<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1999
Registration No. 333-87537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Amendment No. 1
to
FORM F-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------
E-Cruiter.com Inc.
(Exact Name of Registrant as Specified in its Charter)
Not Applicable
(Translation of Registrant's Name Into English)
Canada Not Applicable
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1510-360 Albert Street
Ottawa, Ontario
Canada KIR-7X7
(613) 236-2263
(Address and Telephone Number
of Registrant's Principal Executive Offices)
CT Corporation
111 Eighth Avenue
New York, NY 10011
(212) 894-8440
(Name, Address and Telephone Number
of Agent for Service of Process)
Copies of communications to:
<TABLE>
<CAPTION>
<S> <C> <C>
Michael A. Gerrior, Esq. Norman Chirite, Esq. Robert J. Mittman, Esq.
Perley-Robertson, Hill & McDougall Weil, Gotshal & Manges LLP Tenzer Greenblatt LLP
90 Sparks Street, 4th Floor 767 Fifth Avenue 405 Lexington Avenue
Ottawa, Ontario KIP1E2 New York, New York 10153-0119 New York, New York 10174
(613) 238-2022 (212) 310-8000 (212) 885-5000
</TABLE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering. / /____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following
box. / /
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[Inside Front Cover]
E-Cruiter Posting Manager
E-Cruiter makes it easy and cost effective to post job openings to multiple
Internet career sites, the career opportunities section of an organization's
web site, as well as the corporate human resources intranet.
[GRAPHIC OMITTED: Image of E-Cruiter Enterprise 2.3 desktop showing various
open windows. Photo collage along left side of page. The following text is
incorporated into the graphics:
o Easily manage all open positions online through the E-Cruiter Posting
Manager.
o The job requisition need only be written once, to be made available to
multiple Internet sites. The manager is able to preview the job requisition,
as it will appear on the Internet.
o One click of the mouse and E-Cruiter posts the job to the corporate web site,
the corporate intranet, or Internet career sites selected by the user.
o Automatically post to selected newsgroups and career sites including
CareerMosaic, PositionWatch and CareerMarketplace.]
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION
DATED NOVEMBER 3, 1999
[GRAPHIC OMITTED]
2,131,838 Common Shares
US $6.00 per Share
E-Cruiter.com Inc. is offering 2,000,000 of its common shares, and the
selling shareholders are offering 131,838 common shares. E-Cruiter will not
receive any proceeds from the sale of shares by the selling shareholders. This
is our initial public offering and there currently is no public market for our
common shares. The offering price may not reflect the market price of our
shares after the offering. We anticipate that our common shares will be listed
on the Nasdaq SmallCap Market under the trading symbol "ECRU."
---------------------
Investing in the common shares involves risks. See "Risk Factors" beginning on
page 9.
---------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Public Underwriting Proceeds Proceeds
Offering Discounts and To To
Price Commissions Company Selling Shareholders
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Per Share.......... US $6.00 US $.58 US $5.42 US $5.42
- ------------------------------------------------------------------------------------------------
Total.............. US $12,791,028 US $1,236,466 US $10,840,000 US $714,562
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
We have granted the underwriter a 45-day option to purchase up to an
additional 319,776 common shares to cover over-allotments. The underwriter is
offering the common shares on a firm commitment basis. Whale Securities Co.,
L.P. expects to deliver the common shares to purchasers on , 1999.
---------------------
Whale Securities Co., L.P.
, 1999
<PAGE>
PROSPECTUS SUMMARY
This is a summary of the information contained in this prospectus. To
understand this offering fully, you should read the entire prospectus,
especially the risk factors.
All dollar amounts appearing in this prospectus represent Canadian
dollars, except where denoted "US dollars" or "US $". All US dollar equivalents
are based on a conversion rate of $1.4725 for every US $1.00, which is the noon
buying rate announced by the Federal Reserve Bank of New York on May 28, 1999,
unless otherwise noted. The noon buying rate on October 29, 1999 was $1.4720
per US $1.00.
Unless the context indicates to the contrary, all per share data and
information relating to our common shares give effect to the recapitalization
of the various classes of our shares into one class of common shares and a
1-for-.216932 reverse share split of our common shares to be effected
immediately before the date of this prospectus and assumes that the
underwriter's over-allotment option is not exercised.
Unless the context indicates to the contrary, the terms "E-Cruiter", "we",
"us" and "our" refer to E-Cruiter.com Inc. and include its wholly-owned
subsidiaries, 3451615 Canada Inc. and E-Cruiter.com USA Inc.
Our Business
We provide Internet-based recruiting services to companies of all sizes.
We began business in the Ottawa, Ontario market in May 1996 and introduced the
first commercial version of our services in August 1997.
Through use of our E-Cruiter Express software, our corporate clients are
able to write one job advertisement that is reformatted by the software and
posted in multiple job sites, that is, commercial Internet sites where
organizations advertise job listings, thereby eliminating the need to reformat
job postings for each site. Our E-Cruiter Enterprise service is offered on a
subscription basis to clients that require more comprehensive recruiting
management services. The subscription contracts are generally for one year with
automatically renewable terms. We derive revenue from the provision of
recruitment management services primarily from client subscriptions for our
services and, to a lesser extent, for posting jobs for clients on the Internet.
Our E-Cruiter Enterprise service includes the powerful posting features of
E-Cruiter Express, as well as the following features:
o resume processing tools which enable clients to screen, search, organize
and manage resumes submitted by job seekers;
o applicant communication tools, including our proprietary e-mail system
which automatically keeps records of the electronic communication
associated with each job opening and generates automatic messages to job
seekers;
o our corporate career site manager tool which enables clients to quickly
set up and maintain a job site on their corporate web site that is linked
with our services; and
o a powerful suite of multi-user workflow features which allows for
collaborative hiring between human resources personnel and hiring managers
within the same organization.
Our services are web-based and can be accessed with any standard web browser,
requiring no additional software or hardware to be deployed by our clients.
We are dependent on maintaining existing relationships with job posting
boards and other online employment sources and on developing new strategic
relationships with third parties, such as value-added service providers, to
continue to offer our clients attractive services.
3
<PAGE>
We believe our services enable companies of every size to take optimal
advantage of the power of the Internet for recruiting, communicating with job
seekers and managing the recruiting process in a cost effective manner. We
believe that, by using our services, companies:
o reduce their time to hire;
o reduce their costs to hire; and
o improve their quality of hire.
Our Clients
Until recently, we have marketed our services primarily in the Ontario
market, including Ottawa and Toronto. Consequently, a large number of our
current clients are enterprises that are based in Ontario or that seek to fill
job openings in Ontario.
The following is a list of our ten largest revenue-generating clients for
our fiscal year ended May 31, 1999:
o Bell Canada Enterprises Inc. o Dell Computer Corporation
o Canadian Imperial Bank of Commerce, o Entrust Technologies Inc.
known as CIBC
o Loblaws Supermarkets Limited
o Clearnet Communications Inc.
o Performance Systematix Inc.
o Compugen Systems Ltd.
o Siemens Information and
o Corel Corporation Communications Networks, Inc.
These clients' business represented approximately 35% of our revenue. We
have recently signed contracts for our E-Cruiter Enterprise service with
MacKenzie Financial Corporation, a large publicly-owned Canadian company, and
Fidelity Investments Canada Ltd.
