Underwriter may agree upon which, in no event, shall be
later than October 15, 1999 (the "Closing Date").
At or before the Time of Closing, the Corporation shall deliver to the
Underwriter:
(a) certificates representing the Special Warrants duly registered as the
Purchasers may direct;
(b) the requisite legal opinions and certificate as contemplated in
section 5 hereof; and
(c) such further documentation as may be contemplated herein or as counsel
to the Underwriter or the applicable regulatory authorities may
reasonably require;
against delivery by the Underwriter to the Corporation and the Warrant Agent of
certified cheques or bank drafts payable to the Corporation and the Warrant
Agent in an aggregate amount
<PAGE>
-16-
representing $9.25 per Special Warrant (subject to deduction of the Underwriting
Fee and expenses as noted herein) and delivery by the Underwriter to the
Corporation of duly executed subscription agreements for acceptance by the
Corporation. The Underwriting Fee shall be deducted from the aggregate amount of
the proceeds of the Offering. Subject to timely advance notice from the
Underwriter, the Corporation further agrees that it shall provide to the
Underwriter at such addresses as it may specify certificates representing the
Special Warrants sufficiently in advance of the Closing, to be held in escrow by
the Underwriter pending the Closing, in order to allow the Underwriter to effect
proper delivery thereof to the Substituted Purchasers at the Time of Closing.
7. Expenses - Whether or not Closing occurs, the Corporation shall pay
all costs, fees and expenses of or incidental to the performance of the
obligations under this Agreement including, without limitation: (i) the cost of
qualifying the Subject Securities for distribution in the Qualifying Provinces,
(ii) the cost of printing the Preliminary Prospectus, the Prospectus, any
Supplementary Material and certificates for the Special Warrants, Brokers'
Warrants and the Subject Securities, (iii) registration, countersignature and
delivery of the Special Warrants and Subject Securities, (iv) the fees and
expenses of the Corporation's auditors, counsel and any local counsel, (v) the
reasonable fees and expenses of the Underwriter's counsel provided that fees
(exclusive of GST and disbursements) shall not exceed $50,000 without the
consent of the Corporation, such consent not to be unreasonably withheld, and
(vi) the Underwriter's reasonable out-of-pocket expenses (including marketing
expenses). Such amounts payable to the Underwriter shall be paid by the
Corporation at the Time of Closing to the Underwriter in respect of expenses and
fees incurred to such date and supported by invoices and as and when invoices
are rendered in respect of expenses and fees incurred after the Time of Closing.
8. Material Changes - If after the date hereof until the Expiry Time:
(a) there occurs any material change or material changes (actual, proposed
or prospective) in respect of the Corporation or any of the
Subsidiaries;
(b) there occurs any change in any material fact contained in the
Preliminary Prospectus, Prospectus or any Supplementary Material; or
(c) any new material fact arises which would, under the securities
legislation of any of the Qualifying Provinces, require an amendment
to the Preliminary Prospectus, Prospectus or any Supplementary
Material,
the Corporation shall:
(d) promptly notify the Underwriter, in writing, providing full
particulars of any such change;
(e) if required by applicable law, prepare and deliver to each Purchaser
an amendment to the Preliminary Prospectus or Prospectus, as the case
may be;
(f) file or cause to be filed with reasonable promptness, and in any event
within any statutory limitation period therefor, any document required
to be filed with any regulatory body having jurisdiction and comply
with all requirements of any applicable securities legislation of such
jurisdiction; and
<PAGE>
-17-
(g) comply with all legal requirements necessary to continue to qualify
the Subject Securities for distribution in the Qualifying Provinces.
The Corporation shall in good faith discuss with the Underwriter any
change in circumstances (actual, proposed or prospective) in respect of which
there is reasonable doubt whether written notice should be given to the
Underwriter pursuant to this section and shall consult with the Underwriter with
respect to the form and content of any Supplementary Material proposed to be
issued or filed by the Corporation as a result of such change prior to the
issuance or filing thereof.
In this Agreement, the terms "material change", "material fact",
"misrepresentation" and "distribution" include the respective meanings ascribed
thereto in the Securities Act (Ontario).
9. Indemnities - The Corporation hereby covenants and agrees to protect,
indemnify and hold harmless the Underwriter and its directors, officers and
employees, solicitors and agents (individually, an "Indemnified Party" and,
collectively, the "Indemnified Parties") from and against all losses (except for
loss of profits), claims, costs, damages or liabilities which they may suffer or
incur caused by or arising directly or indirectly by reason of:
(i) any information or statement (except any information or statement
relating solely to or provided by the Underwriter) contained in the
Preliminary Prospectus, Prospectus or any Supplementary Material
being or being alleged to be a misrepresentation;
(ii) the omission to state in the Preliminary Prospectus, Prospectus or
any Supplementary Material a material fact required to be stated
therein or necessary to make the statements therein not misleading
(except the omission to state a material fact relating solely to the
Underwriter);
(iii) the Corporation not complying with any requirement of any securities
legislation or regulatory requirements of any Qualifying Province in
connection with the Offering or the Prospectus Qualification;
(iv) any order made or any inquiry, investigation or proceeding commenced
or threatened by any regulatory authority based upon an allegation
that any untrue statement or alleged omission or any
misrepresentation or alleged misrepresentation in the Preliminary
Prospectus, the Prospectus or any Supplementary Material exists
(except any information or statement relating solely or provided by
to the Underwriter) which prevents or restricts the trading in or
distribution of the Special Warrants or the Subject Securities; or
(v) the Corporation's failure to comply with any of its obligations
hereunder.
If any action or claim shall be asserted against an Indemnified Party
in respect of which indemnity may be sought from the Corporation pursuant to the
provisions hereof, or if any potential claim contemplated by this section shall
come to the knowledge of an Indemnified Party, the Indemnified Party shall
promptly notify the Corporation in writing of the nature of such action or claim
(provided that any failure to so notify shall not affect the Corporation's
liability under this paragraph unless such delay has prejudiced the defence to
such claim). The Corporation shall be entitled but not obliged to participate in
or assume the defence thereof, provided, however that the defence shall be
through legal counsel acceptable to the Indemnified
<PAGE>
-18-
Party, acting reasonably. In addition, the Indemnified Party shall also have the
right to employ separate counsel in any such action and participate in the
defence thereof, and the fees and expenses of such counsel shall be borne by the
Indemnified Party, unless (i) the employment thereof has been specifically
authorized in writing by the Corporation; (ii) the Indemnified Party has been
advised by counsel acceptable to the Corporation, acting reasonably, that
representation of the Corporation and the Indemnified Party by the same counsel
would be inappropriate due to actual or potential differing interests between
them; or (iii) the Corporation has failed within a reasonable time after receipt
of such written notice to assume the defence of such action or claim. It is
understood and agreed that the Corporation shall not, in connection with any
suit in the same jurisdiction, be liable for the legal fees and expenses of more
than one separate legal firm to represent the Indemnified Parties. Neither party
shall effect any settlement of any such action or claim or make any admission of
liability without the written consent of the other party, such consent not to be
unreasonably withheld or delayed. The indemnity hereby provided for shall remain
in full force and effect and shall not be limited to or affected by any other
indemnity in respect of any matters specified in this section obtained by the
Indemnified Party from any other person.
To the extent that any Indemnified Party is not a party to this
Agreement the Underwriter shall obtain and hold the right and benefit of this
section in trust for and on behalf of such Indemnified Party.
The Corporation hereby waives its right to recover contribution from
the Underwriter with respect to any liability of the Corporation by reason of or
arising out of any misrepresentation contained in the Preliminary Prospectus,
the Prospectus or in any Supplementary Material; provided, however, that such
waiver shall not apply in respect of liability caused or incurred by reason of
or arising out of any misrepresentation which is based upon or results from
information relating solely to and provided by the Underwriter contained in such
document.
The Corporation hereby consents to personal jurisdiction and service
and venue in any court in which any claim which is subject to indemnification
hereunder is brought against the Underwriter or any Indemnified Party and to the
assignment of the benefit of this section to any Indemnified Party for the
purpose of enforcement provided that nothing herein shall limit the
Corporation's right or ability to contest the appropriate jurisdiction or forum
for the determination of any such claims.
10. Contribution - In the event that, for any reason, the indemnity
provided for in section 9 hereof is illegal or unenforceable, the Underwriter
and the Corporation shall contribute to the aggregate of all losses, claims,
costs, damages, expenses or liabilities (except loss of profits in connection
with the sale of Special Warrants) of the nature provided for in section 9
hereof such that the Underwriter shall be responsible for that portion
represented by the percentage that the Underwriting Fee bears to the gross
proceeds from the Offering and the Corporation shall be responsible for the
balance. Notwithstanding the foregoing, a person guilty of fraudulent
misrepresentation shall not be entitled to contribution from any other party.
Any party entitled to contribution will, promptly after receiving notice of
commencement of any claim, action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this section, notify such party or parties from whom contribution
may be sought. In no case shall such party from whom contribution may be sought
be liable under this contribution agreement unless such notice shall have been
provided, but the omission to so notify such party shall not relieve the party
from whom contribution may be sought from any other obligation it may have
otherwise than under this section. The right to
<PAGE>
-19-
contribution provided in this section shall be in addition and not in derogation
of any other right to contribution which the Underwriter may have by statute or
otherwise by law.
11. Termination Rights - If any time prior to the Closing:
(i) there shall occur or come into effect any event, condition or
circumstance which, in the sole opinion of the Underwriter,
constitutes a material change, financial or otherwise, in the
business, affairs or condition of the Corporation and the
Subsidiaries, taken as a whole, or there arises or there is
disclosure of a material fact or a change in a material fact which in
the sole opinion of the Underwriter might be expected to prevent or
restrict the Offering or Prospectus Qualification; or would or could
materially and adversely affect the market price or value of the
Special Warrants or Subject Securities; or
(ii) any order or ruling is issued, any inquiry, investigation or other
proceeding (whether formal or informal) in relation to the
Corporation or any one of the officers or directors of the
Corporation or any of its principal shareholders is made, threatened
or announced by any officer or official of any stock exchange,
securities commission or other regulatory authority, or any law or
regulation is promulgated or changed which, in the sole opinion of
the Underwriter, would or could operate to prevent or restrict
trading in or the distribution of the Special Warrants or Subject
Securities or would or could adversely affect the marketability or
sale of the Special Warrants or Subject Securities as contemplated
hereby or the market price or value of the Special Warrants or
Subject Securities or would or could materially and adversely affect
the financial markets in Canada or elsewhere where the Special
Warrants are marketed or proposed to be marketed or the business of
the Corporation and the Subsidiaries, taken as a whole; or
(iii) the Underwriter is not satisfied in their sole discretion with their
due diligence review and investigations of the Corporation or any of
its officers, directors and principal shareholders; or
(iv) there should develop, occur or come into effect any occurrence,
catastrophe, crisis or accident of national or international
consequence or any other event, action, governmental regulation,
enquiry or other occurrence of any nature whatsoever including any
outbreak of war, rebellion or armed hostilities which, in the sole
opinion of the Underwriter, would or could adversely affect the
marketability or sale of the Special Warrants or Subject Securities,
the financial markets in Canada or elsewhere where the Special
Warrants are marketed or proposed to be marketed or the business of
the Corporation and the Subsidiaries, taken as a whole,
the Underwriter shall be entitled, at its option, to terminate its obligations
under this Agreement (and the obligations of the Purchasers) by written notice
to that effect given to the Corporation at any time prior to the Closing. In the
event of such termination by the Underwriter, there shall be no further
liability of the Corporation or the Underwriter to one another hereunder, except
in respect of any liability which may have arisen or may thereafter arise
pursuant to sections 7, 9 or 10.
The right of the Underwriter to terminate their obligations under
this Agreement is in addition to such other remedies as it may have in respect
of any default, act or failure to act of the Corporation in respect of any of
the matters contemplated by this Agreement.
<PAGE>
-20-
12. Registration Rights - The Corporation agrees that, in the event it no
-------------------
longer qualifies as a "foreign issuer" as that term is defined in Rule 902(e)
promulgated by the U.S. Securities and Exchange Commission (the "SEC") pursuant
to the 1933 Act, then upon written request (the "Registration Request") of any
holder of (i) the Compensation Warrants and/or (ii) Purchase Warrants who in the
case of a holder of Purchase Warrants was a U.S. Person who purchased in the
United States, made at any time within the period commencing with the
Qualification Deadline and ending with the final expiration date of such
warrants, the Corporation will file a Registration Statement, and all
necessary amendments thereto, under the 1933 Act, as amended, registering or
qualifying, as the case may be, the Shares underlying all such warrants as may
be outstanding. Notwithstanding the foregoing, the Corporation shall not be
required to file a Registration Statement or comply with the other provisions of
this Section 12, if the Corporation delivers to the requesting warrantholder
within 10 business days of the receipt of the Registration Request an opinion of
counsel of the Corporation to the effect the sale of common shares underlying
the Compensation Warrants or Purchase Warrants, as the case may be, by such
holder is otherwise exempt from registration under the 1933 Act and the rules
and regulations, promulgated thereunder and that such underlying shares will be
free trading in the hands of the purchaser(s). The holder requesting such
registration rights, shall promptly provide the Corporation and such counsel,
all information which either of them may reasonably request in order to enable
such counsel to determine whether it will be able to deliver such opinion. The
Corporation agrees to use its best efforts to cause the above filing to become
effective in a timely manner and to thereafter remain effective for the life of
such warrants or until the earlier of the time when (i) the common shares which
may be issued upon exercise of such warrants shall have been first disposed of
in accordance with such registration statement, or (ii) all such securities may
be sold pursuant to Rule 144(b), Rule 144(k) or any other exemption as a result
of which the underlying shares will be free trading in the hands of the
purchaser(s), a new certificate or other evidence of ownership not bearing the
legend restricting further transfer shall have been delivered by the Corporation
and subsequent public distribution of such securities shall not require
registration under the 1933 Act.
In addition to the above, the Corporation understands and agrees that
if at any time it no longer qualifies as a "foreign issuer" (as defined above)
and should file a Registration Statement with the SEC pursuant to the 1933 Act,
regardless of whether some of the holder(s) of the Compensation Warrants or
Purchase Warrants shall have theretofore availed itself (themselves) of the
right above provided, the Corporation, at its own expense, will timely offer to
said holder(s) the opportunity to register or qualify the aforesaid Shares to be
issued upon the exercise of such warrants provided that such obligation shall be
subject to such restriction as the underwriter(s) may determine including, but
not limited to, a determination by the Underwriter that said Shares shall not be
included in such Registration Statement. This paragraph is not applicable to a
Registration Statement filed by the Corporation with the SEC on Form S-8, or any
other inappropriate form.
The Corporation shall bear all costs and expenses incident to the
registration, qualification, issuance, offer, sale and delivery of the Shares
underlying the said Compensation Warrants and Purchase Warrants, including the
costs and counsel fees of qualification under state securities laws, fees and
disbursements of counsel and accountants for the Corporation, costs for
preparing and printing the Registration Statement, and cost of printing as many
copies of the underwriting documents, Prospectuses and Preliminary Prospectuses
as the selling shareholder(s) may reasonably deem necessary and related
exhibits, including all amendments and supplements to the Registration
Statement. Notwithstanding the foregoing, the holders, and not the Corporation
shall be responsible for all selling discounts or selling commissions applicable
to the sale of any securities so registered, and shall bear all fees and
disbursements of counsel for such
<PAGE>
-21-
holders (other than the cost of fees and expenses of counsel in connection with
the qualification under the state securities laws).
The provisions of Sections 9 and 10 above with respect to
indemnification and contribution shall apply with equal effect to any
liabilities arising out of or in relation to the filing of any Registration
Statement or Blue Sky qualification contemplated in this Section 12.
13. Breach of Agreement - Any breach of, or failure by the Corporation to
comply with, any term or condition of this Agreement shall entitle the
Underwriter, on behalf of itself and the Purchasers to terminate their
respective obligations to purchase the Special Warrants by notice to that effect
given to the Corporation prior to the Time of Closing. In the event of any such
termination, there shall be no further liability on the part of the Corporation
or such Underwriter except in respect of any liability which may have arisen or
may thereafter arise under sections 7, 9 or 10 hereof. The Underwriter may
waive, in whole or in part, or extend the time for compliance with, any terms
and conditions without prejudice to its rights in respect of any other terms and
conditions or any other or subsequent breach or non-compliance provided,
however, that any waiver or extension must be in writing and signed by the
Underwriter in order to be binding upon it.
14. Notices - Any notice under this Agreement shall be given in writing
and either delivered, telecopied or mailed by prepaid registered post to the
party to receive such notice at the address or telecopy numbers indicated below:
to the Corporation:
Bid.Com International Inc.
6725 Airport Road, Suite 201
Mississauga, Ontario
L4V 1V2
Attention: Paul Godin
Fax: (905) 672-7514
with a copy to:
Gowling, Strathy & Henderson
Barristers and Solicitors
Suite 4900, Box 438
Commerce Court West
Toronto, Ontario
M5L 1J3
Attention: Neil J.F. Steenberg
Fax: (416) 862-7661
<PAGE>
-22-
to the Underwriter or any Indemnified Party:
Canaccord Capital Corporation
2200-609 Granville Street
Vancouver, BC
V7Y 1H2
Attention: Jamie Brown
Fax: (604) 643-7606
with a copy to:
Cassels Brock & Blackwell
Barristers and Solicitors
Suite 2100, Scotia Plaza
40 King Street West
Toronto, Ontario
M5H 3C2
Attention: Peter Marrone
Fax: (416) 360-8877
or such other address or telecopy number as such party may hereafter designate
by notice in writing to the other party. If a notice is delivered, it shall be
effective from the date of delivery; if such notice is telecopied (with receipt
confirmed), it shall be effective on the Business Day following the date such
notice is telecopied; if such notice is sent by mail, it shall be effective four
(4) Business Days following the date of mailing, excluding all days when normal
mail service is interrupted.
<PAGE>
-23-
15. Survival - All representations, warranties, and agreements of the
Corporation and the Underwriter contained herein or contained in any document
submitted pursuant to this Agreement or in connection with the purchase of the
Special Warrants shall survive the purchase of the Special Warrants by the
Purchasers and shall continue in full force and effect unaffected by any
subsequent disposition or exercise of the Special Warrants and the Subject
Securities, for a period of two (2) years from the Closing Date, and the
Corporation and the Underwriter shall not be limited or prejudiced by any
investigation made by or on behalf of the Corporation or the Underwriter in the
course of the preparation of the Preliminary Prospectus, the Prospectus or any
Supplementary Material or the distribution of the Special Warrants or the
Subject Securities.