Our Market Opportunity
We believe that Internet-based recruiting is one of the fastest growing
segments of the human resources software and services industry, and we expect it
to grow significantly over the next few years. Forrester Research estimates that
by 2003, expenditures on Internet-based recruiting will be US $1.7 billion, a
significant increase from US $105 million in 1998, representing an annualized
market growth rate of 75%. We believe that our E-Cruiter services are well
positioned to satisfy the needs of this growing market.
Our Strategy
Our strategy is to capitalize on perceived opportunities arising from the
expanding online recruitment market by:
o providing a comprehensive recruitment service to our clients;
o expanding our E-Cruiter Enterprise sales capability into new Canadian
markets and into key United States markets;
o capitalizing on our reputation and success achieved in Canadian markets
to develop strong relationships and maintain existing relationships with
key strategic partners;
o maintaining technological leadership by developing and acquiring
complementary technologies;
o continuing to provide high-quality and attentive client support; and
o establishing and maintaining industry-wide standards for best practices
methodologies.
4
<PAGE>
Our Formation
We were incorporated on May 24, 1996 under the Canada Business
Corporations Act. Originally we were known as CareerBridge Corporation, and on
February 23, 1999, we changed our name to E-Cruiter.com Inc.
How to Contact Us
Our principal executive offices are located at 1510 - 360 Albert Street,
Ottawa, Ontario, Canada K1R-7X7 and our telephone number is (613) 236-2263,
toll-free 1-877-ECRUITER (327-8483). We maintain a web site at
http://www.ecruiter.com. Information contained in our web site does not
constitute a part of this prospectus.
5
<PAGE>
The Offering
Common shares offered by
E-Cruiter............... 2,000,000 shares
Common shares offered by
selling shareholders.. 131,838 shares
Common shares to be outstanding after this
offering................ 7,062,449 shares
The number of common shares outstanding after this
offering includes 1,198,462 common shares to be
issued immediately before the closing of this
offering upon conversion of outstanding convertible
promissory notes, of which 131,838 common shares
are being offered by the selling shareholders,
assuming this offering closes on October 31, 1999.
The number of common shares outstanding after this
offering does not include:
o 213,184 shares reserved for issuance upon
exercise of the underwriter's warrants;
o 516,641 shares reserved for issuance upon
exercise of options granted under our option
plan;
o 250,000 shares reserved for issuance upon the
exercise of options available for future grant
under our 1999 option plan;
o 319,776 shares reserved for issuance in this
offering to cover over-allotments, if any by the
underwriter; and
o 21,693 shares reserved for issuance upon exercise
of non-plan options.
Use of proceeds.......... We intend to use the net proceeds of this offering
for marketing and advertising, technology
development and acquisition, sales, repayment of
indebtedness, client support and working capital and
general corporate purposes.
Risk factors............. An investment in the common shares is speculative
and involves a high degree of risk. You should
purchase the shares only if you can afford a
complete loss of your investment. You should
consider carefully the risks listed in the "Risk
Factors" section of this prospectus before making an
investment in our shares.
Proposed Nasdaq SmallCap
Market Symbol........... ECRU
---------------------------------
Notice to California investors: Each purchaser of our common shares in
California must be an accredited investor as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, or satisfy
one of the following suitability standards:
o minimum gross income of $65,000 and a net worth, exclusive of home, home
furnishings and automobiles, of $250,000; or
o minimum net worth, exclusive of home, home furnishings and automobiles,
of $500,000.
Notice to Ohio, South Carolina and Washington investors: Each purchaser of
our common shares in Ohio, South Carolina and Washington must be an accredited
investor as that term is defined in Rule 501(a) of Regulation D promulgated
under the Securities Act.
6
<PAGE>
Summary Financial Information
The summary financial information set out below is presented in Canadian
dollars and is derived from the consolidated financial statements appearing
elsewhere in this prospectus. We prepare our financial statements in accordance
with Canadian generally accepted accounting principles, known as Canadian GAAP,
and report in Canadian dollars. These principles conform in all material
respects with U.S. generally accepted accounting principles, known as U.S.
GAAP, except as described in note 14 to the consolidated financial statements.
You should read the information presented below in conjunction with the
consolidated financial statements and the "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of this prospectus.
The following tables include a U.S. dollar convenience translation using
an exchange rate of $1.4725 per US $1.00, the noon buying rate on May 28, 1999.
These translations are not necessarily representative of the amounts that would
have been reported if we had historically reported in U.S. dollars, and the
rate used is not necessarily indicative of the rates in effect at any other
time.
Statements of Loss Data
<TABLE>
<CAPTION>
(Cdn $)
Year Ended May 31, (US $)
---------------------------------------------------- Year Ended
1997 1998 1999 May 31, 1999
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Canadian GAAP:
Revenue ......................... $ 85,524 $ 870,003 $ 1,399,557 $ 950,463
Cost of revenue ................. 57,167 386,391 848,769 576,414
---------- ------------ ------------ ------------
Gross profit .................... 28,357 483,612 550,788 374,049
Expense ......................... 885,602 2,330,397 2,763,198 1,876,535
---------- ------------ ------------ ------------
Net loss ........................ $ (857,245) $ (1,846,785) $ (2,212,410) $ (1,502,486)
========== ============ ============ ============
Net loss per share .............. $ (.53) $ (.58) $ (.57) $ (.39)
========== ============ ============ ============
Weighted average number of shares
outstanding ................... 1,620,669 3,191,297 3,854,579 3,854,579
U.S. GAAP:
Net loss ........................ $ (857,245) $ (1,846,785) $ (4,864,735) $ (3,303,725)
Net loss per share .............. (.53) (.58) (1.26) (.86)
</TABLE>
7
<PAGE>
Balance Sheet Data
In the table below, the "as adjusted" column gives effect to: (1) the
conversion of convertible promissory notes with a carrying value at May 31,
1999 of $2,162,063 (US $1,468,294) into common shares; (2) the issuance of
6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of
$57,498 (US $39,048); and (3) our borrowing of $1,300,000 (US $882,852) under a
loan which we obtained in September 1999 from Paul Champagne, a principal
shareholder of E-Cruiter.
The "as further adjusted" column gives effect to the receipt of estimated
net proceeds from this offering of $14,527,685 (US $9,866,000) and to repayment
of the $1,300,000 (US $882,852) loan.
<TABLE>
<CAPTION>
(Cdn $) (US $)
As of May 31, 1999 As of May 31, 1999
---------------------------------------------- -----------------------------------------------
As As Further As As Further
Actual Adjusted Adjusted Actual Adjusted Adjusted
---------------- ------------- ------------- ---------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Canadian GAAP:
Working capital
(deficit) ............ $ (1,488,371) $ 731,190 $15,258,875 $ (1,010,778) $ 496,564 $10,362,564
Total assets ........... 2,176,210 3,476,210 16,703,895 1,477,902 2,360,754 11,343,902
Total liabilities ...... 3,416,514 2,496,953 1,196,953 2,320,213 1,695,723 812,871
Shareholders' equity
(deficit) ............ (1,240,304) 979,257 15,506,942 (842,311) 665,030 10,531,030
U.S. GAAP:
Working capital
(deficit) ............ $ (1,956,924) $ (1,328,981)
Total assets ........... 2,176,210 1,477,902
Total liabilities ...... 3,845,067 2,611,251
Shareholders' equity
(deficit) ............ (1,708,857) (1,160,514)
</TABLE>
The differences between U.S. GAAP as compared to Canadian GAAP as they affect
our consolidated financial statements are explained in note 14 to notes to
consolidated financial statements. Differences between U.S. GAAP and Canadian
GAAP do not affect our consolidated financial statements for fiscal 1997 and
fiscal 1998.