16. Entire Agreement - The provisions herein contained constitute the
entire agreement between the parties hereto and supersede all previous
communications, representations, understandings and agreements between the
parties with respect to the subject matter hereof, whether verbal or written,
including without limitation the engagement letter between the Corporation and
Canaccord dated and accepted by the Corporation on September 15, 1999.
17. Counterparts - The execution of this Agreement may be executed in any
number of counterparts all of which when taken together shall be deemed to be
one and the same document and not withstanding their actual date of execution
shall be deemed to be dated as of the date first above written.
18. General - The Agreement shall be governed by and interpreted in
accordance with the laws of Ontario and the laws of Canada applicable therein
and time shall be of the essence hereof.
If the above is in accordance with your understanding, please sign and
return to the Underwriter a copy of this letter, whereupon this letter and your
acceptance shall constitute a binding agreement between the Corporation and the
Underwriter.
CANACCORD CAPITAL CORPORATION
Per: "Peter Brown "
-------------------------------
The above offer is hereby accepted and agreed to as of the date first
above written.
BID.COM INTERNATIONAL INC.
Per: "Paul Hart "
-------------------------------
<PAGE>
SCHEDULE "A"
TERM SHEET
Issuer: Bid.Com International Inc. (the "Corporation").
Size of Offering: $7,500,001 - $25,000,002
Purchased Securities: A minimum of 810,811 and a maximum of 2,702,703 special
warrants to be sold by the Corporation. Subject to
adjustment in certain events, each Special Warrant
shall be exercisable, for no additional consideration,
to acquire one unit ("Unit"), each Unit consisting of
one common share ("Common Share") and one-half of one
Common Share purchase warrant ("Warrant") of the
Corporation.
Warrants: Each whole Warrant shall entitle the holder thereof to
acquire one Common Share at an exercise price of $12.00
per share for a period of 24 months from the Closing
Date.
Purchase Price: $9.25 per Special Warrant.
Underwriter: Canaccord Capital Corporation
Closing Date: September 30, 1999 or such other date as the
Underwriter and the Corporation may agree (the "Closing
Date").
Selling Jurisdictions: British Columbia, Alberta, Ontario and such other
provinces of Canada agree to by the Corporation and the
underwriter (the "Qualifying Jurisdictions"), offshore
and the United States pursuant to Rule 506 of
Regulation D of the United States Securities Act of
1933, as amended.
Special Warrant The Special Warrants shall be exercisable by the
Exercise: holders thereof at any time and will be automatically
exercised at 5:00 p.m. (Toronto time) on the earlier of
the following dates (such date being the "Expiry
Date"): (i) the fifth business day after a receipt is
issued by the last of the relevant securities
regulatory authorities in the Qualifying Jurisdictions
(the "Securities Regulators") for a (final) prospectus
(the "Final Prospectus") qualifying the Units issuable
on the exercise of the Special Warrants; and (ii) one
year after the Closing Date.
Penalty Events: In the event that the Final Prospectus has not been
filed and receipts issued therefor by the last of the
Securities Regulators on or prior to the date (such
date being hereinafter referred to as the
"Qualification Deadline") that is 90 days after the
Closing Date, each Special Warrant exercised or deemed
to be exercised thereafter shall entitle the holder to
receive 1.1 Units (in lieu of one Unit).
<PAGE>
SCHEDULE "B"
OUTSTANDING CONVERTIBLE OR RESERVED SECURITIES
Reserved for Incentive Stock Options
- ------------------------------------
Total Reserved 4,539,000 shares
- --------------
Reserved for Issue in Connection with Warrants Issued to pursuant to November
- -----------------------------------------------------------------------------
1998 Special Warrant Financing
- ------------------------------
Total Reserved 140,496 shares
- --------------
<PAGE>
SCHEDULE "C"
OPINION OF THE CORPORATION'S COUNSEL
At the Time of Closing, the Underwriter shall receive a favourable
legal opinion from counsel for the Corporation addressed to the Underwriter,
counsel to the Underwriter and the Substituted Purchasers and the Corporation
dated the Closing Date, with respect to the following matters:
(a) the Corporation has been duly amalgamated and is existing under the
laws of the Province of Ontario and has not been dissolved;
(b) the Corporation has all necessary corporate capacity to own, lease and
operate its properties and assets and to conduct its business at and
in the places where such properties and assets are now owned, leased
or operated or such businesses are now conducted;
(c) the authorized capital of the Corporation consists of an unlimited
number of Shares and an unlimited number of Preference Shares,
issuable in series;
(d) the Shares have been allotted and reserved for issue pursuant to the
exercise of the exchange rights of the Special Warrants which when
issued shall be validly issued as fully paid and non-assessable;
(e) the Purchase Warrants have been validly created and allotted and
reserved for issue pursuant to the exercise of the exchange rights of
the Special Warrants which when issued shall be validly issued;
(f) the Shares issuable upon exercise of the Purchase Warrants have been
allotted and reserved for issue pursuant to the exercise of the
Purchase Warrants which when issued shall be validly issued as fully
paid and non-assessable;
(g) all necessary corporate action has been taken by the Corporation to
duly authorize the creation, issuance and sale of the Special Warrants
and the Brokers' Warrants and the Special Warrants and the Brokers'
Warrants have been validly created and issued;
(h) all necessary corporate action has been taken by the Corporation to
duly authorize the creation and issuance of the Compensation Warrants;
(i) the Shares issuable upon exercise of the Compensation Warrants have
been allotted and reserved for issue pursuant to the exercise of the
Compensation Warrants which when issued shall be validly issued as
fully paid and non-assessable;
(j) the form and terms of the definitive certificates representing the
Shares, the Special Warrants, the Purchase Warrants, the Brokers'
Warrants and the Compensation Warrants have been approved and adopted
by the directors of the Corporation and the Share certificates comply
with all legal requirements relating thereto;
<PAGE>
-2-
(k) the Underwriting Agreement, the Subscription Agreements, the Special
Warrant Indenture and the Purchase Warrant Indenture (the
"Agreements") have been duly authorized by all necessary corporate
action on the part of the Corporation, have been duly executed and
delivered by and on behalf of the Corporation and constitute legal,
valid and binding obligations of the Corporation enforceable in
accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally, except that specific
performance and injunction are equitable remedies which may only be
granted in the discretion of a court of competent jurisdiction and
except as rights to indemnity, contribution and waiver of contribution
may be limited under applicable law and except as to other
qualifications as to enforceability as are agreed to by counsel to the
Underwriter;
(l) the execution and delivery of the Agreements, the fulfillment of the
terms hereof and the issuance and sale of the Special Warrants, the
issue of Shares and Purchase Warrants issuable upon exercise of the
exchange rights of the Special Warrants, the issue of the Shares upon
the due exercise of the Purchase Warrants, the issuance of the
Brokers' Warrant, the issuance of the Compensation Warrants upon
exercise of the Brokers' Warrant and the issue of the Shares upon the
due exercise of the Compensation Warrants does not and will not
conflict with and does not and will not result in a breach of, and
does not and will not create a state of facts which after notice or
lapse of time or both will conflict with or result in a breach of, any
of the terms, conditions or provisions of the constating documents or
by-laws of the Corporation or any resolution passed or consented to by
the directors or shareholders of any of them or any trust indenture,
agreement or instrument to which the Corporation is a party or by
which the Corporation is contractually bound including, without
limitation, the Right of First Refusal;
(m) the Warrant Agent at its principal offices in the City of Toronto has
been duly appointed the transfer agent and registrar for the Shares;
(n) the Warrant Agent at its principal office in the City of Toronto has
been duly appointed the warrant agent for the Special Warrants and the
Purchase Warrants;
(o) the issue of the Special Warrants and the Brokers' Warrant being
exempt from the prospectus and registration requirements of applicable
securities laws;
(p) the issuance of the Shares and Purchase Warrants issuable upon
exercise of the exchange rights of the Special Warrants, and the
issuance of the Compensation Warrants upon exercise of the Brokers'
Warrant, the issuance of the Shares upon exercise of the Purchase
Warrants and the Compensation Warrants is exempt from the prospectus
and registration requirements of applicable securities laws;
(q) the resale restrictions applicable to the first trade of the Shares
and Purchase Warrants issued upon exercise of the exchange rights of
the Special Warrants, the Shares issued upon exercise of the Purchase
Warrants and the Shares issued upon exercise of the Compensation
Warrants where the Shares, Purchase Warrants and Compensation Warrants
are qualified pursuant to the Prospectus;
(r) the resale restrictions applicable to the first trade of the Shares
and Purchase Warrants issued upon exercise of the exchange rights of
the Special Warrants, the Shares issued upon exercise of the Purchase
Warrants and the Shares issued upon exercise of the Compensation
Warrants where no Prospectus has been filed in connection therewith;
<PAGE>
-3-
(s) as to such other matters as counsel to the Underwriter may request.
Any modifications of the foregoing shall be subject to the approval of
the Underwriter and its counsel acting reasonably. The delivery of a definitive
opinion at the Time of Closing accepted by the Underwriter and its such
modifications.
<PAGE>
SCHEDULE "D"
UNITED STATES OFFER OF SALES
As used in this Schedule D, capitalized terms used herein and not defined
herein shall have the meaning ascribed thereto in the underwriter agreement to
which this Schedule is annexed and the following terms shall have the meanings
indicated:
(a) "Directed Selling Efforts" means directed selling efforts as that term
is defined in Regulation S. Without limiting the foregoing, but for
greater clarity in this Schedule, it means, subject to the exclusions
from the definition of directed selling efforts contained in
Regulation S, any activity undertaken for the purpose of, or that
could reasonably be expected to have the effect of, conditioning the
market in the United States for any of the Special Warrants and
includes the placement of any advertisement in a publication with a
general circulation in the United States that refers to the offering
of the Special Warrants;
(b) "Accredited Investor" means an accredited investor as that term is
defined in Rule 501(a) of Regulation D;
(c) "Regulation D" means Regulation D adopted by the SEC under the 1933
Act;
(d) "Regulation S" means Regulation S adopted by the SEC under the 1933
Act;
(e) "SEC" means the United States Securities and Exchange Commission;
(f) "Substantial U.S. Market Interest" means substantial U.S. market
interest as that term is defined in Regulation S;
(g) "1933 Act" means the United States Securities Act of 1933, as amended;
(h) "U.S. Exchange Act" means the United States Securities Exchange Act of
1934, as amended;
(i) "U.S. Person" means a U.S. person as that term is defined in
Regulation S; and
(j) "United States" means the United States of America, its territories
and possessions, any state of the United States, and the District of
Columbia.
Representations, Warranties and Covenants of the Underwriter
- ------------------------------------------------------------
The Underwriter acknowledges that the Special Warrants have not been and will
not be registered under the 1933 Act and may be offered and sold only in
transactions exempt from or not subject to the registration requirements of the
1933 Act. Accordingly, the Underwriter represents, warrants and covenants to
the Corporation that:
1. It has not offered and sold, and will not offer and sell, any Special
Warrants except (a) in an offshore transaction in accordance with Rule 903
of Regulation S or (b) within the United States as provided in paragraphs 2
through 9 below. Accordingly, neither the Underwriter, its affiliates nor
any persons acting on its or their behalf, has made or will make (except as
permitted in paragraphs 2 through 9 below) (i) any offer to sell or any
solicitation of an offer to buy, any Special Warrants to any U.S. Person or
any person in the United States, (ii) any sale of Special Warrants to any
purchaser unless, at the time the
<PAGE>
-2-
buy order was or will have been originated, the purchaser was outside the
United States, or such Underwriter, affiliate or person acting on behalf of
either reasonably believed that such purchaser was outside the United
States, or (iii) any Directed Selling Efforts in the United States with
respect to the Special Warrants. Terms used in this paragraph have the
meanings given to them by Regulation S.
2. It has not entered and will not enter into any contractual arrangement with
respect to the distribution of the Special Warrants, except with its
affiliates, any selling group members or with the prior written consent of
the Corporation. It shall require each selling group member to agree, for
the benefit of the Corporation, to comply with, and shall use its best
efforts to ensure that each selling group member complies with, the same
provisions of this Schedule as apply to such Underwriter as if such
provisions applied to such selling group member.
3. All offers and sales of Special Warrants in the United States shall be made
through the Underwriter's U.S. registered broker-dealer affiliate in
compliance with all U.S. federal and state broker-dealer requirements
applicable to the Underwriter and such affiliate in connection with such
offers and sales.
4. Offers and sales of Special Warrants in the United States shall not be made
(i) by any form of general solicitation or general advertising (as those
terms are used in Regulation D), including advertisements, articles,
notices or other communications published in any newspaper, magazine, or
similar media or broadcast over radio or television, or any seminar or
meeting whose attendees had been invited by general solicitation or general
advertising or (ii) in any manner involving a public offering within the
meaning of Section 4(2) of the 1933 Act.
5. Any offer, sale or solicitation of an offer to buy Special Warrants that
has been made or will be made in the United States was or will be made only
to Accredited Investors and in transactions that are exempt, from
registration under applicable state securities laws.
6. The Underwriter, acting through its U.S. broker-dealer affiliate, may offer
the Special Warrants in the United States only to offerees with respect to
which such Underwriter has reasonable grounds to believe are Accredited
Investors.
7. Prior to completion of any sale to the Time of Closing, it will provide the
transfer agent with a list of all purchasers of the Special Warrants in the
United States.
8. At least one business day prior to the Time of Closing, it will provide the
transfer agent with a list of all purchasers of the Special Warrants in the
United States.
9. At Closing, it together with its U.S. affiliate selling Special Warrants in
the United States, will provide a certificate, substantially in the form of
Appendix I to this Schedule, relating to the manner of the offer and sale
of the Special Warrants in the United States.
10. Each certificate evidencing a Special Warrant sold to a person in the
United States will contain a legend substantially to the effect that:
"The securities represented by this certificate and the securities which
may be issued upon exercise of this certificate have not been registered
under the Unites States Securities Act of 1933, as amended, or any other
state securities laws, may not be sold, pledged or hypothecated in the
absence of an effective registration statement under said act or such laws
or an opinion of counsel to the Company to the effect that such transfer is
exempt from registration under all applicable securities laws."
<PAGE>
-3-
Representations, Warranties and Covenants of the Corporation
- ------------------------------------------------------------
The Corporation represents, warrants, covenants and agrees that:
1. The Corporation is a "foreign issuer" with the meaning of Regulation S and
there is no Substantial U.S. Market Interest in the Special Warrants, the
Warrants or the Common Shares.
2. The Corporation (i) is not, and as a result of the sale of the Special
Warrants contemplated hereby will not be, an "investment company" as
defined in the United States Investment Company Act of 1940, as amended or
(ii) shall take all such reasonable steps to ensure that it is not an
"investment company".
3. Except with respect to offers and sales to Accredited Investors within the
United States in reliance upon any exemption from registration under
Section 4(2) of the 1933 Act and Rule 506 thereunder, neither the
Corporation nor any of its affiliates, nor any person acting on its behalf,
has made or will make: (A) any offer to sell, or any solicitation of an
offer to buy, any Special Warrants to a U.S. Person or a person in the
United States; or (B) any sale of Special Warrants unless, at the time the
buy order was or will have been originated, the purchaser is (i) outside
the United States or (ii) the Corporation, its affiliates, and any person
acting on their behalf reasonably believes that the purchaser is outside
the United States.
4. During the period in which the Special Warrants are offered for sale,
neither it nor any of its affiliates, nor any person acting on its or their
behalf (i) has made or will make any Directed Selling Efforts in the United
States, or (ii) has engaged in or will engage in any form of general
solicitation or general advertising (as those terms are used in Regulation
D) with respect to offers or sales of the Special Warrants in the United
States, including advertisements, articles, notices or other communications
published in any newspaper, magazine or similar media, or broadcast over
radio, or television, or any seminar or meeting whose attendees have been
invited by general solicitation or general advertising.
5. Except with respect to the offer and sale of the Special Warrants offered
hereby and offers and sales of common shares of the Corporation pursuant to
the Corporation's employee benefit plans, the Corporation has not, for a
period of six months prior to the date hereof sold, offered for sale or
solicited any offer to buy any of its securities in the United States.
<PAGE>
APPENDIX I
TO SCHEDULE "D"
UNDERWRITERS' CERTIFICATE
In connection with the private placement in the United States of the
Special Warrants (the "Warrants") of Bid.Com International Inc. (the
"Corporation") pursuant to the Underwriting Agreement, dated September 30, 1999
(the "Underwriting Agreement"), among the Corporation and Canaccord Capital
Corporation (the "Underwriter"), the undersigned does hereby certify as follows:
(i) the U.S. affiliate of the Underwriter who offered or sold Warrants in the
United States is a duly registered broker or dealer with the United States
Securities and Exchange Commission and is a member of and in good standing with
the National Association of Securities Dealers, Inc. on the date hereof and is
registered, qualified or otherwise exempt from registration or qualification as
a broker or dealer in each state in which Warrants have been or will be offered
or sold;
(ii) immediately prior to offering Warrants to such offerees, we had reasonable
grounds to believe and did believe that each offeree was an "accredited
investor" as defined in Rule 501(a)of Regulation D (an "Accredited Investor")
under the Securities Act of 1933, as amended (the "1933 Act"), and, on the date
hereof, we continue to believe that each U.S. person purchasing Warrants is an
Accredited Investor;
(iii) no form of general solicitation or general advertising (as those terms are
used in Regulation D under the 1933 Act) was used by us, including
advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio or television, or
any seminar or meeting whose attendees had been invited by general solicitation
or general advertising, in connection with the offer or sale of the Warrants in
the United States;
(iv) the offering of the Warrants in the United States has been conducted by us
through our U.S. affiliate in accordance with the terms of the Underwriting
Agreement; and
(v) prior to any sale of Warrants in the United States pursuant to Section
4(2) and Rule 506 thereunder, we caused each U.S. purchaser to execute a U.S.
Subscription Agreement.
Terms used in this certificate have the meanings given to them in the
Underwriting Agreement unless otherwise defined herein.
Dated this day of September, 1999.
CANACCORD CAPITAL CORPORATION
on behalf of itself and its U.S. affiliate
By:________________________________
Name:
Title:
<PAGE>
Exhibit 3.2
BID.COM INTERNATIONAL INC.
- and -
CIBC MELLON TRUST COMPANY
_________________________________________________________
Warrant Indenture
Providing for the Issue of Common Share Purchase Warrants
dated as of September 30, 1999
_________________________________________________________
THIS Warrant Indenture dated as of the 30th day of September, 1999, is made
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B E T W E E N:
BID.COM INTERNATIONAL 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 1,621,621
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
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1.1 Definitions: In this Indenture, unless there is something in the subject
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matter or context inconsistent therewith, the following words have the
respective meanings indicated below:
(a) "Agent" has the meaning specified above and includes a successor agent
determined in accordance with Section 9.8;
(b) "Broker Warrants" means the 270,270 broker warrants of the Corporation
created and issued by the Corporation to the Underwriter entitling the
Underwriter to acquire one Common Share and one-half of one Warrant;
(c) "Business Day" means a day which is not a Saturday, Sunday or civic or
statutory holiday in the Province of Ontario;
<PAGE>
(d) "Closing Date" means September 30, 1999, being the date of the closing
of the completion of the issue and sale by the Corporation of the
Special Warrants;
(e) "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;
(f) "Corporation's auditors" means Deloitte & Touche or such other
chartered accountant or firm of chartered accountants duly appointed
as auditor or auditors of the Corporation from time to time and
acceptable to the Agent;
(g) "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;
(h) "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;
(i) "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 provide
that such dividends in the aggregate do not exceed 50% of the
consolidated net income of the Corporation for its immediately
preceding financial year determined in accordance with Canadian
generally accepted accounting principles 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;
(j) "Exercise Date" has the meaning ascribed to it in section 5.2;
(k) "Exercise Form" means the exercise form accompanying a Warrant
Certificate;
(l) "Exercise Number" means the number of Common Shares which may be
received from time to time on exercise of a Warrant;
(m) "Expiry Date" means September 30, 2001;
(n) "Expiry Time" means 5:00 p.m., Toronto time, on the Expiry Date;
(o) "Extraordinary Resolution" has the meaning ascribed to it in Section
7.10;
(p) "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;
<PAGE>
(q) "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;
(r) "Purchase Price" means $12.00 per Common Share;
(s) "Qualifying Provinces" means the Province of Ontario and such other
jurisdictions in Canada in which purchasers of Special Warrants are
resident;
(t) "Regulation S" means Regulation S under the U.S. Securities Act (as
hereinafter defined);
(u) "Special Warrants" means collectively the special warrants of the
Corporation issued pursuant to a Special Warrant Indenture dated as of
September 30, 1999 (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 December 29,
1999, each Unit shall consist of 1.1 Common Shares and 0.55 Warrants
(in lieu of one Common Share and one-half a Warrant);
(v) "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;
(w) "TSE" means The Toronto Stock Exchange;
(x) "Underwriter" means Canaccord Capital Corporation;
(y) "U.S. Person" means a U.S. person as that term is defined in
Regulation S;
(z) "U.S. Securities Act" means the Securities Act of 1933, as amended, of
the United States;
(aa) "United States" means the United States as that term is defined in
Regulation S;
(bb) "Warrant Certificate" means a warrant certificate in the form of
warrant certificate attached hereto as Schedule "A";
<PAGE>
(cc) "Warrantholder" or "holder" means the registered holder of a Warrant
hereunder;
(dd) "Warrantholders' Request" means an instrument signed in one or more
counterparts by Warrantholders holding in the aggregate not less than
10% of the then outstanding Warrants which requests the Warrant Agent
to take some action or proceeding specified therein;
(ee) "Warrants" means warrants to be created and issued by the Corporation
upon exercise of the Special Warrants or exercise of the Broker
Warrants issued to the Underwriter 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;
(ff) "Weighted Average Price" in respect of a Common Share at any date
means the weighted average trading price of the Common Shares on the
principal stock exchange upon which the Common Shares are then listed
or if the Common Shares are not listed on any stock exchange, then on
the principal over-the-counter market or quotation system on which the
Common Shares are listed for quotation. 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
Corporation's auditors; and
(gg) "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
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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,
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Subsections, paragraphs and other subdivisions 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.
<PAGE>
1.4 Extending Meanings: In this Indenture, whenever the context permits or
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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
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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.
1.6 Business Day: In the event that any day on or before which any action
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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
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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
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hereunder.
1.9 Choice of Language: The parties hereby acknowledge that they have
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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
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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
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2.1 Form and Terms of Warrants: (1) Subject to the provisions hereof, up
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to an aggregate of 1,621,621 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
<PAGE>
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
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 engraved, lithographed, printed or partly in one
form and partly another 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.
(3) Each Warrant certificate originally issued to a U.S. Person or person
within the United States, as well as all certificates issued in exchange for or
in substitution of the foregoing securities, 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 "U.S. SECURITIES ACT"), AND MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED ONLY (A) TO THE COMPANY, (B) OUTSIDE
THE UNITED STATES IN ACCORDANCE WITH RULE 904 OF REGULATION
S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH ANY
APPLICABLE STATE SECURITIES LAWS, (C) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE, AND IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D)
UPON RECEIPT OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO THE CORPORATION THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT AND ALL
APPLICABLE U.S. STATE SECURITIES LAWS.
(4) Fractional Warrants Share not be issued or otherwise provided for.
2.2 Transfer and Ownership of Warrants: (1) The Agent shall maintain a
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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,
the Underwriter 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 or the Underwriter furnish
the Corporation or the Underwriters, as the case may be, with a list of the
names and addresses of holders of
<PAGE>
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 Certificate to be issued and sent to the new holder and the Agent shall
alter its register of holders accordingly.
(4) Warrants may not be transferred to U.S. Persons or persons within the
United States, subject to subsection 2.2(5).
(5) Notwithstanding subsection 2.2(4), if a Warrant certificate tendered
for transfer bears the legend set forth in subsection 2.1(3):
(i) the transfer may be made to a U.S. Person or persons within the United
States, provided that the transfer is made in accordance with the
terms of such legend and provided further that the Warrant certificate
issued to such transferee shall also bear such legend; or
(ii) if the Warrant represented by such Warrant Certificate are being sold
outside the United States under Rule 904 of Regulation S, the legend
may be removed by the transferor providing an opinion of counsel
reasonably acceptable to the
<PAGE>
Corporation that such transfer is exempt from registration under the
U.S. Securities Act and all applicable U.S. State securities laws. The
Warrant Agent shall be protected in acting and relying solely on the
addresses provided by the transferor for these purposes.
(6) 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
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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
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manually or by facsimile signature by any one director or officer of the
Corporation and may, but need not be, under its corporate seal. 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,
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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
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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>
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,
acting reasonably, and such applicant shall also be required to furnish an
indemnity bond in amount and form satisfactory to the Corporation and the Agent
in their discretion, acting reasonably, 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
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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,
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whatever may be the actual date of same.
2.9 Exchange of Warrants:
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(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 made by the party
requesting such exchange as a condition precedent to such exchange.
<PAGE>
2.10 Recognition of Registered Holder: The Corporation and the Agent may deem
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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
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3.1 Covenants of the Corporation: The Corporation represents, warrants,
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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
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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 the 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
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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 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.
<PAGE>
(c) To Execute Further Assurances: That it will do, execute, acknowledge
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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
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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 9.2, 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
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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
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will carry on and conduct its business in accordance with good
business practice.
(h) Listing: The Corporation will use its reasonable best efforts to
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maintain the listing of the Common Shares on the TSE and NASDAQ 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 Provinces.
(i) Action During Period of Notice: It will not take any other action
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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.
3.2 Securities Qualification Requirements:
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(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
<PAGE>
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
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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
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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;
(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 and the denominator of which shall be the number of
Common Shares issued and outstanding on such record date.
<PAGE>
(b) Rights Offering: If the Corporation shall distribute to all or
----------------
substantially all of its shareholders resident in Canada 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
(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
<PAGE>
(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 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 of the Common Shares determined
as of the record date for such distribution;
(iii)evidences of indebtedness; or
(iv) any other assets;
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
<PAGE>
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 of the 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 of the 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,
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
<PAGE>
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 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
(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) .
(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
<PAGE>
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 a special distribution, 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
TSE and NASDAQ, or such other stock exchange upon which the Common
Shares of the Corporation are then listed.
<PAGE>
(d) 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.
(e) 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.
(f) Subject to subsection 4.3(h), 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 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, no increase shall be made to the Purchase
Price and no decrease shall be made to the Exercise Number.
(g) 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 and the Purchase Price,
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, no increase shall be made to the Purchase Price and
no decrease shall be made to the Exercise Number.
(h) 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>
which may, in the opinion of counsel, be necessary in order that the Corporation
shall have allotted and reserved for issue in the authorized capital of the
Corporation to enable 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 Corporation's auditors
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 the record date or effective date, as the case may be,
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;
<PAGE>
(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 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
<PAGE>
Exercise Form) or by mailing the same 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). 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.
(7) Certificates representing the Common Shares issued to U.S. Persons
pursuant to the exercise of the Warrant certificate bearing the legend set forth
in subsection 2.1(3) shall also bear such legend:
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 AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE U.S. SECURITIES ACT AND ALL APPLICABLE U.S.
STATE SECURITIES LAWS.
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
<PAGE>
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 three (3) Business Days
after the Exercise Date of such Warrant, the Corporation shall:
(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 three (3) 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
<PAGE>
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.
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 ten percent (10%) 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
ten percent (10%) 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, the Underwriter
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
<PAGE>
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 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;
<PAGE>
(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.
(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 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
<PAGE>
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 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>
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, Underwriters, Warrantholders and Agent May be Represented:
----------------------------------------------------------------------
The Corporation, the Underwriter 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 funding and
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 meeting of Warrantholders for the purpose of
determining a quorum or have concurred in any
<PAGE>
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 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) 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 relying 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 relying 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 relying on the advice 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,
<PAGE>
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 any of
the 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 of the Corporation 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 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 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.
<PAGE>
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 9.2(a), 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 request in writing signed by a Warrantholder (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 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
<PAGE>
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.
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, act and rely as to the truth of the statements and
the accuracy of the opinions expressed therein, upon statutory
declarations, opinions, reports, written requests,
<PAGE>
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 9.3(a) 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:
--------------------------------------
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.
<PAGE>
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, including any legal fees and disbursements, save only in the
event of negligence or wilful misconduct of the Agent or any of its
officers, directors, employees or agents. It is 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 30
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
<PAGE>
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 9.8(a).
(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
<PAGE>
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:
------------------
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 6725 Airport Road, Suite
201, Mississauga, Ontario, L4V 1V2, 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
------------------------
Agent of a change of address, any notice or communication required or permitted
to be given to a
<PAGE>
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 320 Bay Street, Ground
Floor, Toronto, Ontario M5H 4A6, or sent by telecopier to telecopier number
(416) 643-5570 (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 320 Bay Street, P.O. Box 1, Toronto, Ontario M5H 1A6. 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 by hand or by
courier to Special Projects, Securities Level, Commerce Court West, 199 Bay
Street, Toronto, Ontario M5L 1G9 or if mailed by prepaid mail to P.O. Box 1036,
Adelaide Postal Station, Toronto, Ontario M5C 2K4, 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
<PAGE>
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 are
------------------
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 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 any of 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) a Warrantholders Request shall have
made 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.
<PAGE>
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>
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 September 30, 1999
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 30th day of September, 1999.
BID.COM INTERNATIONAL INC.
Per:
CIBC MELLON TRUST COMPANY
Per:
Per:
<PAGE>
SCHEDULE "A"
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 SEPTEMBER 30, 2001.
BID.COM 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 September 30, 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 $12.00, 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 (the "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.
The Warrants represented by this certificate are issued under and pursuant
to a Warrant Indenture (the "Indenture") made as of September 30, 1999 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.
<PAGE>
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 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
Indenture.
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 it 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. Neither the Warrants represented by this
certificate nor the Common Shares issuable upon the exercise thereof have been
or will be registered under the United States Securities Act of 1933, as amended
(the "U.S. Securities Act"). Subject to certain limited exceptions, neither the
Warrants represented by this certificate nor the Common Shares issuable upon the
exercise thereof may be transferred to, or for the account or benefit of, a U.S.
Person or person in the United States (as such terms are defined in Regulation S
under the U.S. Securities Act).
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
<PAGE>
persons or shall establish to the satisfaction of the Agent that such taxes and
charges have been paid or are not exigible.
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 WITNESS WHEREOF the Corporation has caused this Warrant Certificate to
be signed by its duly authorized officer as of September 30, 1999
BID.COM INTERNATIONAL INC.
Per:___________________________
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 BID.COM 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: P.O. Box 1036
Adelaide Street Postal Station
Toronto, Ontario
M5C 2K4
If by hand or courier: Special Projects
Securities Level
Commerce Court West
199 Bay Street
Toronto, Ontario
M5L 1G9
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: BID.COM INTERNATIONAL INC.
The undersigned hereby exercises the right to subscribe for _________
Common Shares in the capital of BID.COM 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 $12.00
(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, and do(es)
hereby irrevocably constitute and appoint ________________________________
________________________ 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 or by a member recognized under the Medallion Signature Guarantee
Program, any of whose signature must be on file with the Agent.
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 1................................................................................. INTERPRETATION 2
--------------
1.1 Definitions................................................................................... 2
-----------
1.2 Entire Indenture.............................................................................. 5
----------------
1.3 Headings...................................................................................... 5
--------
1.4 Extending Meanings............................................................................ 6
------------------
1.5 References.................................................................................... 6
----------
1.6 Business Day.................................................................................. 6
------------
1.7 Meaning of.................................................................................... 6
----------
1.8 Time.......................................................................................... 6
----
1.9 Choice of Language............................................................................ 6
------------------
1.10 Applicable Law:............................................................................... 6
--------------
ARTICLE 2...................................................................ISSUE AND PURCHASE OF WARRANTS 6
------------------------------
2.1 Form and Terms of Warrants:................................................................... 6
--------------------------
2.2 Transfer and Ownership of Warrants: (1)....................................................... 7
----------------------------------
2.3 Warrantholders not Shareholders:.............................................................. 9
-------------------------------
2.4 Signing of Warrants:.......................................................................... 9
-------------------
2.5 Countersigning:............................................................................... 9
--------------
2.6 Loss, Mutilation, Destruction or Theft of Warrants:........................................... 9
--------------------------------------------------
2.7 Issue of Warrants:............................................................................ 10
-----------------
2.8 Warrants to Rank Pari Passu:.................................................................. 10
---------------------------
2.9 Exchange of Warrants:......................................................................... 10
--------------------
2.10 Recognition of Registered Holder:............................................................. 11
--------------------------------
ARTICLE 3.....................................................................COVENANTS OF THE CORPORATION 11
----------------------------
3.1 Covenants of the Corporation:................................................................. 11
----------------------------
3.2 Securities Qualification Requirements:........................................................ 12
-------------------------------------
ARTICLE 4................................................................ADJUSTMENT TO SUBSCRIPTION RIGHTS 13
---------------------------------
4.1 Adjustment to Subscription Rights:............................................................ 13
---------------------------------
4.2 Adjustment of Purchase Price:................................................................. 17
----------------------------
4.3 Adjustment Rules:............................................................................. 18
----------------
4.4 Proceedings Prior to any Action Requiring Adjustment:......................................... 19
----------------------------------------------------
4.5 Certificate of Adjustment:.................................................................... 20
-------------------------
4.6 Notice of Special Matters:.................................................................... 20
-------------------------
4.7 No Action after Notice:....................................................................... 20
----------------------
4.8 Protection of Agent:.......................................................................... 20
-------------------
ARTICLE 5............................................................EXERCISE AND CANCELLATION OF WARRANTS 21
-------------------------------------
5.1 Exercise of Warrants:......................................................................... 21
--------------------
5.2 Effect of Exercise of Warrants................................................................ 22
------------------------------
5.3 Postponement of Delivery of Certificates:..................................................... 23
----------------------------------------
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:....................................................... 24
--------------------------------------
ARTICLE 6...................................................................................NON-REDEMPTION 24
--------------
6.1 Non-Redemption of Warrants:................................................................... 24
--------------------------
ARTICLE 7.......................................................................MEETINGS OF WARRANTHOLDERS 24
--------------------------
7.1 Convening of Meeting:......................................................................... 24
--------------------
7.2 Notice:....................................................................................... 24
------
7.3 Chairman:..................................................................................... 25
--------
7.4 Quorum:....................................................................................... 25
------
7.5 Show of Hands:................................................................................ 25
-------------
7.6 Poll:......................................................................................... 25
----
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
7.7 Regulations:.................................................................................. 25
-----------
7.8 Minutes:...................................................................................... 26
-------
7.9 Powers Exercisable by Extraordinary Resolution:............................................... 26
----------------------------------------------
7.10 Meaning of.................................................................................... 27
----------
7.11 Powers Cumulative:............................................................................ 28
-----------------
7.12 Corporation, Underwriters, 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 29
-------------------------------------------
8.1 Provision for Supplemental Indentures for Certain Purposes:................................... 29
-----------------------------------------------------------
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 31
--------------------
9.1 Trust Indenture Legislation:.................................................................. 31
---------------------------
9.2 Rights and Duties of Agent:................................................................... 31
--------------------------
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:.......................................................... 33
-----------------------------------
9.7 Protection of Agent:.......................................................................... 34
-------------------
9.8 Replacement of Agent:......................................................................... 34
--------------------
9.9 Conflict of Interest:......................................................................... 35
--------------------
9.10 Acceptance of Trusts:......................................................................... 35
--------------------
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:........................................................................ 36
---------------------
10.2 Notice to Warrantholders:..................................................................... 36
------------------------
10.3 Notice to Agent:.............................................................................. 37
---------------
10.4 Mail Service Interruption:.................................................................... 37
-------------------------
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............................................................................. 38
-----------------
12.3 Further Assurances:........................................................................... 39
------------------
12.4 Severability:................................................................................. 39
------------
12.5 Satisfaction and Discharge of Indenture....................................................... 40
---------------------------------------
12.6 Formal Date and Execution Date:............................................................... 40
-------------------------------
12.7 Counterparts:................................................................................. 40
------------
12.8 Enurement:.................................................................................... 40
---------
</TABLE>
<PAGE>
EXHIBIT 3.3
THIS SPECIAL WARRANT INDENTURE
made as of the 30th day of September, 1999.
B E T W E E N:
BID.COM INTERNATIONAL INC., a
corporation constituted under the laws of the
Province of Ontario, Canada
(hereinafter called the "Corporation")
-- and--
CIBC MELLON TRUST COMPANY, a trust
company incorporated under the laws of Canada
(hereinafter called the "Special Warrant Agent")
WHEREAS:
A. The Corporation proposes to issue and sell by means of a private placement
up to 2,702,703 special warrants (the "Special Warrants"). Subject to adjustment
in certain events, each Special Warrant entitles the holder thereof to receive
one (1) unit ("Unit"). Each Unit consists of one common share ("Common Share")
and one half of one Common Share purchase warrant ("Share Purchase Warrant"), in
the capital of the Corporation, all upon the terms and conditions herein set
forth;
B. For such purpose the Corporation, deems it necessary to create and issue
the Special Warrants as provided for in this Indenture;
C. The Corporation is duly authorized to create and issue the Special Warrants
to be created and issued, as herein provided;
D. All things necessary have been done and performed to make the Special
Warrants, when certified by the Special Warrant Agent and issued as in this
Indenture provided, legal, valid and binding upon the Corporation with the
benefits of, and subject to the terms of, this Indenture;
E. The foregoing recitals are made as representations and statements of fact
by the Corporation and not by the Special Warrant Agent.