8
<PAGE>
RISK FACTORS
The shares offered by this prospectus are speculative and involve a high
degree of risk. In addition to other information in this prospectus, you should
consider carefully the following risks before making an investment decision.
Risks Related to Our Financial Condition and Business Model
We have incurred losses since commencing business and expect to incur future
losses.
Since our inception, we have incurred losses which have been substantial
in relation to our operations. As of May 31, 1999, the end of our most recent
fiscal year, we had an accumulated deficit of $4,916,440 (US $3,338,839). We
expect our operating expenses to continue to increase significantly in
connection with our proposed expanded activities, and consequently, it is very
likely that we will continue to incur losses. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Results of
Operations."
We may not become profitable.
Since our inception we have generated relatively small amounts of revenue.
If revenue grows slower than we anticipate or if operating expenses exceed our
expectations, we may not become profitable. Even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis. Failure to achieve or maintain profitability may materially and
adversely affect the market price of our common shares.
We will incur non-cash compensation expenses under U.S. GAAP as options granted
to employees are earned.
We have granted options to purchase 65,080 shares at an exercise price of
$2.30 (US $1.56) per share to some officers and a key employee which will
become earned if the individual achieves specified performance targets at
various times during our fiscal year ending May 31, 2000. These options will
vest immediately upon being earned. To the extent any of these options are
earned, we will incur a non-cash compensation expense under U.S. GAAP in the
fiscal quarter in which the options are earned for the difference between the
fair market value of our shares on the date they are earned and the exercise
price. The effect of this expense would be to reduce our net income or increase
our loss in future periods as reported under U.S. GAAP. In addition, in
September 1999, options to purchase 13,016 shares at an exercise price of $2.30
(US $1.56) per share became earned. We will incur a non-cash expense during the
fiscal quarter ended November 30, 1999 for the difference between the exercise
price and the initial offering price per share.
We may not be able to grow our client base and revenue because of the number of
competitors and the variety of sources of competition we face.
Our future success will depend in large part on our ability to rapidly
grow and maintain our client base and revenue. This requires that we offer
services that are superior to the services being offered by our competitors and
that we price them competitively. We compete for a portion of employers'
recruiting budgets with many types of competitors, as employers typically
utilize a variety of sources for recruiting, including:
o traditional offline recruiting firms;
o traditional offline advertising, such as print media;
o resume processing companies;
o web-based recruitment companies;
o Internet job posting companies; and
o client-server-based software services.
In addition, many employers are developing or may develop their own software to
satisfy their recruitment needs. If we are unable to rapidly grow our client
base and revenue, our business, operating results and financial condition could
be materially adversely affected. See "Business -- Competition."
9
<PAGE>
The increasing competition in our markets could affect our ability to expand.
We expect competition to increase and intensify in the future, with
increased price competition developing for our services. A number of our
current and potential competitors have longer operating histories and
consequently greater financial, technical and marketing resources and name
recognition than we do which could give them a competitive advantage. Our
competitors may develop products or services that are equal or superior to ours
or that achieve greater market acceptance than ours. It is also possible that
new competitors may emerge and rapidly acquire significant market share. As a
result, we may not be able to expand our market share and our ability to enter
new markets may be adversely affected. See "Business -- Competition."
If we experience client attrition, our operating results will be adversely
affected.
Since we generally enter into subscription agreements with our E-Cruiter
Enterprise clients for terms of one year or less, we have no assurance that a
client will remain a long-term client. If we lose a high percentage of clients
after the expiration of their initial subscription, our operating results will
be adversely affected. Since we have only been offering this service for a
short period of time, we do not know what rate of client attrition to expect.
To the extent we experience significant client attrition, we must attract
additional clients to maintain revenue.
Because we have a short operating history, you may not be able to evaluate our
business and prospects.
We have only a limited operating history with which you can evaluate our
business and prospects. We commenced business in May 1996 and introduced the
first commercial version of our services in August 1997. You should consider
our prospects in light of the uncertainties encountered by companies in the
early stages of development in new and rapidly evolving markets, specifically
online recruitment. The uncertainties we face include:
o our ability to develop relationships with posting boards and other online
employment sources to offer an attractive service to our clients;
o the ability of our sources to attract and maintain job candidates;
o the ability of our clients to attract candidates to their corporate web
sites;
o our ability to develop relationships with third parties to expand the
distribution of our services; and
o the emerging nature of the Internet as a medium for recruitment.
As a result of our limited operating history and these uncertainties, it
is difficult to forecast our revenue or operating results.
We may not be able to strengthen and maintain awareness of our brand name.
We believe that our success will depend to a large degree on our ability
to successfully strengthen and maintain our brand recognition and reputation.
In order to strengthen and maintain our brand recognition and good reputation,
we will need to invest heavily in our marketing and maintain high standards for
actual and perceived quality, usefulness, reliability, security and ease of use
of our services. If we fail to successfully promote and maintain our brand,
particularly after incurring significant expenses in promoting our brand, or
encounter legal obstacles which prevent our continued use of our brand name,
our business and the value of your investment could be materially adversely
affected. Moreover, even if we continue to provide good service to our clients,
factors outside of our control, including actions by organizations that are
mistaken for us and factors generally affecting our industry, could affect our
brand and the perceived quality of our services.
Our success will depend on our ability to enter into strategic relationships
with job posting and other online employment sources to offer an attractive
service to our clients and with a variety of third parties to expand the
distribution of our services.
If we are unable to enter into successful strategic relationships, our
business will suffer. We must maintain our existing relationships with job
posting boards and other online employment sources and enter into additional
similar relationships to continue to offer an attractive service. We also must
enter into arrangements with third parties, such as value-added service
providers, to expand the distribution of our services. Because many of these
third parties compete with each other, the existence of a relationship with any
particular third party may limit or preclude us from entering into a
relationship with that third party's competitors. In addition, some of the
third parties with which we seek to enter into relationships may view us
10
<PAGE>
as a competitor and refuse to do business with us. The loss of existing
relationships or our inability to enter into new similar relationships may
adversely affect our ability to improve our services, offer an attractive
service in the new markets that we enter, or expand the distribution of our
services.
We may not be able to expand our business successfully into new geographic
markets.
Until recently, we have marketed our services primarily in the Ontario
market, including Ottawa and Toronto. Consequently, a large number of our
current clients are enterprises that are based in Ontario or that seek to fill
job openings in Ontario. Our success and ability to grow our business will
depend to a significant degree on our ability to market our services
successfully in new geographic markets, including additional key Canadian
markets, such as Quebec and British Columbia, and key United States markets.
See "Business -- Strategy."
Our strategy of targeting sales to medium and large-sized clients is unproven
and may not be successful.
In fiscal 1999, we changed our business strategy from targeting small and
medium-sized clients to targeting medium and large-sized clients. Our change in
focus reduced the number of contracts signed in fiscal 1999 to 49 contracts
with a total completion value of $1,184,000, from 116 contracts signed in
fiscal 1998 with a total completion value of $1,170,696. As this strategy has
not been tested fully, it is still possible that it may prove unsuccessful.
We may lose business if we are not able to successfully develop and introduce
new products, services and features.
If we are unable to develop and introduce new products, services, or
enhancements to, or new features for, existing services, in a timely and
successful manner, we may lose sales opportunities. The market for our services
is characterized by rapid and significant technological advancements, the
introduction of new products and services, changes in client demands and
evolving industry standards. The adoption of new technologies or new industry
standards may render our products obsolete and unmarketable. The process of
developing new services or technologies is complex and requires significant
continuing efforts. We may experience difficulties or funding shortages that
could delay or prevent the successful development, introduction and sale of
enhancements or new products and services. Moreover, new products, services or
features which we introduce may not adequately address the needs of the
marketplace or achieve significant market acceptance.
Our business could suffer if financing is not available when required or is not
available on acceptable terms.
Without the proceeds of this offering (or in its absence, alternative
financing in a substantially equivalent amount) we would not be able to fund
our working capital requirements, anticipated operating cash flow deficit and
capital expenditure requirements for the next 12 months. Our future capital
requirements depend on a number of factors, including our ability to grow our
revenue. We believe that the proceeds from this offering together with our cash
on hand and our banking arrangements will be sufficient to fund our working
capital, anticipated operating cash flow deficit and capital expenditure
requirements for at least 12 months following the closing of this offering.
However, it is possible that we may need to raise additional funds sooner than
expected in order to fund rapid expansion, develop new and enhance existing
services or acquire complementary businesses or technologies. Our business
could suffer if financing is not available when required or is not available on
acceptable terms.
Future financings may be on terms adverse to your interests.
If, in the future, we issue equity or convertible debt securities to raise
additional funds, you may experience significant dilution of your ownership
interest and holders of those securities may have rights senior to those of the
holders of our common shares.
You should not rely on our quarterly operating results as an indication of our
future operating results because they are subject to significant fluctuations.
Fluctuations in our operating results could negatively impact our share price.
Our quarterly operating results may fluctuate significantly because of
several factors, many of which are beyond our control. Factors that may affect
our quarterly results include:
o the rate of growth of Internet usage and Internet-based recruitment
advertising;
o cancellation or non-renewal of existing or future key customer contracts;
11
<PAGE>
o demand for our existing and future services;
o changes in recruitment services pricing;
o seasonal trends in recruiting and the hiring cycles of employers;
o the recruitment advertising budgets of our existing and potential
clients;
o changes in our distribution relationships with recruitment advertising
partners or others;
o costs of acquisitions of businesses or technologies; and
o changes in economic conditions.
As a result, comparisons of quarterly results may not be meaningful and
should not be relied upon, nor will they necessarily reflect our future
performance. Fluctuations in quarterly operating results may adversely affect
the trading price of our common shares if our operating results are below the
expectations of public market analysts and investors.
We are dependent on key management personnel.
Our success will depend largely on the continuing efforts of our executive
officers and senior management, especially those of John Gerard Stanton, our
President and Chief Executive Officer, and Rajesh Rao, our Vice President of
Research and Development. Our business may be adversely affected if the
services of any of our key personnel became unavailable to us. Although several
of our key management personnel, including Messrs. Stanton and Rao, have
entered into employment agreements with us, there is a risk that these
individuals will not continue to serve for any particular period of time. While
we have obtained a key person life insurance policy on the life of Mr. Stanton
in the amount of US $2,000,000, this amount may not be sufficient to offset the
loss of his services. See "Management."
Fluctuations between the Canadian dollar and US dollar could result in currency
exchange losses which would negatively impact our operating results.
The proceeds of this offering will be received in US dollars and may be
invested in United States government securities. Also, as we expand our
business into the United States these revenues will be billed in US dollars
while we expect our costs to continue to be predominantly in Canadian dollars.
The exchange rate between Canadian dollars and US dollars has fluctuated
significantly over the last several years. Any strengthening in the value of
the Canadian dollar against the US dollar could result in lower recorded sales
and/or foreign currency translation losses charged against other income for the
period incurred.
Risks Related to Our Markets
The Internet is an unproven medium for recruitment activities and may not
become widely accepted.
If the Internet does not become a widely used medium for recruiting, we
will not be able to compete successfully with traditional recruiting methods,
our services will not gain widespread market acceptance and our prospects will
be hurt. The online recruiting market is new and rapidly evolving and is
unproven, particularly for jobs in fields other than information technology.
Employers and job seekers have not reached any consensus that Internet
recruiting is an effective means for satisfying their recruitment needs. We may
be unable to persuade a large enough number of employers and job seekers that
Internet recruiting is an efficient means of recruiting or that our services
satisfy their recruitment needs better than traditional methods or other
Internet-based techniques.
Many of our current and targeted corporate clients have only limited
experience in using the Internet for recruiting purposes. They have not yet
adopted corporate policies to spend a significant amount of their recruitment
budgets on Internet-based recruitment or to commit to doing so over long
periods. The adoption of online recruiting requires an acceptance of a new way
of conducting business, exchanging information, applying for jobs and filling
job openings. As a result, our sales force will have to spend a significant
amount of time and resources retaining existing clients and educating potential
clients about our services and the Internet recruiting market, which will
require a substantial investment by us.
12
<PAGE>
Our business could be sensitive to recessions or poor economic conditions in
Canada and the United States.
If a significant economic downturn or recession occurs in Canada or the
United States, our business and the value of your investment could be
materially adversely affected. The demand for our services may be limited to
the level of economic activity and employment in Canada and the United States.
A recession or declining economic conditions could cause employers to reduce or
postpone their recruitment efforts and reduce their budgets for recruiting
activities.
There is significant competition in our industry for highly skilled employees
and our failure to attract and retain technical personnel would adversely
affect our business.
The information technology market is characterized by a high level of
employee mobility and there is strong competition for personnel with Internet
and related technical experience. This competition means there are fewer highly
qualified employees available to hire and the costs of hiring and retaining
these individuals are high. As a result, we may not be able to attract and
retain needed technical personnel. Our inability to hire or retain qualified
individuals may impede our ability to develop new products, services and
features, and our ability to service our clients, expand into new markets or
efficiently conduct our operations, any of which could adversely affect our
business. Furthermore, there is increasing pressure to provide technical
employees with options and other equity interests, which may dilute earnings
per share.
Risks Related to the Internet and Our Technology Infrastructure
Our business could be adversely affected if we are unable to protect our
proprietary technologies.
Our success depends to a significant degree upon the protection of our
proprietary technologies and brand names. The unauthorized reproduction or
other misappropriation of our proprietary technologies could provide third
parties with access to our technologies without payment. If this were to occur,
our proprietary technologies would lose value and our business, results of
operations and financial condition could be materially adversely affected.
We rely upon a combination of copyright, trade secret and trademark laws
and non-disclosure and other contractual arrangements to protect our
proprietary rights. The steps we have taken to protect our proprietary rights,
however, may not be adequate to deter misappropriation of proprietary
information or protect us if misappropriation occurs. Policing unauthorized use
of our technologies and other intellectual property is difficult, particularly
because of the global nature of the Internet. We may not be able to detect
unauthorized use of our proprietary information and take appropriate steps to
enforce our intellectual property rights. If we resort to legal proceedings to
enforce our intellectual property rights, the proceedings could be burdensome
and expensive and could involve a high degree of risk. See "Business --
Intellectual Property Rights."
The inability to enter into and maintain licenses could affect our ability to
offer our services.
We license a portion of the technology that we use from third parties and
we may license additional technologies in the future to manage our services and
provide related services to our clients. We cannot assure you that third-party
technology licenses will continue to be available to us on acceptable
commercial terms or at all. If we are unable to enter into and maintain
necessary technology licenses, we may not be able to offer our services at all
or we may have to modify the services we offer or experience delays in the
development or introduction of new services or enhancements.
Others could claim that we infringe upon their proprietary technologies.