<PAGE>
NOW THEREFORE for good and valuable consideration mutually given and
received, the receipt and sufficiency of which is hereby acknowledged, it is
hereby agreed and declared 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 phrases and words have the
respective meanings indicated opposite them as follows:
(1) "Applicable Legislation" has the meaning ascribed thereto in
subsection 8.1(a);
(2) "Business Day" means a day which is not a Saturday or Sunday or
statutory holiday in any of the cities where special warrant
certificates may be submitted to the Special Warrant Agent pursuant to
subsection 3.1 hereof;
(3) "Capital Reorganization" has the meaning ascribed thereto in section
2.13;
(4) "Closing Date" means September 30, 1999.
(5) "Common Shares" means fully paid and non-assessable common shares in
the capital of the Corporation as currently constituted;
(6) "Corporation" means Bid.Com International Inc., a corporation
constituted under the laws of the Province of Ontario, Canada;
(7) "Corporation's auditors" means Deloitte & Touche or such other
chartered accountant or firm of chartered accountants duly appointed
as auditor or auditors of the Corporation from time to time and
acceptable to the Special Warrant Agent;
(8) "Counsel" means Corporation's counsel or such other firm of barristers
and solicitors retained by the Special Warrant Agent from time to
time;
(9) "Corporation's counsel" means Gowling, Strathy & Henderson or such
other barrister or solicitor or firm of barristers and solicitors
retained by the Corporation from time to time and acceptable to the
Special Warrant Agent;
(10) "director" means a director of the Corporation for the time being and,
unless otherwise specified herein, reference to "action by the
directors" means action by the directors of the Corporation as a board
or, whenever duly empowered, action by a committee of such board;
<PAGE>
(11) "Exercise Date" means the day upon which a Special Warrant is
exercised pursuant to the provisions of Section 3.1 or deemed to be
exercised pursuant to Section 3.1(b);
(12) "Expiry Time" means 5:00 p.m. (Toronto time) on the earlier of: (i)
the fifth Business Day after the Qualification Date; and (ii) the day
which is 12 months following the Closing Date;
(13) "extraordinary resolution" has the meaning ascribed thereto in Section
6.11 and 6.14;
(14) "Final Prospectus" means the (final) prospectus of the Corporation
relating to the distribution of the Subject Securities in the
Qualifying Jurisdictions;
(15) "NASDAQ" means the National Market of the National Association of
Securities Dealers Automated Quotation System in the United States;
(16) "person" includes an individual, a corporation, a partnership, any
unincorporated organization or any other juridical entity and words
importing persons have a similar meaning;
(17) "Preliminary Prospectus" means the preliminary prospectus of the
Corporation relating to the distribution of the Subject Securities in
the Qualifying Jurisdictions;
(18) "Qualification Date" means the date of issuance of a receipt or
similar document by the last of the Securities Administrators to issue
a receipt or similar document for the Final Prospectus;
(19) "Qualification Deadline" means the date which is 90 days after the
Closing Date;
(20) "Qualification Default" means the failure on the part of the
Corporation to obtain a receipt for the Final Prospectus from the
Securities Administrators in each of the Qualifying Jurisdictions, on
or before 5:00 p.m. (Toronto time) on the Qualification Deadline;
(21) "Qualifying Jurisdictions" means the Province of Ontario and any such
additional provinces in which purchasers of the Special Warrants are
resident;
(22) "Regulation S" means Regulation S under the U.S. Securities Act (as
hereinafter defined);
<PAGE>
(23) "Securities Administrators" means collectively the securities
commission or comparable authority in each of the Qualifying
Jurisdictions;
(24) "Share Purchase Warrants" means the warrants issuable upon the
exercise or deemed exercise of the Special Warrants subject to the
terms and conditions of the Share Purchase Warrant Indenture which
indenture shall govern the entitlement of a holder to acquire one (1)
Common Share at $12.00 at any time prior to 5:00 p.m. (Toronto time)
on the day which is 24 months following the Closing Date;
(25) "Share Purchase Warrant Indenture" means the indenture dated as of
even date herewith among the Corporation and CIBC Mellon Trust Company
as Agent pursuant to which the Share Purchase Warrants will be issued;
(26) "Shareholder" means a holder of record of one or more Common Shares;
(27) "Special Warrant Agent" means CIBC Mellon Trust Company and its lawful
successors and permitted assigns for the time being in the trusts
hereby created;
(28) "Special Warrantholder" or "holder" means a person whose name is
entered for the time being in the register maintained by the Special
Warrant Agent pursuant to subsection 2.8(a);
(29) "Special Warrantholders' Request" means an instrument signed in one or
more counterparts by Special Warrantholders holding in the aggregate
not less than 10% of the then outstanding Special Warrants which
requests the Special Warrant Agent to take some action or proceeding
specified therein;
(30) "Special Warrants" mean the 2,702,703 special warrants of the
Corporation being created hereunder and issued and sold by the
Corporation pursuant to the Underwriting Agreement, each entitling the
registered holder thereof to receive one Unit, each unit consisting of
one (1) Common Share and one-half (1/2) of one Share Purchase Warrant
for each special warrant on the exercise of such special warrant or
such other kind and amount of shares or other securities or property
calculated or otherwise determined pursuant to Sections 2.13 and 2.14
or subsection 2.2(c) hereof as the case may be, on the exercise of
each such special warrant; and
(31) "Subject Securities" means the Common Shares and Share Purchase
Warrants issuable upon the exercise of the Special Warrants, including
the Common Shares and Share Purchase Warrants or other securities or
property issuable upon the exercise of the Special Warrants as a
result of any adjustment of subscription rights pursuant to Sections
2.13 and 2.14 or subsection 2.2(c) hereof;
<PAGE>
(32) "successor corporation" has the meaning ascribed thereto in Section
7.2;
(33) "this Special Warrant Indenture", "this Indenture", "herein", "hereby"
and similar expressions mean and refer to this Indenture and any
indenture, deed or instrument supplemental or ancillary hereto; and
the expressions "Article", "Section", "subsection" and "clause"
followed by a number mean and refer to the specified Article, Section,
subsection or clause of this Indenture;
(34) "Transfer Agent" means the transfer agent or agents for the time being
of the Common Shares;
(35) "TSE" means the Toronto Stock Exchange;
(36) "Underwriting Agreement" means the underwriting agreement made as of
the date hereof between the Underwriter and the Corporation;
(37) "Underwriter" means, Canaccord Capital Corporation; and
(38) "U.S. Person" means a U.S. person as that term is defined in
Regulation S;
(39) "U.S. Securities Act" means the Securities Act of 1933, as amended, of
the United States;
(40) "United States" means the United States as that term is defined in
Regulation S;
(41) "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 Number and Gender
Unless elsewhere otherwise expressly provided or unless the context
otherwise requires, words importing the singular include the plural and vice
versa and words importing the masculine gender include the feminine and neuter
genders.
<PAGE>
1.3 Interpretation Not Affected by Headings, etc.
The division of this Indenture into Articles, Sections, subsections and
clauses, 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.
1.4 Business Day
In the event that any day on or before which any action is required or
permitted to be taken hereunder is not a Business Day, then such action shall be
required or permitted to be taken on or before the requisite time on the next
succeeding day that is a Business Day.
1.5 Time of the Essence
Time shall be of the essence in all respects in this Indenture.
1.6 Applicable Law
This Indenture and the Special Warrants shall be governed by and construed
in accordance with the laws of the Province of Ontario and the federal law
applicable therein and shall be treated in all respects as Ontario contracts.
1.7 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.
1.8 Currency
Unless otherwise stated, all dollar amounts referred to in this Indenture
are in Canadian dollars.
ARTICLE 2-ISSUE OF SPECIAL WARRANTS
2.1 Issue of Special Warrants
A total of 2,702,703 Special Warrants entitling the registered holders
thereof to acquire up to an aggregate of 2,702,703 Common Shares and 1,351,352
Share Purchase Warrants (subject to adjustments as provided in Sections 2.13 and
2.14 or subsection 2.2(c) hereof) are hereby created and authorized to be issued
hereunder upon the terms and conditions herein set
<PAGE>
forth and shall be executed by the Corporation as to 2,702,703 Special Warrants,
certified by or on behalf of the Special Warrant Agent and delivered by it in
accordance with and upon receipt of a written order of the Corporation.
2.2 Form and Terms of Special Warrants
(a) The Special Warrant certificates for the 2,702,703 Special Warrants shall
be substantially in the form set out in Article 9, shall be dated as of the
date of this Indenture (regardless of their actual date of issue), and
shall have such distinguishing letters and numbers as the Corporation may,
with the approval of the Special Warrant Agent, prescribe.
(b) Subject to adjustment as provided in Sections 2.13 and 2.14 or subsection
2.2(c), each Special Warrant authorized to be issued hereunder shall
entitle the registered holder thereof to acquire in accordance with Section
3.1, without payment of additional consideration, one (1) Unit, each Unit
consisting of Common Share and one-half (1/2) of one Share Purchase
Warrant, or such other kind and amount of shares or securities or property,
calculated pursuant to the provisions of Sections 2.13 and 2.14 or
subsection 2.2(c), as the case may be, of this Indenture.
(c) Each Special Warrant authorized to be issued hereunder shall in the event
of a Qualification Default prior to the exercise or deemed exercise of the
Special Warrants pursuant to Section 3.1 hereof, entitle the registered
holder hereof to acquire in accordance with said Section 3.1, without
payment of additional consideration, 1.1 Units or such other kind and
amount of shares or securities or property calculated pursuant to the
provisions of Sections 2.13 and 2.14 of this Indenture.
(d) Fractional Special Warrants shall not be issued or otherwise provided for.
(5) Each Special Warrant certificate originally issued to a U.S. Person or
person within the United States, as well as all certificates issued in
exchange for or in substitution of the foregoing securities, 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 "U.S. SECURITIES 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 U.S. SECURITIES ACT AND IN COMPLIANCE
WITH ANY APPLICABLE STATE SECURITIES LAWS, (C) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE, AND IN
COMPLIANCE
<PAGE>
WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) UPON
RECEIPT OF AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE CORPORATION THAT SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS.
(6) Special Warrant Certificates may be engraved, lithographed, printed or
partly in one form and partly in another, as the Corporation may determine.
2.3 Signing of Special Warrant Certificates
The Special Warrant certificates shall be signed by any one of the
chairman, president, any vice-president, or the secretary of the Corporation,
and may, but need not be, under the corporate seal of the Corporation or a
reproduction thereof. The signature of such officer may be mechanically
reproduced in facsimile and Special Warrant certificates bearing such facsimile
signatures shall be binding upon the Corporation as if they had been manually
signed by such officer. Notwithstanding that the person whose manual or
facsimile signature appears on any Special Warrant certificate as such officer
may no longer hold office at the date of issue of such Special Warrant
certificate or at the date of certification or delivery thereof, any Special
Warrant certificate signed as aforesaid shall, subject to Section 2.4, be valid
and binding upon the Corporation and the registered holder thereof shall be
entitled to the benefits of this Indenture.
2.4 Certification by the Special Warrant Agent
(a) No Special Warrant certificate shall be issued or, if issued, shall be
valid for any purpose or entitle the registered holder to the benefit
hereof or thereof until it has been certified by manual signature by or on
behalf of the Special Warrant Agent in the form of the certificate set out
in Article 9 and such certification by the Special Warrant Agent upon any
Special Warrant certificate shall be conclusive evidence as against the
Corporation that the Special Warrant certificate so certified has been duly
issued hereunder and the holder is entitled to the benefits hereof.
(b) The certification of the Special Warrant Agent on the Special Warrant
certificates issued hereunder shall not be construed as a representation or
warranty by the Special Warrant Agent as to the validity of this Indenture
or the Special Warrants (except the due certification thereof) or as to the
performance by the Corporation and the Special Warrant Agent shall in no
respect be liable or answerable for the use made of the Special Warrants or
any of them or of the consideration therefor except as otherwise specified
herein.
2.5 Special Warrantholder Not a Shareholder
The holding of a Special Warrant shall not be construed as conferring upon
a Special Warrantholder any right or interest whatsoever as a Shareholder,
nor entitle the Special
<PAGE>
Warrantholder to any right or interest in respect thereof except as
herein and in the Special Warrants expressly provided.
2.6 Issue in Substitution for Lost Special Warrant Certificates
(a) In case any of the Special Warrant certificates shall become mutilated or
be lost, destroyed or stolen, the Corporation, subject to applicable law,
and subsection (b) of this Section 2.6, shall issue and thereupon the
Special Warrant Agent shall certify and deliver a new Special Warrant
certificate of like tenor as the one mutilated, lost, destroyed or stolen
in exchange for and in place of such mutilated certificate, or in lieu of
and in substitution for such lost, destroyed or stolen certificate, and the
substituted certificate shall be in a form approved by the Special Warrant
Agent and shall entitle its holder to the benefits hereof and shall rank
equally in accordance with its terms with all other Special Warrant
certificates issued or to be issued hereunder.
(b) The applicant for the issue of a new certificate pursuant to this Section
2.6 shall bear the cost of the issue thereof and in case of mutilation, as
a condition precedent to the issue thereof, shall deliver to the Special
Warrant Agent the mutilated certificate and in the case of loss,
destruction or theft shall, as a condition precedent to the issue thereof,
furnish to the Corporation and to the Special Warrant Agent such evidence
of ownership and of the loss, destruction or theft of the certificate so
lost, destroyed or stolen as shall be satisfactory to the Corporation and
to the Special Warrant Agent in their sole discretion, acting reasonably,
and such applicant shall also be required to furnish an indemnity bond or
security in amount and form satisfactory to the Corporation and the Special
Warrant Agent in their sole discretion, acting reasonably, and shall pay
the reasonable charges of the Corporation and the Special Warrant Agent in
connection therewith.
2.7 Special Warrants to Rank Pari Passu
All Special Warrants shall rank pari passu, whatever may be their actual
date of issue.
2.8 Registers for Special Warrants
(a) The Corporation appoints the Special Warrant Agent as the registrar of the
Special Warrants. The Corporation may hereafter, with the consent of the
Special Warrant Agent, appoint one or more other additional registrars of
the Special Warrants. The Corporation shall cause a register to be kept by
the Special Warrant Agent, and the Special Warrant Agent agrees to maintain
such a register, at its principal transfer office in the city of Toronto,
Ontario in which shall be entered the name and addresses of the holders of
the Special Warrants and other particulars of the Special Warrants held by
them respectively and the number of Special Warrants held by them. The
Corporation shall also cause transfer agencies to be maintained by the
Special Warrant Agent, and the Special Warrant Agent shall maintain such
transfer agencies at its principal transfer office
<PAGE>
in the city of Toronto, Ontario and in such other place or places and by
such other agent or agents as the Corporation with the approval of the
Special Warrant Agent may designate.
(b) Subject to the terms of this Indenture and to applicable law, Special
Warrants may be transferred. No transfer of a Special Warrant shall be
valid unless made by the holder or his executors, administrators or other
legal representatives, or his or her attorney duly appointed by an
instrument in writing in form and manner satisfactory to the Special
Warrant Agent, acting reasonably, with signatures guaranteed by a Canadian
chartered bank, a Canadian trust company, a member firm of any Canadian
stock exchange, a member recognized under the Signature Medallion Guarantee
Program or such other guarantor as the Special Warrant Agent determines to
be acceptable, upon surrender of the Special Warrant to the Special Warrant
Agent and upon compliance with such other reasonable requirements as the
Special Warrant Agent may prescribe and shall thereafter be recorded on the
register of transfers maintained by the Special Warrant Agent pursuant to
subsection (a) of this Section 2.8, provided all taxes or governmental or
other charges arising by reason of such transfer have first been paid by or
on behalf of the Special Warrantholder requesting such a transfer.
(3) Special Warrants may not be transferred to U.S. Persons or persons within
the United States, subject to subsection 2.8(d).
(4) Notwithstanding subsection 2.8(c), if a Special Warrant certificate
tendered for transfer bears the legend set forth in subsection 2.2(e):
(i) the transfer may be made to a U.S. Person or persons within the United
States, provided that the transfer is made in accordance with the
terms of such legend and provided further that the Special Warrant
certificate issued to such transferee shall also bear such legend; or
(ii) if the Special Warrant represented by such Special Warrant certificate
are being sold outside the United States under Rule 904 of Regulation
S, the legend may be removed by the transferor providing an opinion of
counsel reasonably acceptable to the Corporation that such transfer is
exempt from registration under the U.S. Securities Act and all
applicable U.S. State securities laws. The Special Warrant Agent shall
be protected in acting and relying solely on the addresses provided by
the transferor for these purposes.
2.9 Transferee Entitled to Registration
The transferee of a Special Warrant shall, after the transfer form attached
to the Special Warrant or any other form of transfer acceptable to the Special
Warrant Agent is duly executed and completed and together with the Special
Warrant is lodged with the Special Warrant Agent, and upon compliance with all
other conditions in that regard required by this Indenture or by
<PAGE>
law, be entitled to have his name entered on the register of holders as the
owner of such Special Warrant free from all equities or rights of set-off or
counterclaim as set forth in Section 2.12.
2.10 Registers Open for Inspection
The registers hereinbefore referred to shall be open at all reasonable
times for inspection by the Corporation, the Underwriter, the Special Warrant
Agent or any Special Warrantholder. The Special Warrant Agent shall, from time
to time when requested to do so in writing by the Corporation or the
Underwriter, furnish the Corporation or the Underwriter, as the case may be,
with a list of the names and addresses of holders of Special Warrants entered in
the register of holders maintained by the Special Warrant Agent and showing the
number of Units which may then be acquired upon the exercise of the Special
Warrants held by each such holder.
2.11 Exchange of Special Warrants
(a) Special Warrant certificates may, upon compliance with the reasonable
requirements of the Special Warrant Agent, be exchanged for Special Warrant
certificates in any other authorized denomination representing in the
aggregate the same number of Special Warrants. The Corporation shall sign
and the Special Warrant Agent shall certify, in accordance with Sections
2.3 and 2.4, all Special Warrant certificates necessary to carry out the
exchanges contemplated herein.