Our products, services, content and brand names may be found to infringe
valid copyrights, trademarks or other intellectual property rights held by
third parties. In the event of a successful infringement claim against us and
our failure or inability to modify our technologies or services, develop
non-infringing technology or license the infringed or similar technology, we
may not be able to offer our services. Any claims of infringement, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management attention, require us to enter into costly royalty or
licensing arrangements, modify our technologies or services or prevent us from
using important technologies or services, any of which could damage our
business and financial condition.
13
<PAGE>
We may become subject to burdensome government regulation which could increase
our costs of doing business, restrict our activities and/or subject us to
liability.
Internet regulation. Uncertainty and new regulations relating to the
Internet could increase our costs of doing business, prevent us from delivering
our services, slow the growth of the Internet or subject us to liability, any
of which could adversely affect our business and prospects. In addition to new
laws and regulations being adopted, existing laws may be applied to the
Internet. There are currently few laws and regulations directly governing
access to or commerce on the Internet. However, due to the increasing
popularity and use of the Internet, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. New and existing laws may
cover issues which include:
o user privacy;
o pricing controls;
o consumer protection;
o libel and defamation;
o copyright and trademark protection;
o characteristics and quality of services;
o sales and other taxes; and
o other claims based on the nature and control of Internet materials.
Advertising regulation. As a web-based recruitment services provider, we
may be subject to various government laws and regulations that regulate
advertising in media, which may include the Internet, and require advertisers
and advertising agencies to have substantiation for advertising claims before
disseminating advertisements. These laws and regulations may prohibit the
dissemination of false, deceptive, misleading and unfair advertising, and may
grant government agencies and ministries enforcement powers to impose civil
penalties, consumer redress, injunctive relief and/or other remedies on
advertisers and advertising agencies that disseminate prohibited
advertisements. As a web-based recruitment services provider, we may be subject
to liability under these laws and regulations if we are found to have
participated actively in creating the advertisement, and knew or had reason to
know that the advertising was false or deceptive.
Computer viruses or software errors may disrupt operations, subject us to a
risk of loss and/or expose us to liability.
Computer viruses may cause our systems to incur delays or other service
interruptions. In addition, the inadvertent transmission of computer viruses or
software errors in new services or products not detected until after their
release could expose us to a material risk of loss or litigation and possible
liability. Moreover, if a computer virus affecting our system is highly
publicized or if errors are detected in our software after it is released, our
reputation could be materially damaged and we could lose clients.
We may experience reduced revenue, loss of clients and harm to our reputation
in the event of system failures.
We may experience reduced revenue, loss of clients and harm to our
reputation in the event of unexpected network interruptions caused by system
failures. Our servers and software must be able to accommodate a high volume of
traffic. We have experienced minor system interruptions in the past, and we
believe that system interruptions will continue to occur from time to time in
the future. Any substantial increase in demands on our services will require us
to spend capital and resources to expand and adapt our network infrastructure.
If we are unable to add additional software and hardware to accommodate
increased demand, we could experience unanticipated system disruptions and
slower response times. Any catastrophic failure at our location facility could
prevent us from serving our clients for a number of days, or possibly weeks,
and any failure of our Internet service provider may adversely affect our
network's performance. Our clients may become dissatisfied by any system
failure that interrupts our ability to provide our services to them or results
in slower response times. Our business interruption insurance may not
adequately compensate us for any losses that may occur due to any failures in
our system or interruptions in our services.
14
<PAGE>
We face a number of risks associated with the year 2000 issue, any of which
could cause a material interruption in our operations.
Computer systems and software must accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, many
software and computer systems may need to be upgraded in order to be year 2000
compliant. We have substantially completed our assessment of the year 2000
readiness of our systems and believe that they are year 2000 compliant. We have
not made any inquiries about the year 2000 compliance of the systems of our
clients. We have inquired about the year 2000 compliance of the systems of our
critical vendors, and all of our critical vendors have assured us that their
systems are year 2000 compliant. However, due to the significant uncertainties
that exist in the software industry concerning the potential effects associated
with the failure of computer systems and software to be year 2000 compliant, we
cannot be certain that our systems or the systems of our clients, job seekers
and critical vendors will in fact be year 2000 compliant when January 1, 2000
arrives, nor can we be certain that we have identified in our assessment all of
the potential risks to our business that could result from matters related to
the year 2000. We have identified the following risks of which you should be
aware:
o The failure of our services to be fully year 2000 compliant could result
in claims by or liability to our clients.
o The purchasing patterns of our clients and potential clients may be
materially adversely affected by year 2000 issues because they may be
required to expend significant resources on year 2000 compliance matters,
rather than investing in new online recruitment services such as those we
offer. In addition, as the new year approaches, employers may elect to
spend a greater portion of their recruiting budgets on traditional
recruitment methods rather than risk disruption in their job
advertisements in the event of technical difficulties related to year 2000
problems.
o The third-party job posting boards and other online employment sources
with which we have relationships may face disruptions in their services to
the extent they experience year 2000 problems which could prevent them
from being available for our clients.
o Disruptions caused by year 2000 problems could affect Internet usage
generally, which could result in a decline in the use of our services.
If any of these risks materialize, there could be a serious disruption of
our operations, and our business, operating results and financial condition
would be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Issues."
<PAGE>
Breaches of our network security could be costly.
If unauthorized persons penetrate our network security, they could
misappropriate proprietary information or cause interruptions in our services.
We may be required to spend capital and resources to protect against or to
alleviate these problems. In addition, because we host data for our clients, we
may be liable to any of those clients that experience losses due to our
security failures. As a result, security breaches could have a material adverse
effect on our business and the value of your investment.
Our business depends on Internet service providers to provide satisfactory
service to our clients to enable them to use our services and access job
candidates online.
Failure of Internet service providers or online service providers to
provide access to the Internet to our clients and job seekers would prevent
them from accessing our web site, which would cause our business to suffer.
Many of the Internet service providers, online service providers and other web
site operators on which we depend have experienced significant service
slowdowns, malfunctions, outages and capacity limitations. If users experience
difficulties using our services due to the fault of third parties, our
reputation could be harmed
Our business depends on the development and maintenance of the Internet
infrastructure.
We cannot assure you that the Internet infrastructure will continue to
effectively support the demands placed on it as the Internet continues to
experience increased numbers of users, greater frequency of use or increased
bandwidth requirements of users. In the past, the Internet has experienced a
variety of outages and
15
<PAGE>
other delays. Any future outages or delays could affect the willingness of
employers to use our online recruitment offerings and of job seekers to post
their resumes on the Internet. If any of these events occur, our business,
results of operations and financial condition could be materially adversely
affected.
Risks Related to this Offering, Our Share Price and Corporate Control
The offering price of our common shares was arbitrarily determined and,
therefore, may not be indicative of their value.
The initial public offering price of our common shares has been
arbitrarily determined by negotiation between us and the underwriter and is not
necessarily related to our assets, book value or potential earnings or any
other recognized criteria of value. Additionally, the initial public offering
price of our common shares may not be indicative of the prices that may prevail
in the public market.
Your investment will be subject to immediate and substantial dilution.
Following this offering, the net tangible book value of a common share
will be US $1.48 and you will have paid US $6.00 per share. As a result, you
will experience immediate and substantial dilution of US $4.52 per share, or
75.3%, between the net tangible book value per common share after this offering
and the initial public offering price per share. This dilution is due to the
fact that our earlier investors paid less than the initial public offering
price when they purchased their shares and because we have incurred losses
since our inception. See "Dilution."
The significant number of outstanding options and warrants could depress the
market price of our common shares and could interfere with our ability to raise
capital.
Upon the closing of this offering, there will be outstanding options and
warrants to purchase an aggregate of 751,518 common shares, including 213,184
common shares issuable upon exercise of the underwriter's warrants, at exercise
prices ranging from US $1.56 to US $9.90 per share. To the extent that the
outstanding options and warrants are exercised, dilution to the percentage of
ownership of our shareholders will occur and any sales in the public market of
the common shares underlying those options and warrants may adversely affect
prevailing market prices for our common shares. Moreover, the terms upon which
we will be able to obtain additional equity capital may be adversely affected
since the holders of outstanding options and warrants can be expected to
exercise them at a time when we would, in all likelihood, be able to obtain any
needed capital on terms more favorable to us than those provided in the
outstanding options and warrants.
Our management's broad discretion in the use of the proceeds of this offering
increases the risk that they will not be used effectively or in a manner with
which our shareholders agree.
We have allocated $1,476,000, or 15.0% of the net proceeds of this
offering, as well as all of the proceeds, if any, from the underwriter's
exercise of the over-allotment option, to working capital and general corporate
purposes. Additionally, the anticipated application of the net proceeds is only
an estimate and may be adjusted from time to time as our management determines
to be appropriate. Accordingly, our management will have broad discretion as to
the net proceeds of this offering which increases the risk that the net
proceeds will not be used effectively or in a manner with which our
shareholders agree.
A portion of the proceeds of this offering will be directed to our principal
shareholder and our officers. This portion of the proceeds will not be
available for other business purposes and these affiliates will receive a
benefit by receipt of the funds.
We intend to use approximately US $890,000 to repay a loan made to us by
Mr. Paul Champagne, our largest shareholder. In addition, Mr. Champagne has
granted us an option to purchase his interest and related rights in WorkLife
Solutions, Inc. for the greater of US $1,000,000, which was the amount of his
investment, and the fair market value of his interest and related rights in
WorkLife. To the extent we exercise the option and the fair market value is
greater than US $1,000,000, Mr. Champagne will realize a profit from his
investment. Additionally, we will use a portion of the proceeds of this
offering allocated to working capital and general corporate purposes to pay the
salaries of our officers to the extent cash flow from our operations is
insufficient for this purpose. Any proceeds used for the above purposes will
not be available for other business purposes.
16
<PAGE>
After this offering, a small number of shareholders, including our officers and
directors, will have the ability to control shareholder votes.
Upon the closing of this offering, our executive officers, directors and
other principal shareholders will hold approximately 61.1% of our outstanding
shares. These shareholders, if acting together, would have the ability to elect
our directors and to determine corporate actions requiring shareholder
approval, irrespective of how other shareholders may vote. The interests of
these shareholders may differ from the interests of our other shareholders.
This consolidation of voting power could also have the effect of delaying,
deterring or preventing a change in our control that might be beneficial to
other shareholders. See "Principal and Selling Shareholders."
A public market for our common shares may not develop or be sustained.
Before this offering, there has been no public trading market for our
common shares. We cannot assure you that a regular trading market for our
common shares will develop after this offering or that, if developed, it will
be sustained. We will apply to list our shares on the Nasdaq SmallCap Market.
Although we believe we meet the initial listing criteria, we cannot assure you
that in the future we will be able to meet the criteria for continued listing.
If, in the future, our common shares are not listed on Nasdaq and the trading
price of our common shares was to fall below US $5.00 per share, trading in our
common shares would become subject to the Securities and Exchange Commission's
penny stock rules, which could severely limit the market liquidity of our
common shares and the ability of purchasers in this offering to sell their
common shares in the secondary market.
The number of shares eligible for future sale could depress the market for our
common shares.
Sales of a substantial number of our common shares in the public market,
or the perception that these sales may occur, could adversely affect the market
price of our common shares. This could also impair our ability to raise
additional capital through the sale of our equity securities. After this
offering, we will have approximately 7,062,449 common shares outstanding or
approximately 7,382,225 shares if the underwriter exercises its over-allotment
option in full. The shares sold in this offering will be freely tradeable. Of
the remaining 4,930,611 shares, none are restricted securities as that term is
defined under Rule 144. However, approximately 3,938,171 shares are held by
officers, directors and other persons who may be deemed to be our affiliates.
Shares held by our affiliates will become eligible for sale in the public
market 90 days after the date of this prospectus and will be subject to the
limitations and other conditions of Rule 144 under the Securities Act. See
"Shares Eligible for Future Sale."
The existence of registration rights could depress the market for our common
shares.
We have granted registration rights with respect to 3,671,540 shares held
by affiliates. These rights become exercisable 12 months after the date of this
prospectus. These registration rights are discussed in the "Description of
Common Shares -- Registration Rights" section of this prospectus. We also have
granted registration rights to the underwriter for the common shares issuable
upon exercise of the underwriter's warrants. These registration rights are
described in the "Underwriting" section of this prospectus. We cannot predict
the effect, if any, that sales of these additional securities or the
availability of these additional securities for sale will have on the market
prices prevailing from time to time.
The market price of our common shares may be extremely volatile.
The market price of our common shares may be highly volatile as a result
of factors specific to us or applicable to our market and industry in general.
These factors include:
o variations in our annual or quarterly financial results or those of our
competitors;
o changes by financial research analysts in their recommendations or
estimates of our earnings;
o conditions in the economy in general or in the information technology
service sector in particular;
o announcements of technological innovations or new products or services by
us or our competitors, and
o unfavorable publicity or changes in applicable laws or regulations, or
their judicial or administrative interpretations affecting us or the
information technology service sectors.
In addition, the stock market has recently been subject to extreme price
and volume fluctuations. This volatility has significantly affected the market
prices of securities issued by many companies for reasons
17
<PAGE>
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
some companies have been sued by their shareholders. If we were sued, it could
result in substantial costs and diversion of management's attention and
resources, which could adversely affect our business.
If we are deemed to be a passive foreign investment company, U.S. holders of
our common shares could become subject to additional taxes.
We do not believe that we are, for U.S. federal tax purposes, a passive
foreign investment company, and we expect to continue to conduct our operations
in a manner that we will not be a passive foreign investment company. If,
however, we are or do become a passive foreign investment company, U.S. holders
could be subject to additional U.S. federal income taxes on distributions or
gains with respect to the common shares, plus an interest charge on taxes
treated as having been deferred by the U.S. holder under the passive foreign
investment company rules. We discuss the tax consequences of becoming a passive
foreign investment company in the "Material Income Tax Considerations" section
of this prospectus.
Because we are a Canadian company, you may not be able to enforce civil
liabilities under the U.S. federal securities laws against us.
We are incorporated in Canada. Our registered office as well as a
substantial portion of our assets are located outside the United States. All of
our directors and officers, some of the selling shareholders and some of the
experts named in this prospectus reside outside the United States. Furthermore,
no treaty exists between the United States and Canada for the reciprocal
enforcement of foreign court judgments. Consequently, it may be difficult to
serve process upon us or our directors and officers in the United States and to
enforce U.S. court judgments obtained against us or our directors and officers
in the Province of Ontario. Perley-Robertson, Hill & McDougall, our Canadian
counsel, has also advised us that there is doubt as to the enforceability of
liabilities predicated on U.S. federal securities laws determined in original
actions in the Province of Ontario.