(b) Special Warrant certificates may be exchanged only at the principal office
of the Special Warrant Agent in the City of Toronto, Ontario or at any
other place that is designated by the Corporation with the approval of the
Special Warrant Agent. Any Special Warrant certificates tendered for
exchange shall be surrendered to the Special Warrant Agent and canceled.
(c) Except as otherwise herein provided, the Special Warrant Agent may charge
Special Warrantholders requesting an exchange a reasonable sum for each
Special Warrant certificate issued, and payment of such charges and
reimbursement of the Special Warrant Agent or the Corporation for any and
all taxes or governmental or other charges required to be paid shall be
made by the party requesting such exchange as a condition precedent to such
exchange.
2.12 Ownership and Transfer of Special Warrants
The Corporation and the Special Warrant Agent may deem and treat the
registered holder of any Special Warrant certificate as the absolute owner of
the Special Warrant evidenced thereby for all purposes, and the Corporation and
the Special Warrant Agent shall not be affected by any notice or knowledge to
the contrary except where the Corporation or the Special Warrant Agent is
required to take notice by statute or by order of a court of competent
jurisdiction. A Special Warrantholder shall be entitled to the rights evidenced
by such Special Warrant free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any
<PAGE>
intermediate holder thereof and all persons may act accordingly, and the receipt
by any such Special Warrantholder of Common Shares pursuant to the exercise
thereof shall be a good discharge to the Corporation and the Special Warrant
Agent for the same, and neither the Corporation nor the Special Warrant Agent
shall be bound to inquire into the title of any such holder, except where the
Corporation or the Special Warrant Agent is required to take notice by statute
or by order of a court of competent jurisdiction.
2.13 Adjustment of Subscription Rights
Subject to Sections 2.14 and 2.15, if at any time after the date hereof and
prior to the Expiry Time, and provided that any Special Warrants remain
unexercised, there shall be:
(a) a reclassification of the Common Shares at any time or a change of the
Common Shares into other shares or securities or a subdivision or
consolidation of the Common Shares into a greater or lesser number of
shares or any other capital reorganization;
(b) a consolidation, amalgamation or merger of the Corporation 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 Common Shares or securities);
(c) a transfer of the undertaking or assets of the Corporation as an entirety
or substantially as an entirety to another corporation or other entity; or
(d) an issue or distribution to the holders of all or substantially all of the
Corporation's outstanding Common Shares or securities of the Corporation
including rights, options or warrants to acquire Common Shares or
securities convertible into or exchangeable for Common Shares or any
property or assets including any evidences of indebtedness, other than cash
dividends paid in the ordinary course of the Corporation or securities
issued pursuant to the Corporation's stock option plans,
(any of such events being called a "Capital Reorganization"), the holder of any
Special Warrants that may thereafter be exercised to acquire Common Shares shall
be entitled to receive, and shall accept without the payment of additional
consideration, in lieu of the number of Common Shares to which he was
theretofore entitled upon such exercise, the kind and amount of shares or other
securities or property which such holder would have been entitled to receive as
a result of such Capital Reorganization if, on the effective date thereof or the
record date, as the case may be, he had been the registered holder of the number
of Common Shares which he was theretofore entitled to acquire upon such
exercise. Any such adjustments shall be made by and set forth in an indenture
supplemental hereto approved by the directors and shall for all purposes be
prima facie deemed to be an appropriate adjustment absent manifest error.
2.14 Adjustment Rules
<PAGE>
(1) The adjustments provided for in Section 2.13 are cumulative and shall apply
(without duplication) to successive Capital Reorganizations or other events
resulting in any adjustment under the provisions of Section 2.13; provided that,
notwithstanding any other provision of this Article 2, no adjustment shall be
made in the number of Common Shares which may be acquired on the exercise of a
Special Warrant unless it would result in a change of at least one one-hundredth
of a Share (provided, however, that any adjustments which by reason of this
subsection 2.14(1) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment).
(2) The Corporation shall not issue fractional Common Shares or Warrants in
satisfaction of its obligations hereunder. If any fractional interests in a
Common Share or a Warrant would, except for the provisions of this subsection
2.14(2), be deliverable upon the exercise of the Special Warrant, the
Corporation shall make a cash payment equal to the fair value of the fraction of
a Share or Warrant, as the case may be, not so issued as determined by the
Corporation's auditors in their sole discretion. No cheque shall be issued or
cash payment made to any Special Warrantholder for an amount less than $5.00.
(3) If any question arises with respect to the adjustments provided in this
Article 2 such question shall, absent manifest error, be conclusively determined
by the Corporation's auditors or such other firm of chartered accountants
appointed by the Corporation and acceptable to the Special Warrant Agent (who
may be the Corporation's auditors). Such chartered accountants shall have access
to all necessary records of the Corporation and such determination shall be
binding upon the Corporation, the Special Warrant Agent and the Special
Warrantholders absent manifest error.
(4) No adjustment in the number of Common Shares which may be acquired upon
exercise of a Special Warrant shall be made in respect of any event described in
Section 2.14 if Special Warrantholders are entitled to participate in such event
on the same terms mutatis mutandis as if Special Warrantholders had exercised
their Special Warrants prior to or on the effective date or record date of such
event.
(5) If, after the date of this Indenture, the Corporation shall take any action
affecting the Common Shares or Warrants other than the actions described in this
Article 2 which in the opinion of the directors of the Corporation would
materially affect the rights of Special Warrantholders, the number of Common
Shares which may be acquired upon the exercise of a Special Warrant shall be
adjusted in such manner and at such time, by action by the directors, in their
sole discretion, acting reasonably, as they may determine to be equitable in the
circumstances; provided that no such adjustment will be made unless prior
approval of any stock exchange on which the Common Shares are listed for
trading, if required, has been obtained. Failure of the directors to make such
an adjustment shall be conclusive evidence that the directors have determined
that it is equitable to make no adjustment in the circumstances.
2.15 Notice of Adjustment of Subscription Rights
<PAGE>
(1) At least 10 days prior to the effective date or record date, as the case
may be, of any event which would require an adjustment in any of the
subscription rights pursuant to any of the Special Warrants, including the
number of Units which may be acquired upon the exercise thereof, the Corporation
shall:
(a) file with the Special Warrant Agent a certificate of the Corporation
specifying the particulars of such event and, if determinable, the
required adjustment and the computation of such adjustment; and
(b) give notice in the manner provided for in Section 10.2 to the Special
Warrantholders of the particulars of such event and, if determinable, the
required adjustment.
(2) In case of any adjustment for which a notice provided for in subsection
2.15(1) has been given is not then determinable or in case a question arises and
a determination has been made in accordance with Section 2.14(3), the
Corporation shall promptly after such adjustment is determinable or conclusion
reached:
(a) file with the Special Warrant Agent a certificate of the Corporation
showing how such adjustment was computed; and
(b) give notice to the Special Warrantholders of the adjustment in the manner
provided for in Section 10.2.
(3) Where a notice referred to in subsection 2.15(1) or (2) has been given, the
Special Warrant Agent shall be entitled to act and rely absolutely on any
adjustment calculation of the Corporation or the Corporation's auditors.
2.16 Proceedings Prior to any Action Requiring Adjustment
As a condition precedent to the taking of action which would require an
adjustment pursuant to Sections 2.13 and 2.14, the Corporation shall take any
action which may, in the opinion of the Corporation's counsel, be necessary in
order that the Corporation may validly and legally issue as fully paid and non-
assessable all the Subject Securities which the holders of the Special Warrants
are entitled to receive on the complete exercise thereof in accordance with the
provisions hereof.
2.17 Protection of the Special Warrant Agent
The Special Warrant Agent shall be entitled to act and rely on any
adjustment calculation of the Corporation's auditors and the Special Warrant
Agent shall not:
(a) at any time be under any duty or responsibility to any holder to
determine whether facts exist which may require any adjustment
contemplated by this article, or with
<PAGE>
respect to the nature or extent of any such adjustment when made, or
with respect to the method employed in making same;
(b) be accountable with respect to the validity or value (or the kind or
amount) of any shares or of any other shares or securities or property
which may at any time be issued or delivered upon the exercise or
deemed exercise of any Special Warrant; or
(c) be responsible for any failure of the Corporation to make any cash
payment or to issue, transfer or deliver shares or share certificates
upon the surrender of any Special Warrant for the purpose of exercise
or deemed exercise, or to comply with any of the covenants contained
in this article.
ARTICLE 3 - EXERCISE OF SPECIAL WARRANTS
3.1 Exercise of Special Warrants and Deemed Exercise of Special Warrants
(a) Upon and subject to the provisions of this Article 3, any holder of a
Special Warrant may exercise the right thereby conferred on him to acquire
the Subject Securities, at no additional cost, by surrendering to the
Special Warrant Agent at any time prior to the Expiry Time, in the manner
set forth in subsection 3.1(c), the certificate evidencing the Special
Warrants, with the Exercise Form attached to the Special Warrant
certificate duly completed and executed by the holder or his executors,
administrators or other legal representatives or his or their attorney duly
appointed by an instrument in writing in form and manner satisfactory to
the Special Warrant Agent, acting reasonably.
The Exercise Form attached to the Special Warrant certificate shall be
signed as set out above and shall specify:
(i) the number of Subject Securities which the Special Warrantholder
desires to acquire on exercise of the Special Warrants (being not
more than those which he is entitled to acquire pursuant to the
Special Warrant certificate so surrendered); and
(ii) the person or persons in whose names the Subject Securities are
to be issued, his or their address or addresses and the number of
Subject Securities to be issued to each such person if more than
one is so specified.
If any of the Subject Securities in respect of which the Special Warrants
are exercised or deemed to be exercised are to be issued to a person or
persons other than the Special Warrantholder, the Special Warrantholder
shall pay to the Special Warrant Agent all requisite stamp or security
transfer taxes or other governmental charges exigible in connection with
the issue of such Subject Securities to such other person or persons or
shall establish to the satisfaction of the Special Warrant Agent that such
taxes and
<PAGE>
charges have been paid. Furthermore, in such event the signature on the
Exercise Form must be guaranteed by a Canadian chartered bank, a Canadian
trust company, a member firm of any Canadian stock exchange, a member
recognized under the Signature Medallion Guarantee Program or such other
guarantor as the Special Warrant Agent determines to be acceptable.
If at the time of the exercise or deemed exercise of the Special Warrants,
there remain trading restrictions on the Subject Securities acquired, due
to applicable securities legislation, the Corporation may, on the advice of
Counsel, endorse the certificates representing the Subject Securities to
such effect, and prior to issuance of any such certificates the Special
Warrant Agent shall consult the Corporation to determine whether such
endorsement or legending is required.
(b) Any Special Warrants not otherwise exercised for the Subject Securities
shall be deemed to have been exercised immediately prior to the Expiry Time
without any further action on the part of the holder thereof. Upon deemed
exercise, the Corporation shall cause to be mailed to Special
Warrantholders, at the address of such person last appearing on the
register of Special Warrants maintained by the Special Warrant Agent
pursuant to the Indenture on or prior the mailing, certificates
representing the Subject Securities without any further action to be taken
by the Special Warrantholder.
(c) Subject to Section 3.1 (b), in order to acquire certificates representing
the Subject Securities, a holder of one or more Special Warrants must
deliver the Special Warrant certificates evidencing such Special Warrants
to the Special Warrant Agent at its principal office in the City of
Toronto, Ontario (or at such additional place or places as may be
determined by the Corporation from time to time with the approval of the
Special Warrant Agent) or by first class mail, postage prepaid to CIBC
Mellon Trust Company at its principal office in Toronto, Ontario. A Special
Warrant certificate shall be deemed to be surrendered only upon personal
delivery thereof or if sent by mail, upon actual receipt thereof by the
Special Warrant Agent.
(4) Certificates representing the Subject Securities issued to U.S. Persons
pursuant to the exercise of the Special Warrant certificate bearing the
legend set forth in subsection 2.2(e) shall also bear such legend and the
Common Shares forming part of the Units shall bear the following additional
legend:
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
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
CORPORATION THAT SUCH TRANSFER IS EXEMPT FROM
<PAGE>
REGISTRATION UNDER THE U.S. SECURITIES ACT AND ALL
APPLICABLE STATE SECURITIES LAWS.
3.2 Effect of Exercise of Special Warrants
(a) The Subject Securities in respect of which the Special Warrants are
exercised shall be deemed to have been issued on the Exercise Date at which
time each Special Warrantholder shall be deemed to have become the holder
of record of the Subject Securities issued in respect of the Special
Warrants held by such Special Warrantholder unless the transfer books of
the Corporation shall be closed by law on the said date of such exercise,
in which case such Subject Securities shall be deemed to have been issued
and such Special Warrantholder shall be deemed to have become the holder of
record of such Subject Securities on the date on which such transfer books
are next re-opened.
(b) Forthwith after the Exercise Date and subject to the delivery by a Special
Warrantholder of Special Warrant Certificates and the Exercise Form to the
Special Warrant Agent as provided in subsection 3.1(c), and 3.1(a)(i) and
(ii) respectively, the Corporation shall, subject to the provisions of
Section 3.3, cause to be delivered to each Special Warrantholder or mailed
to it at its address specified in the register of holders maintained by the
Special Warrant Agent or certificates for the appropriate number of Subject
Securities not exceeding those which such Special Warrantholder is entitled
to acquire pursuant to the Special Warrants delivered by the Special
Warrantholder to the Special Warrant Agent.
3.3 Postponement of Delivery of Certificates
The Corporation shall not be required to deliver certificates for Subject
Securities during the period when the transfer books of the Corporation are
closed by law and, in the event of a surrender of a Special Warrant for the
acquisition of Subject Securities 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 transfer books.
3.4 Cancellation of Special Warrant Certificates
All Special Warrant certificates surrendered to the Special Warrant Agent
pursuant to Sections 2.6, 2.9, 2.11 or 3.1 shall be cancelled by the Special
Warrant Agent. The Special Warrant certificates evidencing all Special Warrants
exercised pursuant to Section 3.1 shall be deemed to have been cancelled on the
Exercise Date and the Special Warrant Agent shall record the cancellation or
deemed cancellation of such Special Warrant certificates on the register of
holders maintained by the Special Warrant Agent pursuant to subsection 2.8(a).
The Special Warrant Agent shall, if required in writing by the Corporation,
furnish the Corporation with a certificate of destruction identifying the
Special Warrant certificates so cancelled and deemed to have been cancelled. All
Special Warrants evidenced by Special Warrant certificates which have
<PAGE>
been validly cancelled or which are deemed to have been cancelled pursuant to
this Section 3.4 shall be without further force or effect whatsoever.
ARTICLE 4 - COVENANTS
4.1 General Covenants
The Corporation covenants with the Special Warrant Agent that so long as
any Special Warrants remain outstanding:
(a) It will maintain its corporate existence and will carry on and conduct its
business in accordance with good business practice.
(b) It will send to each Special Warrantholder copies of all financial
statements and other material furnished to the holders of Common Shares
after the date of this Indenture.
(c) It will reserve and there will remain unissued out of its authorized
capital a sufficient number of Common Shares to satisfy the rights of
acquisition on the exercise of the Special Warrants and the Share Purchase
Warrants as provided for herein.
(d) It will cause the Subject Securities issuable upon the exercise of the
Special Warrants in the manner herein provided to be duly issued and
delivered in accordance with the Special Warrants and the terms hereof.
(e) It will use its reasonable best efforts to maintain the listing of the
Common Shares on the TSE and the quotation of the Common Shares on NASDAQ
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.
(f) All of the Subject Securities which are issued on the exercise of the
Special Warrants shall be issued as fully-paid and non-assessable and the
holders thereof shall not be liable to the Corporation or its creditors in
respect of the issue of such Subject Securities.
(g) The Corporation covenants and agrees to (i) file a Preliminary Prospectus
for the purpose of qualifying the issuance and distribution of the Subject
Securities upon the exercise of the Special Warrants in each of the
Qualifying Jurisdictions as soon as practicable following the date hereof;
(ii) resolve all comments received or deficiencies raised by the Securities
Administrators; and (iii) file and obtain receipts for the Final Prospectus
in each of the Qualifying Jurisdictions qualifying the Subject Securities
as soon as possible after such regulatory comments and deficiencies have
been resolved and in any event, no later than the Qualification Deadline;
and (iv) obtain the listing and posting of the Common Shares issuable on
exercise of the Special Warrants upon the TSE and NASDAQ on or before the
Expiry Time.
<PAGE>
(h) It will not take any other action which might deprive the Special
Warrantholders of the opportunity of exercising their rights pursuant to
the Special Warrants held by such persons during the period of notice
required by subsection 2.15(1).
(i) It will perform all its covenants and carry out all of the acts or things
to be done by it as provided in this Indenture.
(j) It will not amend the attributes of the Special Warrants except in
accordance with Section 6.10.
(k) It will send a written notice to the Special Warrant Agent and to each
holder of Special Warrants of the issuance of the receipts referred to in
subsection 4.1(g), together with a commercial copy of the Final Prospectus
qualifying the Subject Securities for distribution, as soon as practicable
but, in any event, not later than three Business Days after the
Qualification Date and, in the case of the Special Warrant Agent, copies of
such receipts and written confirmation of any adjustment to subscription
rights.
(l) It will send a written notice to the Special Warrant Agent and to each
Special Warrantholder of the record date for the determination of holders
of Common Shares for the purposes of any dividend or other distribution or
rights offering to holders of such securities not later than 10 Business
Days prior to such record date.
(m) It will send a written notice to the Special Warrant Agent and to Special
Warrantholders of the occurrence of a Qualification Default and, as a
result therefrom, each Special Warrantholder's increased entitlement as
contemplated by section 2.2(c).
(n) In the event that it offers any of its securities for sale in the United
States or files a registration statement with the United States Securities
Exchange Commission in respect of any of its securities, whether in
connection with a public offering of such securities, an application for
listing or quotation of its securities on any stock market or quotation
system in the United States or otherwise, the Corporation shall ensure that
the Subject Securities are also registered for resale in the United States
or on such stock exchange and take all such other steps and actions as may
be necessary to ensure that the Subject Securities are not subject to any
statutory hold period.
4.2 Securities Qualification Requirements
(a) If, in the opinion of the Corporation's counsel, any instrument (other than
the Final Prospectus) is required to be filed with, or any permission,
order or ruling is required to be obtained from, any Securities
Administrator or any other step is required under any federal or provincial
law of Canada before any Subject Securities may be issued or delivered to a
Special Warrantholder in any of the Qualifying Jurisdictions upon exercise
of its Special Warrants, free of any restrictions or limitations on resale
of such Subject Securities, the Corporation covenants that it will file
such instrument, obtain such
<PAGE>
permission, order or ruling or take all such other actions, at its expense,
as is required or appropriate in the circumstances.
(b) The Corporation will give written notice of the issue of the Subject
Securities pursuant to the exercise of Special Warrants in such detail as
may be required to the Securities Administrator in each of the Qualifying
Jurisdictions in which there is legislation requiring the giving of any
such notice.
4.3 Special Warrant Agent's Remuneration and Expenses
The Corporation covenants that it will pay to the Special Warrant Agent
such fees as the parties agree upon from time to time for its services hereunder
and will pay or reimburse the Special Warrant Agent upon its request for all
reasonable expenses, advances and disbursements made or incurred by of the
Special Warrant Agent in the administration or execution of the trusts hereby
created (including, pursuant to subsection 8.3(f), the reasonable compensation
and the disbursements of its counsel and all other advisers, experts,
accountants and assistants not regularly in its employ) both before any default
hereunder and thereafter until all duties of the Special Warrant Agent hereunder
shall be finally and fully performed, except any such expense or disbursement in
connection with or related to or required to be made as a result of the
negligence, wilful misconduct or bad faith of the Special Warrant Agent.
4.4 Performance of Covenants by Special Warrant Agent
Subject to subsection 8.2(g), if the Corporation shall fail to perform any
of their covenants contained in this Indenture and the Corporation have not
rectified such failure within ten Business Days after receiving written notice
from the Special Warrant Agent of such failure, the Special Warrant Agent may
notify the Special Warrantholders of such failure on the part of the Corporation
unless the Special Warrant Agent shall itself perform any of the said covenants
capable of being performed by it, but shall be under no obligation to perform
said covenants or to notify the Special Warrantholders. All reasonable sums
expended or disbursed by the Special Warrant Agent in so doing shall be
repayable as provided in Section 4.3. No such performance, expenditure or
disbursement by the Special Warrant Agent shall be deemed to relieve the
Corporation of any default herein or of their continuing obligations under the
covenants herein contained.
Article 5-Enforcement
5.1 Suits by Special Warrantholders
All or any of the rights conferred upon a Special Warrantholder by the
terms of the Special Warrants held by such Special Warrantholder and/or this
Indenture may be enforced by such Special Warrantholder by appropriate legal
proceedings, but subject to the rights which are hereby conferred upon the
Special Warrant Agent and subject to the provisions of Section 6.10.
<PAGE>
5.2 Immunity of Shareholders, etc.
Subject to applicable laws, the Special Warrant Agent and, by the
acceptance of the Special Warrant certificates and as part of the consideration
for the issue of the Special Warrants, the Special Warrantholders hereby waive
and release any right, cause of action or remedy now or hereafter existing in
any jurisdiction against any person in his capacity as an incorporator or any
past, present or future shareholder of the Corporation or other security holder,
director, officer, employee or agent of the Corporation for the issue of the
Subject Securities pursuant to the exercise of any Special Warrant or on any
covenant, agreement, representation or warranty by the Corporation herein or in
the Special Warrant certificates contained.
5.3 Limitation of Liability
The obligations hereunder are not personally binding upon, nor shall resort
hereunder be had to, the shareholders or the directors of the Corporation or any
of the past, present or future shareholders or directors of the Corporation or
any of the past, present or future officers, employees or agents of the
Corporation, but only the Corporation and their property shall be bound in
respect hereof.
Article 6 - Meetings of Special Warrantholders
6.1 Right to Convene Meetings
The Special Warrant Agent may at any time and from time to time, and shall
on receipt of a written request of the Corporation or of a Special
Warrantholders' Request, convene a meeting of the Special Warrantholders
provided that the Special Warrant Agent is indemnified and funded to its
reasonable satisfaction by the Corporation or by the Special Warrantholders
signing such Special Warrantholders' Request against the costs, charges,
expenses and liabilities which may be incurred in connection with the calling
and holding of such meeting. If within 15 Business Days after the receipt of a
written request of the Corporation or a Special Warrantholders' Request and
indemnity and funding given as aforesaid the Special Warrant Agent fails to give
the requisite notice specified in Section 6.2 to convene a meeting, the
Corporation or such Special Warrantholders, as the case may be, may convene such
meeting. Every such meeting shall be held in the City of Toronto or at such
other place as may be approved or determined by the Special Warrant Agent and
the Corporation.
6.2 Notice
At least 15 days' prior notice of any meeting of Special Warrantholders
shall be given to the registered Special Warrantholders, at the expense of the
Corporation, in the manner provided for in Section 10.2 and a copy of such
notice shall be delivered to the Special Warrant Agent unless the meeting has
been called by the Special Warrant Agent, and also to the Corporation, unless
the meeting has been called by the Corporation. Such notice shall state the time
and place of the meeting and the general nature of the business to be transacted
thereat, and shall contain
<PAGE>
such information as is reasonably necessary to enable the Special Warrantholders
to make a reasoned decision on the matters for which such meeting has been
called, but it shall not be necessary for any such notice to set out the terms
of any resolution to be proposed or any of the provisions of this Article 6. The
notice convening any such meeting may be signed by the Special Warrant Agent or
of the Corporation or the person designated by such Special Warrantholders, as
the case may be.
6.3 Chairman
The Special Warrant Agent may nominate in writing an individual to be
chairman of the meeting and if no individual is so nominated, or if the
individual so nominated is not present within 15 minutes after the time fixed
for the holding of the meeting, the Special Warrantholders present in person or
by proxy shall appoint an individual present to be chairman of the meeting. The
chairman of the meeting need not be a Special Warrantholder.
6.4 Quorum
Subject to the provisions of Section 6.11, at any meeting of the Special
Warrantholders a quorum shall consist of one or more Special Warrantholders
present in person or represented by proxy and holding at least 25% of the then
issued and outstanding Special Warrants. If a quorum of the Special
Warrantholders shall not be present within one half-hour from the time fixed for
holding any meeting, the meeting, if summoned by the Special Warrantholders or
on a Special Warrantholder's Request, shall be dissolved; but in any other case
the meeting shall be adjourned to the same day in the next week (unless such day
is not a Business Day in which case it shall be adjourned to the next following
Business Day) at the same time and place to the extent possible and, subject to
the provisions of Section 6.1, no notice of the adjournment need be given. Any
business may be brought before or dealt with at an adjourned meeting which might
have been dealt with at the original meeting in accordance with the notice
calling the same. At the adjourned meeting the Special Warrantholders present in
person or represented by proxy (regardless of number) shall form a quorum and
may transact the business for which the meeting was originally convened,
notwithstanding that they may hold less than 25% of the then issued and
outstanding Special Warrants. No business shall be transacted at any meeting
unless a quorum is present at the commencement of the meeting.
6.5 Power to Adjourn
The chairman of any meeting at which a quorum of the Special Warrantholders
is present may, with the consent of the meeting, adjourn any such meeting, and
no notice of such adjournment need be given except such notice, if any, as the
meeting may prescribe.
6.6 Show of Hands
Every question submitted to a meeting shall be decided in the first place
by a majority of the votes given on a show of hands except that votes on an
extraordinary resolution shall be
<PAGE>
given in the manner hereinafter provided. At any such meeting, unless a poll is
duly demanded as herein provided, a declaration by the chairman of the meeting
that a resolution has been carried or carried unanimously or by a particular
majority or lost or not carried by a particular majority shall be conclusive
evidence of the fact.
6.7 Poll and Voting
On every extraordinary resolution, and when demanded by the chairman of the
meeting or by one or more of the Special Warrantholders acting in person or by
proxy on any other question submitted to a meeting and after a vote by show of
hands, a poll shall be taken in such manner as the chairman of the meeting shall
direct. Questions other than those required to be determined by extraordinary
resolution shall be decided by a majority of the votes cast on the poll. On a
show of hands, every person who is present and entitled to vote, whether as a
Special Warrantholder or as a proxy for one or more absent Special
Warrantholders, or both, shall have one vote. On a poll, each Special
Warrantholder present in person or represented by a proxy duly appointed by
instrument in writing shall be entitled to one vote in respect of each Special
Warrant which he (or the Special Warrantholder appointing him as proxy) then
holds. A proxy need not be a Special Warrantholder. The chairman of any meeting
shall be entitled, both on a show of hands and on a poll, to vote in respect of
the Special Warrants, if any, held or represented by him.
6.8 Regulations
Subject to the provisions of this Indenture, the Special Warrant Agent or
the Corporation with the approval of the Special Warrant Agent may from time to
time make and from time to time vary such regulations as it shall reasonably
consider necessary or appropriate:
(a) for the deposit of instruments appointing proxies at such place and time as
the Special Warrant Agent, the Corporation or the Special Warrantholders
convening the meeting, as the case may be, may in the notice convening the
meeting direct, and enabling particulars of such instruments appointing
proxies to be mailed or transmitted by facsimile before the meeting to the
Corporation or to the Special Warrant Agent and for the voting of proxies
so deposited as though the instruments themselves were produced at the
meeting;
(b) as to the form of the instrument of proxy; and
(c) generally for the calling of meetings of Special Warrantholders and the
conduct of business thereat, including setting a record date for Special
Warrantholders entitled to receive notice of or to vote at such meeting;
such regulations to be effectual only once notice thereof has been given to
Special Warrantholders in accordance with the provisions of Section 10.2
hereof prior to or concurrently with notice of the first meeting at which
such regulations are to apply.
<PAGE>
Any regulations so made shall be binding and effective and the votes given
in accordance therewith shall be valid and shall be counted. Save as such
regulations may provide, the only persons who shall be recognized at any
meeting as a Special Warrantholder, or be entitled to vote or be present at
the meeting in respect thereof (subject to Section 6.9), shall be Special
Warrantholders or persons holding proxies of Special Warrantholders.
6.9 Corporation, Special Warrant Agent and Underwriter may be Represented
The Corporation, the Underwriter and the Special Warrant Agent, by their
respective directors, officers and employees and the counsel for each of the
Corporation, the Underwriter, the Special Warrantholders and the Special Warrant
Agent may attend any meeting of the Special Warrantholders and speak thereat but
shall have no vote as such.
6.10 Powers Exercisable by Extraordinary Resolution
In addition to all other powers conferred upon them by any other provisions
of this Indenture or by law, the Special Warrantholders at a meeting of Special
Warrantholders shall have the power, exercisable from time to time by
extraordinary resolution:
(a) to agree with the Corporation to any modification, alteration, compromise
or arrangement of the rights of Special Warrantholders and/or the Special
Warrant Agent in its capacity as special warrant agent hereunder subject to
the Special Warrant Agent's prior written consent or on behalf of the
Special Warrantholders against the Corporation whether such rights arise
under this Indenture or the Special Warrants or otherwise;
(b) to amend or repeal any extraordinary resolution previously passed or
sanctioned by the Special Warrantholders;
(c) to direct or authorize the Special Warrant Agent subject to receipt of
funding and indemnity to enforce any of the covenants on the part of the
Corporation contained in this Indenture or the Special Warrants or to
enforce any of the rights of the Special Warrantholders in any manner
specified in such extraordinary resolution or to refrain from enforcing any
such covenant or right;
(d) to waive and/or direct the Special Warrant Agent to waive any default on
the part of the Corporation in complying with any provisions of this
Indenture or the Special Warrants either unconditionally or upon any
conditions specified in such extraordinary resolution;
(e) to restrain any Special Warrantholder from taking or instituting any suit,
action or proceeding against the Corporation for the enforcement of any of
the covenants on the part of the Corporation contained in this Indenture or
the Special Warrants or to enforce any of the rights of the Special
Warrantholders;
<PAGE>
(f) to direct any Special Warrantholder who, as such, has brought any suit,
action or proceeding to stay or discontinue or otherwise deal with any such
suit, action or proceeding, upon payment of the costs, charges and expenses
reasonably and properly incurred by such Special Warrantholder in
connection therewith; and
(g) to remove the Special Warrant Agent and to appoint a successor special
warrant agent.
6.11 Meaning of Extraordinary Resolution
(a) The expression "extraordinary resolution" when used in this Indenture
means, subject as hereinafter in this Section 6.11 and in Section 6.14
provided, a resolution proposed at a meeting of Special Warrantholders duly
convened for that purpose and held in accordance with the provisions of
this Article 6 at which there are present in person or represented by proxy
Special Warrantholders holding at least 25% of the then issued and
outstanding Special Warrants and passed by the affirmative votes of Special
Warrantholders holding Special Warrants exercisable into not less than two-
thirds (66_%) of the aggregate number of Units which would be issued on
exercise of all of the then outstanding Special Warrants represented at the
meeting and voted on the poll upon such resolution.
(b) If, at any meeting called for the purpose of passing an extraordinary
resolution, Special Warrantholders holding at least 25% of the then issued
and outstanding Special Warrants are not present in person or by proxy
within one half-hour after the time appointed for the meeting, then the
meeting, if convened by Special Warrantholders or on a Special
Warrantholders' Request, shall be dissolved; but in any other case it shall
stand adjourned to such day, being not less than four or more than ten
Business Days later, and to such place and time as may be appointed by the
chairman of the meeting. Not less than three Business Days' prior notice
shall be given of the time and place of such adjourned meeting in the
manner provided in Sections 10.1, 10.2 and 10.3. Such notice shall state
that at the adjourned meeting the Special Warrantholders present in person
or represented by proxy shall form a quorum but it shall not be necessary
to set forth the purposes for which the meeting was originally called or
any other particulars. At the adjourned meeting the Special Warrantholders
present in person or represented 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 (a) of this Section 6.11 shall be an
extraordinary resolution within the meaning of this Indenture
notwithstanding that Special Warrantholders holding at least 25% of the
then issued and outstanding Special Warrants are not present in person or
represented by proxy at such adjourned meeting.
(c) Votes on an extraordinary resolution shall always be given on a poll and no
demand for a poll on an extraordinary resolution shall be necessary.
6.12 Powers Cumulative
<PAGE>
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
Special 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 Special Warrantholders to exercise such powers or combination of powers
then or thereafter from time to time.
6.13 Minutes
Minutes of all resolutions and proceedings at every meeting of Special
Warrantholders shall be made and duly entered in books to be from time to time
provided for that purpose by the Special Warrant Agent at the reasonable 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 held, or by
the chairman of the next succeeding meeting of the Special 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 convened and held, and all
resolutions passed thereat or proceedings taken shall be deemed to have been
duly passed and taken.
6.14 Instruments in Writing
All actions which may be taken and all powers that may be exercised by the
Special Warrantholders at a meeting held as provided in this Article 6 may also
be taken and exercised by Special Warrantholders holding Special Warrants
issuable into not less than two-thirds (66_%) of the aggregate number of Units
which would be issued on exercise of all the then outstanding Special Warrants
by an instrument in writing signed in one or more counterparts by such Special
Warrantholders in person or by attorney duly appointed in writing, and the
expression "extraordinary resolution" when used in this Indenture shall include
an instrument so signed.
6.15 Binding Effect of Resolutions
Every resolution and every extraordinary resolution passed in accordance
with the provisions of this Article 6 at a meeting of Special Warrantholders
shall be binding upon all the Special Warrantholders, whether present at or
absent from such meeting, and every instrument in writing signed by Special
Warrantholders in accordance with Section 6.14 shall be binding upon all the
Special Warrantholders, whether signatories thereto or not, and each and every
Special Warrantholder and the Special Warrant Agent (subject to the provisions
for funding and indemnity herein contained) shall be bound to give effect
accordingly to every such resolution and instrument in writing. In the case of
an instrument in writing, the Special Warrant Agent shall give notice in the
manner contemplated in Sections 10.1 and 10.2 of the effect of the instrument in
writing to all Special Warrantholders and the Corporation as soon as is
reasonably practicable.
<PAGE>
6.16 Holdings by the Corporation or Associates or Affiliates of the Corporation
Disregarded
In determining whether Special Warrantholders holding the required number
of Special Warrants are present at a meeting of Special Warrantholders for the
purpose of determining a quorum or have concurred in any consent, waiver,
resolution, extraordinary resolution, Special Warrantholders' Request or other
action under this Indenture, Special Warrants owned legally or beneficially by
the Corporation or any associate or affiliate (as those terms are defined in the
Securities Act (Ontario)) of the Corporation shall be disregarded. The
Corporation shall provide to the Special Warrant Agent upon request a
Certificate of the Corporation stating the exact number and registrations of
Special Warrants held by the Corporation or any associate or affiliate.
Article 7 - Supplemental Indentures
7.1 Supplemental Indentures
From time to time the Corporation and the Special Warrant Agent may, subject to
the provisions of this Indenture, and they shall, when so directed by this
Indenture, execute and deliver by their proper officers, indentures or
instruments supplemental hereto, which thereafter shall form part hereof, for
any one or more or all of the following purposes:
(a) adding to the provisions hereof such additional covenants and enforcement
provisions as in the opinion of counsel are necessary or advisable,
provided that the same are not, in the opinion of the Special Warrant
Agent, relying on the advice of Counsel, prejudicial to the interests of
the Special Warrantholders as a group;
(b) giving effect to any extraordinary resolution passed as provided in Article
6;
(c) making such provisions not inconsistent with this Indenture as may be
necessary or desirable with respect to matters or questions arising
hereunder, provided that such provisions are not, in the opinion of the
Special Warrant Agent, relying on the advice of Counsel, prejudicial to the
interests of the Special Warrantholders as a group;
(d) adding to or amending the provisions hereof in respect of the transfer of
Special Warrants, providing for the exchange of Special Warrants, and
making any modification in the form of the certificates for the Special
Warrants provided that such additions, amendments or modifications are not,
in the opinion of the Special Warrant Agent, relying on the advice of its
Counsel, prejudicial to the interests of the Special Warrantholders as a
group;
(e) amending any of the provisions of this Indenture or relieving the
Corporation from any of the obligations, conditions or restrictions herein
contained, provided that no such amendment or relief shall be or become
operative or effective if, in the opinion of the
<PAGE>
Special Warrant Agent, relying on the advice of Counsel, such amendment or
relief impairs any of the rights of the Special Warrantholders as a group
or of the Special Warrant Agent, and provided further that the Special
Warrant Agent may in its sole discretion decline to enter into any such
supplemental indenture which in its opinion, relying on the advice of
Counsel, may not afford adequate protection to the Special Warrant Agent
when the same shall become operative;
(f) for any other purpose not inconsistent with the terms of this Indenture,
including the correction or rectification of any ambiguities, defective or
inconsistent provisions, errors or omission herein, provided that, in the
opinion of the Special Warrant Agent, relying on the advice of Counsel, the
rights of the Special Warrant Agent and of the Special Warrantholders as a
group are not prejudiced thereby; and
(g) amending the type or number of Subject Securities or other securities of
the Corporation issuable upon exercise of the Special Warrants as
contemplated by Sections 2.13 and 2.14 hereof, provided that no such
amendment or relief shall be or become operative or effective if, in the
opinion of the Special Warrant Agent, based on the advice of Counsel, such
amendment or relief impairs any of the rights of the Special Warrantholders
as a group.