We have been advised by our Canadian counsel that in its opinion, a
judgment of a court of the United States predicated solely upon civil
liabilities under United States federal securities law may, under some
circumstances, be enforceable in Ontario by an Ontario court against an Ontario
resident as a foreign judgment. A foreign judgment may be enforced against an
Ontario resident if the resident was served while present in the foreign
jurisdiction or voluntarily submitted to the foreign court's jurisdiction by
agreement, or if the foreign jurisdiction had a real and substantial connection
with the subject matter of the proceedings. However, a foreign judgment is not
enforceable in Ontario if obtained by fraud, if there was a failure of natural
justice or if enforcing the foreign judgment would be contrary to the public
policy of Ontario. Any recovery under a foreign judgment would be payable in
Canadian currency. E-Cruiter, John Gerard Stanton, our Chief Executive Officer
and President, Jeffery Potts, our Chief Financial Officer, Evelyn Ledsham, our
Vice President of Sales, Rajesh Rao, our Vice President of Research and
Development, Kimberly Layne, our Director of Marketing and Communications,
Roderick Bryden, a director, John McLennan, a director, Matthew Ebbs, a
director, and each of the selling shareholders have each expressly submitted to
the jurisdiction of the courts of the State of New York and the United States
Federal courts sitting in the City of New York for the purpose of any suit,
action or proceeding arising out of this offering, and they have each appointed
CT Corporation, New York, New York, as their respective agent in the United
States upon which service of process against them may be made for matters
relating to this offering.
18
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" as that term is
defined in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to our future plans, objectives, expectations
and intentions and may be identified by use of forward-looking terminology such
as "estimates," "projects," "believes," "expects," "intends," "plans," "may,"
"would," "could" or "should," or the negative or other variation of these
words, or other similar expressions. All forward-looking statements contained
in this prospectus, including those presented with numerical specificity,
however, are uncertain. Actual results may differ from those discussed in these
statements and you may consider these differences important to your investment
decision. Factors that could contribute to these differences include those
discussed in the "Risk Factors" section and elsewhere in this prospectus. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding market growth. You should not place undue
reliance on the forward-looking statements in this prospectus, which speak only
as of the date the statement is made.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to E-Cruiter from the sale of the 2,000,000 common shares
being offered by E-Cruiter, after deducting underwriting discounts and other
expenses of this offering, are estimated to be US $9,866,000. We will receive
no proceeds from the sale of shares by selling shareholders.
We expect to use the net proceeds during the 12 months following the
closing of this offering as follows:
<TABLE>
<CAPTION>
Approximate
Approximate US Percentage of
Application of Net Proceeds Dollar amount Net Proceeds
- --------------------------- ----------------- --------------
<S> <C> <C>
Marketing and advertising .............................. US $3,000,000 30.4%
Technology development and acquisition ................. 2,300,000 23.3
Sales .................................................. 1,500,000 15.2
Repayment of indebtedness .............................. 890,000 9.0
Client support and network infrastructure .............. 700,000 7.1
Working capital and general corporate purposes ......... 1,476,000 15.0
-------------- -----
Total ................................................. US $9,866,000 100.0%
=============== =====
</TABLE>
Marketing and advertising. We intend to increase the visibility and
awareness of E-Cruiter and our services through an integrated program of
marketing initiatives, including tradeshow participation, seminars, direct
mail, industry analyst meetings and media interviews. We also intend to develop
our web site to provide potential clients with information about E-Cruiter and
our services. In addition, we intend to increase significantly our advertising
efforts, primarily through radio, print and Internet advertising.
Technology development and acquisition. We intend to expand our software
development capability by adding new personnel to continue to enhance our
services. In addition, we have identified WorkLife Solutions, Inc. as a company
with distribution arrangements and technology complementary to our business.
WorkLife is focused on developing and operating career services of major
Internet portals such as AltaVista.com. We are currently developing services
jointly with WorkLife to offer on AltaVista.com's Career Channel. We also
acquired an option from Paul Champagne, our largest shareholder, to acquire his
interest and related rights in WorkLife for the greater of the fair market
value of his interest and related rights in WorkLife and US $1,000,000, at any
time until April 13, 2000, subject to extension until October 13, 2000. As of
the date of this prospectus, we have no plans, agreements, commitments,
understandings or arrangements with respect to any acquisitions, other than the
potential investment in WorkLife.
Sales. We intend to expand our sales efforts, including hiring additional
sales personnel in Canadian markets and building a sales force in key U.S.
markets. We plan to add up to 20 additional sales personnel for our direct
sales and for support for our indirect sales in Canada and the United States.
Repayment of indebtedness. We intend to repay the principal of, and
related interest on, a $1,300,000 (US $882,852) loan which we obtained from Paul
Champagne, our largest shareholder, in September 1999. This loan bears interest
at the Canadian prime lending rate, which was 6.25% per year on October 26,
1999, plus an additional 3% per year and is due on the earlier of March 2000 and
the closing of this offering. We used the proceeds of this loan for working
capital and general corporate purposes.
Client support and network infrastructure. In order to expand and improve
our client support and to provide around the clock services to our clients, we
intend to increase the number of client support and network operations
personnel and expand our network infrastructure. Investments in our
infrastructure include upgrades to our network operations center, network
servers and related software and computers.
Working capital and general corporate purposes. We may use a portion of
the proceeds allocated to working capital and general corporate purposes to pay
a portion of trade payables incurred from time to time and the salaries of our
officers, if cash flow from operations is insufficient for these purposes.
20
<PAGE>
Over-allotment option. If the underwriter exercises its over-allotment
option in full, after deducting underwriting discounts and other expenses of
this offering, we will realize additional net proceeds of US $1,675,626 all of
which will be allocated to working capital and general corporate purposes.
The foregoing description represents our best estimate of the allocation
of the net proceeds of this offering based upon the current status of our
business. We based this estimate on assumptions, which include: a continued
expansion of our client base and corresponding increases in revenue; completion
of our proposed new services release; and the introduction of our new services
without unanticipated delays or costs. If any of these factors changes, we may
find it necessary to reallocate a portion of the proceeds within the
above-described categories or use portions of the proceeds for other purposes.
Our estimates may prove to be inaccurate, new programs or activities may be
undertaken which will require considerable additional expenditures, or
unforeseen expenses may occur.
Based upon our current plans and assumptions relating to our business
plan, we anticipate that the net proceeds of this offering will satisfy our
capital requirements for at least 12 months following the closing of this
offering. If our plans change or our assumptions prove to be inaccurate, we may
need to seek additional financing sooner than currently anticipated or curtail
our operations. We cannot assure you that the proceeds of this offering will be
sufficient to fund our proposed expansion or that additional financing will
become available if needed.
We intend to invest proceeds not immediately required for the purposes
described above principally in Canadian or United States government securities,
short term certificates of deposit, money market funds or other short-term
interest-bearing investments.
21
<PAGE>
DILUTION
The difference between the initial public offering price per share and the
net tangible book value per share after this offering constitutes the dilution
to investors in this offering. Net tangible book value per share is determined
by dividing total tangible assets less total liabilities by the number of
outstanding common shares.