7.2 Successor Corporations
In the case of the consolidation, amalgamation, arrangement, merger or
transfer of the undertaking or assets of the Corporation as an entirety or
substantially as an entirety to another corporation (a "successor corporation"),
forthwith following the occurrence of such event the successor corporation
resulting from such consolidation, amalgamation, arrangement, merger or transfer
(if not the Corporation) shall expressly assume, by supplemental indenture
satisfactory in form to Counsel to the Special Warrant Agent and executed and
delivered to the Special Warrant Agent, the due and punctual performance and
observance of each and every covenant and condition of this Indenture to be
performed and observed by the Corporation.
Article 8 - Concerning the Special Warrant Agent
8.1 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.
<PAGE>
(c) The Corporation and the Special Warrant 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.
8.2 Rights and Duties of Special Warrant Agent
(a) In the exercise of the rights and duties prescribed or conferred by the
terms of this Indenture, the Special Warrant Agent shall act honestly and
in good faith with a view to the best interests of the Special
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 Special Warrant Agent from or require any other person to
indemnify the Special Warrant Agent against liability for its own
negligence, wilful misconduct or bad faith.
(b) Subject only to subsection 8.2(a), the Special Warrant 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 Special Warrantholders' Request specifying
the act, action or proceeding which the Special Warrant Agent is requested
to take. The obligation of the Special Warrant Agent to commence or
continue any act, action or proceeding for the purpose of enforcing any
rights of the Special Warrant Agent or the Special Warrantholders hereunder
shall be conditional upon the Special Warrantholders furnishing, when
required by notice in writing by the Special Warrant Agent, sufficient
funds to commence or continue such act, action or proceeding and an
indemnity reasonably satisfactory to the Special Warrant Agent and its
officers, directors, employees and agents to protect and hold harmless the
Special Warrant 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 Special Warrant
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 Special Warrant Agent may, before commencing or at any time during the
continuance of any such act, action or proceeding, require the Special
Warrantholders at whose instance it is acting to deposit with the Special
Warrant Agent the Special Warrants held by them, for which Special Warrants
the Special Warrant Agent shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the Special
Warrant Agent of liability or entitles it to act and rely upon any evidence
submitted to it is subject to the provisions of Applicable Legislation, and
to the provisions of this Section 8.2 and of Section 8.3.
<PAGE>
(e) The Special Warrant 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 Special Warrant Agent refuses
to act because any documentation received by it is not clear and
reasonable, the Special Warrant Agent shall immediately provide notice to
the party who provided such documentation advising such party of the
Special Warrant 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 Special Warrant 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 Special Warrant 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 Special Warrant 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 Special Warrant 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 Special Warrant Agent to
determine whether or not the Special Warrant Agent shall take action with
respect to any default.
8.3 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 Special
Warrant Agent such additional evidence of compliance with any provision
hereof in such form as may be prescribed by Applicable Legislation, or as
the Special Warrant Agent may reasonably require by written notice to the
Corporation.
(b) In the exercise of its rights and duties hereunder, the Special Warrant
Agent may, if it is acting in good faith, act and 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 Special Warrant Agent, provided that such
evidence complies with Applicable Legislation.
(c) Whenever Applicable Legislation requires that evidence referred to in
subsection 8.3(a) be in the form of a statutory declaration, the Special
Warrant Agent may accept such statutory declaration in lieu of a
certificate of the Corporation required by any provision
<PAGE>
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 Special Warrant Agent may act and rely and shall be protected in acting
and relying 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 Special
Warrantholders' Request, by any Special 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 Special Warrant Agent may consider adequate and in respect
of a corporate Special Warrantholder shall include a certificate of
incumbency of such Special Warrantholder together with a certified copy of
a resolution authorizing the person who signed such instrument to sign such
instrument.
(f) The Special Warrant 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 services shall be added to and be part of the
Special Warrant Agent's fees hereunder.
8.4 Documents, Monies, etc. Held by Special Warrant Agent
Any securities, documents of title or other instruments that may at any
time be held by the Special Warrant Agent subject to the trusts hereof may be
placed in the deposit vaults of the Special Warrant Agent or of any Canadian
chartered bank or trust company or deposited for safekeeping with any such bank
or trust company.
8.5 Action by Special Warrant Agent to Protect Interests
Subject to the provisions of this Indenture and Applicable Legislation, the
Special Warrant 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 Special
Warrantholders.
8.6 Special Warrant Agent Not Required to Give Security
The Special Warrant 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.
<PAGE>
8.7 Protection of Special Warrant 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 Special Warrant Agent shall not be liable for or by reason of any
statements of fact or recitals in this Indenture or in the Special Warrants
(except the representations contained in Sections 8.9 and 8.12 or in the
certificate of the Special Warrant Agent on the Special Warrants) or be
required to verify the same.
(b) Nothing herein contained shall impose any obligation on the Special Warrant
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 Special Warrant Agent shall not be bound to give notice to any person
of the execution hereof.
(d) The Special Warrant 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 Special Warrant
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 Special Warrant 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, including any legal fees and
disbursements, save only in the event of negligence or wilful misconduct of
the Special Warrant Agent or any of its officers, directors and employees.
It is understood and agreed that this indemnification shall survive the
termination of this Indenture or the resignation or removal of the Special
Warrant Agent.
8.8 Replacement of Special Warrant Agent
(a) The Special Warrant Agent may resign its trust and be discharged from all
further duties and liabilities hereunder by giving to the Corporation not
less than 30 days' prior notice in writing or such shorter prior notice as
the Corporation may accept as sufficient. The Special Warrantholders by
extraordinary resolution shall have the power at any time to remove the
existing Special Warrant Agent and to appoint a new warrant agent. In the
event of the Special Warrant 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 Special Warrantholders; failing
<PAGE>
such appointment by the Corporation, the retiring Special Warrant Agent or
any Special 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 Special Warrantholders. Any new
warrant agent appointed under any provision of this Section 8.8 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 Special
Warrant 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 Special
Warrant 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 Special Warrant 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 Special Warrant Agent
hereunder and all securities, documents of title and other instruments, and
all monies and properties, held by the Special Warrant Agent hereunder.
(b) Upon the appointment of a successor warrant agent, the Corporation shall
promptly notify the Special Warrantholders thereof in the manner provided
for in Section 10.2.
(c) Any corporation into or with which the Special Warrant Agent may be merged
or consolidated or amalgamated, or any corporation succeeding to the trust
business of the Special Warrant Agent, shall be the successor to the
Special Warrant 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 8.8(a).
(d) Any Special 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.
8.9 Conflict of Interest
(a) The Special Warrant Agent represents to the Corporation that at the time of
execution and delivery hereof no material conflict of interest exists in
the Special Warrant 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
<PAGE>
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 Special Warrants shall not be
affected in any manner whatsoever by reason thereof.
(b) Subject to subsection 8.9(a), the Special Warrant 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.
8.10 Acceptance of Trusts
The Special Warrant 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.
8.11 Special Warrant Agent Not to be Appointed Receiver
The Special Warrant Agent and any person related to the Special Warrant
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.
8.12 Authorization to Carry on Business
The Special Warrant 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.
8.13 Liability of Special Warrant Agent
The Special Warrant 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 Special Warrant Agent.
Article 9 - Form of Special Warrant
9.1 Form of Special Warrant Certificate
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES 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
U.S. SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS,
(C) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER, IF APPLICABLE, AND IN
<PAGE>
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (D) UPON RECEIPT OF AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION THAT SUCH TRANSFER
IS EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND ALL APPLICABLE
STATE SECURITIES LAWS.
SPECIAL WARRANT CERTIFICATE
BID.COM INTERNATIONAL INC.
(the "Corporation")
(Constituted pursuant to the laws of the Province of Ontario, Canada)
NO.______________
____________ Special Warrants
(each entitling the holder to
subscribe for one Common
Share and one-half of one
Share Purchase Warrant for no
additional consideration)
THIS IS TO CERTIFY that, for value received, ________________________ (the
"holder") is entitled to acquire, in the manner herein provided, subject to the
restrictions contained in the Indenture hereinafter referred to, at any time and
from time to time on or prior to 5:00 p.m. Toronto time (the "Expiry Time"), on
the date (the "Expiry Date") that is the earlier of:
1. the date which is five (5) Business Days following the date of the issuance
of a receipt by the last of the securities regulatory authorities in the
Qualifying Jurisdictions for a Prospectus; and
2. September 30, 2000;
one unit ("Unit") comprised of one common share of the Corporation ("Common
Share") (or, in the circumstances described below, acquire one and one-tenth
(1.1) Common Shares) and one half of one warrant ("Share Purchase Warrant") (or
in the circumstances described below, acquire 0.55 Share Purchase Warrants) for
each Special Warrant represented by this certificate without payment of any
consideration in addition to the subscription price for such Special Warrant.
The Special Warrants represented by this certificate are issued under
and pursuant to a Special Warrant Indenture (the "Indenture") dated as of
September 30, 1999 between the Corporation and CIBC Mellon Trust Company (the
"Special Warrant Agent") (which expression shall include any successor warrant
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 Special Warrants and the
terms and conditions upon which such Special Warrants are or are to be, issued
and held, all to the same
<PAGE>
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 Special 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 Special 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.
Such right to exercise Special Warrants for the Common Shares and Share
Purchase Warrants may be effected by the holder hereof by:
(a) duly completing in the manner indicated and executing the
Exercise Form attached hereto; and
(b) surrendering this Special Warrant Certificate to the Special
Warrant Agent as hereinafter set forth,
provided that any Special Warrant not so exercised on or before the Expiry Time
shall be deemed to have been exercised by the holder immediately prior thereto.
This Special Warrant Certificate shall be validly surrendered only upon
delivery thereof or by mailing the same to the Special Warrant Agent at its
principal office in the City of Toronto, Ontario. 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.
In the case of a Special Warrant which is exercised by a holder in
accordance with the provisions of subsection 3.1(c) of the Indenture, within
five (5) Business Days after the Exercise Date of such Special Warrant, the
Special Warrant Agent shall:
(a) cause to be mailed to the person in whose name the Common Shares
and Share Purchase Warrants issuable upon the exercise of the
exercise rights of the Special Warrants are to be issued, as
specified in the Special Warrant, at the address specified
therein;
(b) if so specified therein, cause to be delivered to such person at
the office of the Special Warrant Agent where such Special
Warrant was surrendered; or
(c) if no specification as contemplated by (a) or (b) is provided,
cause to be mailed to the person in whose name the Common Shares
and Share Purchase Warrants are
<PAGE>
to be issued at the address of such person last appearing on
the register maintained by the Special Warrant Agent pursuant
to the Indenture or as such person may otherwise notify the
Special Warrant Agent in writing on or prior to the Exercise
Date,
a certificate or certificates for the Common Shares and Share Purchase Warrants
to which the holder is entitled.
In the case of a Special Warrant which is deemed exercised in
accordance with the provisions of Subsection 3.1(b) of the Indenture, within
five (5) Business Days after the Exercise Date of such Special Warrants, the
Corporation shall without any further act on the part of the Special
Warrantholder, cause to be mailed to the Special Warrantholder at the address of
such person last appearing on the register of Special Warrants maintained by the
Special Warrant Agent pursuant to the Indenture or as such person may otherwise
instruct the Special Warrant Agent in writing on or prior to the mailing a
certificate or certificates for the Common Shares and Share Purchase Warrants to
which the Special Warrantholder is entitled.
Upon due exercise or deemed exercise of the Special Warrants as
provided herein, the person or persons in whose name or names the Common Shares
and Share Purchase Warrants 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 Share Purchase Warrants and the
Corporation covenant that they will (subject to and in accordance with the
provisions of the aforesaid Indenture) cause a certificate or certificates
representing such Common Shares and Share Purchase Warrants to be delivered or
mailed to such person or persons at the address or addresses specified in such
Exercise Form or on the register of Special Warrants maintained by the Special
Warrant Agent (if deemed to have been exercised).
No fractional Common Shares or Share Purchase Warrants will be issued.
To the extent that the holder of a Special Warrant is entitled to receive on the
exercise or partial exercise thereof a fraction of a Common Share or Share
Purchase Warrants, the Corporation shall make a cash payment equal to the fair
value of the fraction not so issued as determined by the directors of the
Corporation in their sole discretion. No cheque shall be issued or cash payment
made to any Special Warrantholder for an amount less than $5.00.
The Indenture provides for adjustments to the subscription rights
attaching to these Special Warrants in certain events and also provides for the
giving of notice by the Corporation prior to taking certain actions specified
therein.
The holding of the Special Warrants evidenced by this Special Warrant
Certificate shall not constitute the holder hereof a shareholder of the
Corporation or entitle such holder to any right or interest in respect thereof
except as herein and in the Indenture expressly provided.
The Special Warrants evidenced by this Special Warrant Certificate are
not transferable except as set forth in section 2.8 of the Indenture which makes
reference to the fact that no transfer of a Special Warrant shall be valid
unless made by the holder or his executors,
<PAGE>
administrators or other legal representatives, or his or her attorney duly
appointed by an instrument in writing in form and manner satisfactory to the
Agent, acting reasonably, with signatures guaranteed by a Canadian chartered
bank, a Canadian trust company, a member of any Canadian stock exchange, a
member of the Medallion Signature Guarantee Program or such other guarantor as
the Special Warrant Agent determines to be acceptable and upon compliance with
such other reasonable requirements as the Special Warrant Agent may prescribe.
Upon compliance with these transfer requirements, and with applicable securities
legislation and requirements of regulatory authorities, the transferee shall
become noted upon the register of holders.
Neither the Special Warrants represented by this certificate nor the
Common Shares or Share Purchase Warrants issuable upon the exercise thereof have
been or will be registered under the United States Securities Act of 1933, as
amended (the "U.S. Securities Act"). Subject to certain limited exceptions,
neither the Special Warrants represented by this certificate nor the Common
Shares or Share Purchase Warrants issuable upon the exercise thereof may be
transferred to, or for the account or benefit of, a U.S. Person or person in the
United States (as such terms are defined in Regulation S under the U.S.
Securities Act).
If any of the Common Shares and Share Purchase Warrants in respect of
which the Special Warrants are exercised are to be issued to a person or persons
other than the holder (as aforesaid), the holder shall pay to the Special
Warrant Agent all requisite stamp transfer taxes or other governmental charges
exigible in connection with the issue of such Common Shares and Share Purchase
Warrants to such other person or persons or shall establish to the satisfaction
of the Special Warrant Agent that such taxes and charges have been paid.
This Special Warrant Certificate shall not be valid for any purpose
whatever unless and until it has been countersigned by or on behalf of the
Special Warrant Agent.
Time shall be of the essence hereof. The Special 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.
The Corporation has covenanted and agreed to use its reasonable best
efforts to promptly finalize and obtain a receipt for a preliminary prospectus
and a final Prospectus in the Qualifying Jurisdictions qualifying the issuance
of the Common Shares and Share Purchase Warrants issuable upon the due exercise
or deemed exercise of the Special Warrants.
In the event the Corporation fails to obtain a receipt for the Final
Prospectus from the Securities Administrators in each of the Qualifying
Jurisdictions on or prior to 5:00 p.m. (Toronto time) on December 29, 1999, (a
"Qualification Default") then each Special Warrant shall entitle the holder to
acquire one and one-tenth (1.1) Units (in lieu of one (1) Unit), without payment
of further consideration, on exercise or deemed exercise of such Special
Warrant.
<PAGE>
In the event that a receipt for a Final Prospectus relating to the
distribution of the Common Shares and Share Purchase Warrants is not obtained
from the Securities Administrators in any of the Qualifying Jurisdictions, the
Common Shares and Share Purchase Warrants may be subject to statutory hold
periods during which time these securities may not be resold in such provinces
except pursuant to applicable prospectus and registration exemptions. In
addition, any Special Warrants that are exercised or Common Shares and Share
Purchase Warrants received on such exercise prior to the issuance of a receipt
for the Final Prospectus by the Securities Administrators in the Qualifying
Jurisdictions may be subject to statutory restrictions. Holders are advised to
consult their legal advisors in this regard.
IN WITNESS WHEREOF the Corporation has caused this Special Warrant
Certificate to be signed by its duly authorized officer as of September 30,
1999.
BID.COM INTERNATIONAL INC.
Per:___________________________c/s
Authorized Signing Officer
Countersigned by:
CIBC MELLON TRUST COMPANY
Per:
Authorized Signing Officer
<PAGE>
TRANSFER FORM
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
________________________________________________________________________________
(Please print or typewrite name and address of assignee)
________________________________________________________________________________
__________________________ Special Warrant(s) represented by the within
certificate, and do(es) hereby irrevocably constitute and
appoint ________________________________________________________________________
_________________________ the attorney of the undersigned to transfer the said
Special Warrant(s) on the register of Special Warrants maintained by the Special
Warrant Agent with full power of substitution hereunder.
DATED this ________ day of _______________ , 199____.
Signature of Special Warrantholder
______________________
Signature Guarantee Name of Special Warrantholder (please print)
The signature of the Special Warrantholder to this assignment must
correspond exactly with the name of the Special Warrantholder as set forth on
the face of this Special 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 or by a member recognized under the
Medallion Signature Guarantee Program.
<PAGE>
EXERCISE OF EXCHANGE RIGHTS INSTRUCTIONS TO SPECIAL WARRANTHOLDER
The registered holder hereof may exercise his right to exercise Special
Warrants for Common Shares and Share Purchase Warrants of BID.COM INTERNATIONAL
INC. (the "Corporation"), subject to the adjustments described in the Special
Warrant Indenture by completing the Exercise Form and surrendering this Special
Warrant certificate and the duly completed Exercise Form to CIBC Mellon Trust
Company by delivering or mailing it to CIBC Mellon Trust Company at the
following office:
By courier or by hand:
Special projects
199 Bay Street
Commerce Court West
Securities Level
Toronto, Ontario
M5L 1B9
Attention: Courier Window
By mail:
P.O. Box 1036
Adelaide Street Postal Station
Toronto, Ontario
M5C 2K4
Upon exercise, the Special Warrants will be cancelled and become
absolutely void and alternatively, if not exercised on or prior to 5:00 p.m.,
Toronto time, on the Expiry Date will be deemed to have been exercised in full
by such holder immediately prior to that time.
For your own protection, it is suggested that all documentation be
forwarded to the Special Warrant Agent by registered mail.
<PAGE>
EXERCISE FORM
TO: BID.COM INTERNATIONAL INC.
The undersigned hereby exercises the right to exercise _________
Special Warrants for ________ Common Shares and __________ Share Purchase
Warrants of BID.COM INTERNATIONAL INC. (or such number of other securities or
property to which such Special Warrants entitle the undersigned in lieu thereof
or in addition thereto under the provisions of the Indenture mentioned in the
within Special Warrant Certificate) according to the terms of the Indenture
mentioned in the within Special Warrant Certificate. If any of the Common Shares
and Share Purchase Warrants are to be issued to a person or persons other than
the holder in those circumstances as set forth in the within Special Warrant
Certificate, the holder must pay to CIBC Mellon Trust Company all requisite
stamp or security transfer taxes or other governmental charges related thereto.
(Print clearly)
Name: __________________________________________________________________________
Address in Full: _______________________________________________________________
________________________________________________________________________________
Number of Special Warrants being Exercised: ___________________________________
DATED this day of , 199 ____.
Signature of Special Warrantholder
Name of Special Warrantholder
(As registered on Special Warrant Certificate)
Print Full Address
<PAGE>
SCHEDULE "B"
NOTICE TO SPECIAL WARRANTHOLDERS
Reference is made to the Special Warrant Indenture made as of September
30, 1999 (the "Special Warrant Indenture") between the Corporation and CIBC
Mellon Trust Company. Unless defined herein, capitalized terms used herein have
the respective meanings ascribed to them in the Special Warrant Indenture.
We hereby confirm that receipts have been issued by the securities
commissions in each of the Qualifying Jurisdictions in respect of the prospectus
qualifying the distribution of the Common Shares and Share Purchase Warrants
issuable upon exercise of the Special Warrants. The last receipt was issued on
______________ by the Securities Commission. The Expiry Time is therefore 5:00
p.m. (Toronto Time) on __________.
As soon as possible following the Expiry Time as above, and subject to
delivery by a Special Warrantholder of Special Warrant certificates and the
accompanying Exercise Form, duly completed, to the Special Warrant Agent, the
Corporation shall cause to be delivered to each Special Warrantholder or mailed
to it at its address specified in the register of holders maintained by the
Special Warrant Agent certificates representing the Common Shares and Share
Purchase Warrants to which such Special Warrantholder is entitled pursuant to
the Special Warrants delivered by it.
A copy of the prospectus is enclosed herewith.
<PAGE>
Article 10 - General
10.1 Notice to the Corporation and the Special Warrant Agent
(a) Unless herein otherwise expressly provided, any notice to be given
hereunder to the Corporation or the Special Warrant Agent shall be
deemed to be validly given if delivered or if sent by registered
letter, postage prepaid, or if sent by facsimile transmission, telex or
other means of prepaid transmission or recorded communication:
(i) if to the Corporation
BID.COM INTERNATIONAL INC.
6725 Airport Road
Suite 201
Mississauga, Ontario
L4V 1V2
Facsimile: (905) 672-5705
Attention: Paul Godin
if to the Special Warrant Agent:
(ii) CIBC MELLON TRUST COMPANY
320 Bay Street, Ground Floor
Toronto, Ontario M5H 4A6
Facsimile: 416-643-5570
Attention: Assistant Vice-President, Client Services
and any such notice if delivered in accordance with the foregoing shall
be deemed to have been received on the of delivery if that date is a
Business Day or the Business Day following the date of delivery if such
date is not a Business Day or, if mailed, on the fifth Business Day
following the date of deposit in the mail, or if sent by facsimile
transmission, on the date of such facsimile transmission if that date
is a Business Day or the Business Day following the date of sending if
such date is not a Business Day or if sent after normal business hours.
(b) The Corporation or the Special Warrant Agent, as the case may be, may
from time to time notify the other in the manner provided in subsection
10.1(a) of a change of address which, from the effective date of such
notice and until changed by like notice, shall be the address of the
Corporation or the Special Warrant Agent, as the case may be, for all
purposes of this Indenture. A copy of any notice of change of address
given pursuant to this subsection 10.1(b) shall be available for
inspection at the Corporation's office by Special Warrantholders during
normal business hours.
10.2 Notice to the Special Warrantholders
<PAGE>
Any notice to the Special Warrantholders under the provisions of this
Indenture shall be deemed to be validly given if delivered, or if sent by
prepaid first class mail posted from within Canada in envelopes addressed to the
Special Warrantholders at their respective addresses appearing in the register
of holders maintained by the Special Warrant Agent. Any notice so delivered
shall be deemed to have been received on the date of delivery if that date is a
Business Day, or the Business Day following the date of delivery if such date is
not a Business Day, and if mailed shall be deemed to have been received on the
fifth Business Day following the date of deposit in the mail. Accidental error
or omission in giving notice or accidental failure to give notice to any Special
Warrantholder shall not invalidate any action or proceeding founded thereon.
10.3 Mail Service Interruption
If by reason of any interruption of mail service, actual or threatened,
any notice to be given to the Special Warrant Agent, the Corporation or the
Special Warrantholders would reasonably be unlikely to reach its destination in
the ordinary course of mail, such notice shall be valid and effective only if
delivered to the party to which it is addressed or, in the case of a notice to
either the Corporation or the Special Warrant Agent, if sent to such party, at
the appropriate address in accordance with Section 10.1, by facsimile
transmission.
10.4 Counterparts and Formal Date
This Indenture may be executed in several counterparts, each of which
when so executed shall be deemed to be an original and such counterparts
together shall constitute one and the same instrument and notwithstanding their
date of execution shall be deemed to be dated as of the date appearing at the
top of this Indenture.
10.5 Satisfaction and Discharge of Indenture
Upon the date upon which all obligations of the Corporation under this
Special Warrant Indenture have been performed in full (including the obligation
to deliver Common Shares and certificates therefor), this Special Warrant
Indenture shall cease to be of further effect in respect of the Corporation. The
Special Warrant Agent, on written demand of and at the cost and expense of the
Corporation, and upon delivery to the Special Warrant Agent of a certificate of
the Corporation stating that all conditions precedent to the satisfaction and
discharge of this Special Warrant Indenture have been complied with and upon
payment by the Corporation to the Special Warrant Agent of the expenses, fees
and other remuneration payable to the Special Warrant Agent, shall execute
proper instruments acknowledging satisfaction of and discharging this Indenture;
provided that if the Special Warrant Agent has not then performed any of its
obligations hereunder any such satisfaction and discharge of the Corporation'
obligations hereunder shall not affect or diminish the rights of any Special
Warrantholder or the Corporation against the Special Warrant Agent.
<PAGE>
10.6 Provisions of Indenture and Special Warrants for the Sole Benefit of
Parties and Special Warrantholders
Except as provided in Sections 5.2 and 5.3, nothing in this Indenture
or the Special Warrants, express or implied, shall give or be construed to give
to any person other than the parties hereto, the Underwriter (in the case of
Sections 2.10 and 6.9) and the holders from time to time of the Special Warrants
any legal or equitable right, remedy or claim under this Indenture, or under any
covenant or provision herein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and the Special Warrantholders.
IN WITNESS WHEREOF the parties hereto have executed this Indenture
under the hands of their proper officers duly authorized in that behalf.
BID.COM INTERNATIONAL INC.
By:_________________________________
CIBC MELLON TRUST COMPANY
By:_________________________________
By:_________________________________
<PAGE>
-------------------------------------------------
BID.COM INTERNATIONAL INC.
- and -
CIBC MELLON TRUST COMPANY
------------------------------------------------
SPECIAL WARRANT INDENTURE
Providing for the Issue of up to
2,702,703 Special Warrants
of Bid.Com International Inc.
September 30, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Article 1-Interpretation................................................................................ 2
1.1 Definitions............................................................................. 2
1.2 Number and Gender....................................................................... 5
1.3 Interpretation Not Affected by Headings, etc............................................ 6
1.4 Business Day............................................................................ 6
1.5 Time of the Essence..................................................................... 6
1.6 Applicable Law.......................................................................... 6
1.7 Choice of Language...................................................................... 6
1.8 Currency................................................................................ 6
Article 2-Issue of Special Warrants..................................................................... 6
2.1 Issue of Special Warrants............................................................... 6
2.2 Form and Terms of Special Warrants...................................................... 7
2.3 Signing of Special Warrant Certificates................................................. 8
2.4 Certification by the Special Warrant Agent.............................................. 8
2.5 Special Warrantholder Not a Shareholder................................................. 8
2.6 Issue in Substitution for Lost Special Warrant Certificates............................. 9
2.7 Special Warrants to Rank Pari Passu..................................................... 9
2.8 Registers for Special Warrants.......................................................... 9
2.9 Transferee Entitled to Registration..................................................... 10
2.10 Registers Open for Inspection........................................................... 11
2.11 Exchange of Special Warrants............................................................ 11
2.12 Ownership and Transfer of Special Warrants.............................................. 11
2.13 Adjustment of Subscription Rights....................................................... 12
2.14 Adjustment Rules........................................................................ 12
2.15 Notice of Adjustment of Subscription Rights............................................. 13
2.16 Proceedings Prior to any Action Requiring Adjustment.................................... 14
2.17 Protection of the Special Warrant Agent................................................. 14
Article 3-Exercise of Special Warrants.................................................................. 15
3.1 Exercise of Special Warrants and Deemed Exercise of Special Warrants.................... 15
3.2 Effect of Exercise of Special Warrants.................................................. 17
3.3 Postponement of Delivery of Certificates................................................ 17
3.4 Cancellation of Special Warrant Certificates............................................ 17
Article 4-Covenants..................................................................................... 18
4.1 General Covenants....................................................................... 18
4.2 Securities Qualification Requirements................................................... 19
4.3 Special Warrant Agent's Remuneration and Expenses....................................... 20
4.4 Performance of Covenants by Special Warrant Agent....................................... 20
Article 5-Enforcement................................................................................... 20
5.1 Suits by Special Warrantholders......................................................... 20
5.2 Immunity of Shareholders, etc........................................................... 21
5.3 Limitation of Liability................................................................. 21
Article 6-Meetings of Special Warrantholders............................................................ 21
6.1 Right to Convene Meetings............................................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.2 Notice.................................................................................. 21
6.3 Chairman................................................................................ 22
6.4 Quorum.................................................................................. 22
6.5 Power to Adjourn........................................................................ 22
6.6 Show of Hands........................................................................... 22
6.7 Poll and Voting......................................................................... 23
6.8 Regulations............................................................................. 23
6.9 Corporation, Special Warrant Agent and Underwriter may be
Represented............................................................................. 24
6.10 Powers Exercisable by Extraordinary Resolution.......................................... 24
6.11 Meaning of Extraordinary Resolution..................................................... 25
6.12 Powers Cumulative....................................................................... 25
6.13 Minutes................................................................................. 26
6.14 Instruments in Writing.................................................................. 26
6.15 Binding Effect of Resolutions........................................................... 26
6.16 Holdings by the Corporation or Associates or Affiliates of the
Corporation Disregarded................................................................. 27
Article 7-Supplemental Indentures....................................................................... 27
7.1 Supplemental Indentures................................................................. 27
7.2 Successor Corporations.................................................................. 28
Article 8-Concerning the Special Warrant Agent.......................................................... 28
8.1 Trust Indenture Legislation............................................................. 28
8.2 Rights and Duties of Special Warrant Agent.............................................. 29
8.3 Evidence, Experts and Advisers.......................................................... 30
8.4 Documents, Monies, etc. Held by Special Warrant Agent................................... 31
8.5 Action by Special Warrant Agent to Protect Interests.................................... 31
8.6 Special Warrant Agent Not Required to Give Security..................................... 31
8.7 Protection of Special Warrant Agent..................................................... 32
8.8 Replacement of Special Warrant Agent.................................................... 32
8.9 Conflict of Interest.................................................................... 33
8.10 Acceptance of Trusts.................................................................... 34
8.11 Special Warrant Agent Not to be Appointed Receiver...................................... 34
8.12 Authorization to Carry on Business...................................................... 34
8.13 Liability of Special Warrant Agent...................................................... 34
Article 9-Form of Special Warrant....................................................................... 34
9.1 Form of Special Warrant Certificate..................................................... 34
Article 10-General...................................................................................... 44
10.1 Notice to the Corporation and the Special Warrant Agent................................. 44
10.2 Notice to the Special Warrantholders.................................................... 44
10.3 Mail Service Interruption............................................................... 45
10.4 Counterparts and Formal Date............................................................ 45
10.5 Satisfaction and Discharge of Indenture................................................. 45
10.6 Provisions of Indenture and Special Warrants for the Sole Benefit
of Parties and Special Warrantholders................................................... 46
</TABLE>
ii
<PAGE>
Exhibit 3.4
BID.COM INTERNATIONAL INC.
- and -
CIBC MELLON TRUST COMPANY
-----------------------------------------------
Supplemental Warrant Indenture
dated as of December 8, 1999
-----------------------------------------------
<PAGE>
THIS Warrant Indenture dated as of the 8th day of December, 1999, is made
B E T W E E N:
BID.COM INTERNATIONAL 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 pursuant to a Share Purchase Warrant Indenture dated as of
September 30, 1999 (the "Indenture"), the Corporation proposed to create and
issue up to 1,621,621 Warrants to be constituted, issued and sold in the manner
therein set forth; and
WHEREAS the Corporation created and sold 1,854,678 Special Warrants on
September 30, 1999; and
WHEREAS pursuant to a Supplemental Special Warrant Indenture dated as of
October 28, 1999, the Corporation amended the terms of the Special Warrants such
that the Unit issuable upon exercise of Special Warrants shall consist of one
(1) Common Share and one (1) whole Warrant; and
WHEREAS the Corporation has agreed to vary the number and amend the terms
of the Warrants described in the Indenture as herein set forth; and
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:
1. Except as provided herein expressly or by necessary implication, all
capitalized terms used herein and defined in the Indenture shall have the
meanings ascribed to them in the Indenture.
<PAGE>
2. The number of Warrants to be created and issued pursuant to section 2.1 of
the Indenture is hereby changed to 2,225,614.
3. The terms of the Warrants are hereby amended to provide that each whole
Warrant shall entitle the holder to purchase at any time prior to 5:00 p.m.
(Toronto time) on September 30, 2001, one (1) Common Share for $10.00 and the
definition of "Purchase Price" is hereby amended accordingly.
4. The definition of "Broker Warrants" is hereby amended by deleting the
number "270,270" and substituting therefor the number 185,468.
5. The definition of "Special Warrants" is hereby amended to provide that a
Unit shall consist of one (1) Common Share and one (1) whole Warrant or in the
event a receipt by the last of the securities regulatory authorities in the
Qualifying Provinces for a Prospectus is not obtained on or prior to December
29, 1999, a Unit shall consist of 1.1 Common Shares and 1.1 Warrants.
6. Each Warrant certificate (including the forms attached thereto) issued
pursuant to the Indenture and countersigned by the Agent shall hereafter
represent the right to purchase one (1) Common Share for $10.00.
7. Except as modified herein expressly or by necessary implication, all other
terms and provisions of the Indenture are hereby ratified and confirmed as being
in full force and effect on and as of the date hereof.
IN WITNESS WHEREOF the parties hereto have executed this Indenture as of
the 8th day of December, 1999.
BID.COM INTERNATIONAL INC.
Per: "Mark Wallace"
----------------
CIBC MELLON TRUST COMPANY
Per: "Maxine McDonald"
---------------------
Per: "Bruce Cornish"
---------------------
<PAGE>
Exhibit 3.5
THIS SUPPLEMENTAL SPECIAL WARRANT INDENTURE made as of the 8th
day of December, 1999.
B E T W E E N:
BID.COM INTERNATIONAL INC., a corporation constituted under the
laws of the Province of Ontario, Canada
(hereinafter called the "Corporation")
-- and --
CIBC MELLON TRUST COMPANY, a trust company incorporated under the
laws of Canada
(hereinafter called the " Special Warrant Agent")
WHEREAS:
A. Pursuant to a special warrant indenture dated as of September 30, 1999 (the
"Indenture") between the Corporation and the Special Warrant Agent, the
Corporation issued and sold by means of a private placement 1,854,678 special
warrants (the "Special Warrants"). Subject to adjustment in certain events,
each Special Warrant entitles the holder thereof to receive one (1) unit
("Unit"). Each Unit consists of one common share ("Common Share") and one half
of one Common Share purchase warrant ("Share Purchase Warrant"), in the capital
of the Corporation, all upon the terms and conditions herein set forth;
B. The Corporation now deems it necessary to amend the terms and conditions of
the Special Warrants contained in the Indenture as herein provided;
C. The Corporation is duly authorized to amend the Special Warrants as herein
provided;
D. The foregoing recitals are made as representations and statements of fact
by the Corporation and not by the Special Warrant Agent.
NOW THEREFORE for good and valuable consideration mutually given and
received, the receipt and sufficiency of which is hereby acknowledged, it is
hereby agreed and declared as follows:
<PAGE>
1. Except as provided herein expressly or by necessary implication, all
capitalized terms used herein and defined in the Indenture shall have the
meanings ascribed to them in the Indenture.
2. The terms of the Special Warrants as provided in the Indenture are hereby
amended to provide that each Special Warrant authorized and issued pursuant to
the Indenture shall hereafter entitle the registered holder thereof to acquire
(subject to adjustment as provided in sections 2.13 and 2.14 or subsection
2.2(c) of the Indenture) in accordance with section 3.1 of the Indenture,
without payment of additional consideration, one (1) Unit, each Unit consisting
of one (1) Common Share and one (1) whole Share Purchase Warrant.
3. Each whole Share Purchase Warrant shall entitle the holder to purchase at
any time prior to 5:00 p.m. (Toronto time) on September 30, 2001, one (1) Common
Share for $10.00 and the definition of Share Purchase Warrant is hereby amended
accordingly.
4. Each Special Warrant certificate (including the Exercise Form) issued
pursuant to the Indenture and countersigned by the Special Warrant Agent shall
hereafter represent the right to receive a Unit consisting of the securities
described above.
5. Except as modified herein expressly or by necessary implication, all other
terms and provisions of the Indenture are hereby ratified and confirmed as being
in full force and effect on and as of the date hereof.
IN WITNESS WHEREOF the parties hereto have executed this Indenture
under the hands of their proper officers duly authorized in that behalf.
BID.COM INTERNATIONAL INC.
By: "Mark Wallace"
----------------------
CIBC MELLON TRUST COMPANY
By: "Maxine McDonald"
----------------------
By: "Bruce Cornish"
----------------------