On May 31, 1999, we had a net tangible book value of $877,557 (US
$595,964) or $.17 (US $.12) per share, assuming conversion of outstanding
convertible promissory notes into 1,198,462 common shares and the issuance of
6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of
$57,498 (US $39,048). After giving effect to the sale of the 2,000,000 common
shares being offered by E-Cruiter and after deducting estimated underwriting
discounts and expenses of this offering, our adjusted net tangible book value
on May 31, 1999 would have been $15,405,242 (US $10,461,964) or $2.18 (US
$1.48) per share, representing an immediate increase in our net tangible book
value of US $1.36 per share to the existing shareholders and an immediate
dilution of US $4.52 per share or, 75.3%, to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price ........................... US $6.00
Net tangible book value before offering .............. US $ .12
Increase attributable to new investors ............... US $1.36
---------
Adjusted net tangible book value after offering ......... US $1.48
--------
Dilution to new investors ............................... US $4.52
========
</TABLE>
As of the date of this offering, the following table illustrates a
comparison of the number of common shares we issued, the percentage ownership
of those shares, the total consideration paid, the percentage of total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
----------------------- ----------------------------- Average Price
Number Percent Amount Percent Per Share
----------- --------- ----------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing shareholders ......... 5,062,449 71.7% US $ 4,319,756 26.5% US $ .85
New investors ................. 2,000,000 28.3 12,000,000 73.5 US $6.00
--------- ----- --------------- -----
7,062,449 100.0% US $16,319,756 100.0%
========= ===== =============== =====
</TABLE>
Sales by selling shareholders in this offering will reduce the number of
common shares held by existing shareholders to 4,930,611, or approximately
69.8%, approximately 66.8% if the over-allotment option is exercised in full,
and will increase the number of common shares purchased by new investors to
2,131,838, or approximately 30.2%, or 2,451,614 shares, or approximately 33.2%
if the over-allotment option is exercised in full, of the total number of
common shares.
The above table assumes that the underwriter's over-allotment option is
not exercised. If the underwriter exercises the over-allotment option in full,
it is estimated that the new investors will have paid US $13,918,656 for the
2,319,776 common shares being offered by E-Cruiter, representing approximately
76.5% of the total consideration for 31.5% of the total number of common shares
outstanding. The above table does not give effect to the shares issuable upon
exercise of the options and warrants.
22
<PAGE>
DIVIDENDS
We have never declared or paid any dividends to the holders of our common
shares and we do not anticipate paying cash dividends in the future. We
currently intend to retain all earnings for use in connection with the
expansion of our business and for general corporate purposes. Our board of
directors will have the sole discretion in determining whether to declare and
pay dividends in the future. The declaration of dividends will depend on our
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by our board of directors. Our ability to pay
cash dividends in the future could be limited or prohibited by regulatory
requirements and the terms of financing agreements that we may enter into or by
the terms of any preferred stock that we may authorize and issue.
EXCHANGE RATES
The following table lists the average, high, low and period-end 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
periods indicated. The average rate is the average of the exchange rates on the
last day of each month during a year.
<TABLE>
<CAPTION>
Period
Year Ended December 31, End Average High Low
- ----------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
1994 .............................. $ 1.4030 $ 1.3700 $ 1.4078 $ 1.3103
1995 .............................. 1.3655 1.3689 1.4238 1.3285
1996 .............................. 1.3697 1.3644 1.3822 1.3310
1997 .............................. 1.4288 1.3894 1.4398 1.3357
1998 .............................. 1.5375 1.4894 1.5770 1.4075
1999 (through October 29) ......... 1.4720 1.4877 1.5302 1.4512
</TABLE>
On May 28, 1999, the noon buying rate was $1.4725 per US $1.00. We used
this exchange rate to calculate the U.S. dollar equivalents provided in this
prospectus, unless otherwise noted. On October 29, 1999, the noon buying rate
was $1.4720 per US $1.00.
23
<PAGE>
CAPITALIZATION
The following table, based on our consolidated financial statements
prepared in accordance with Canadian GAAP, shows our capitalization as of May
31, 1999 on an actual basis, an as adjusted basis, and an as further adjusted
basis.
The "as adjusted" column gives effect to: (1) the conversion of
convertible promissory notes with a carrying value of $2,633,554 (US
$1,788,492) at October 31, 1999 into 1,198,462 common shares; (2) the issuance
of 6,508 common shares in September 1999 to satisfy a May 31, 1999 liability of
$57,498 (US $39,048); and (3) our borrowing of $1,300,000 (US $882,852) under a
loan which we obtained in September 1999 from Paul Champagne, a principal
shareholder of E-Cruiter. The $471,491 (US $320,198) increase in carrying value
of the promissory notes from $2,162,063 (US $1,468,294) at May 31, 1999 to
$2,633,554 (US $1,788,492) at October 31, 1999 reflects additional accrued
interest and amortization on the notes during that period and has been
reflected as an increase in the deficit.
The "as further adjusted" column gives effect to receipt of the
anticipated net proceeds of $14,527,685 (US $9,866,000) from the sale of
2,000,000 common shares being offered by us and gives effect to repayment of
the loan described above.
The number of shares presented in the following table does not include:
o the 213,184 shares reserved for issuance upon exercise of the
underwriter's warrants;
o the 516,641 shares reserved for issuance upon exercise of options granted
under our option plan;
o the 250,000 shares reserved for issuance upon exercise of options
available for future grant under our 1999 option plan;
o the 319,776 shares reserved for issuance in this offering to cover
over-allotments, if any, by the underwriter; and
o the 21,693 shares reserved for issuance upon exercise of non-plan
options.
The convertible promissory notes are included in the "actual"
capitalization due to the equity conversion feature and our intention to
convert these notes immediately before the closing of this offering.
The information presented below is in Canadian dollars and includes U.S.
dollar convenience translations using an exchange rate of $1.4725 per US $1.00,
the noon buying rate on May 28, 1999.
<TABLE>
<CAPTION>
(Cdn $)
As of May 31, 1999
-------------------------------------------------
As Further
Actual Adjusted Adjusted
--------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Short-term debt:
Short-term loan ............................ $ -- $ 1,300,000 $ --
Current portion of long-term debt .......... 84,173 84,173 84,173
------------ ------------- ------------
Total .................................... $ 84,173 $ 1,384,173 $ 84,173
============ ============= ============
Convertible promissory notes ................ $ 2,162,063 $ -- $ --
Long-term debt, excluding current portion ... 40,000 40,000 40,000
------------ ------------- ------------
Total ..................................... 2,202,063 40,000 40,000
------------ ------------- ------------
Shareholders' equity (deficit):
Common shares, without par value,
unlimited number authorized;
3,857,479 shares outstanding, actual;
5,062,449 shares, as adjusted (unau-
dited) and 7,062,449 shares, as further
adjusted (unaudited) ...................... 3,541,040 6,367,188 20,894,873
Convertible promissory notes -- equity
component ................................. 135,096 -- --
Deficit .................................... (4,916,440) (5,387,931) (5,387,931)
------------ ------------- ------------
Total shareholders' equity
(deficit) ................................ $ (1,240,304) $ 979,257 $ 15,506,942
------------ ------------- ------------
Total capitalization ..................... $ 961,759 $ 1,019,257 $ 15,546,942
============ ============= ============
<CAPTION>
(US $)
As of May 31, 1999
-------------------------------------------------
As Further
Actual Adjusted Adjusted
--------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Short-term debt:
Short-term loan ............................ $ -- $ 882,852 $ --
Current portion of long-term debt .......... 57,163 57,163 57,163
------------- ------------- ------------
Total .................................... $ 57,163 $ 940,015 $ 57,163
============= ============= ============
Convertible promissory notes ................ $ 1,468,294 $ -- $ --
Long-term debt, excluding current portion ... 27,165 27,165 27,165
------------- ------------- ------------
Total ..................................... 1,495,459 27,165 27,165
------------- ------------- ------------
Shareholders' equity (deficit):
Common shares, without par value,
unlimited number authorized;
3,857,479 shares outstanding, actual;
5,062,449 shares, as adjusted (unau-
dited) and 7,062,449 shares, as further
adjusted (unaudited) ...................... 2,404,781 4,324,066 14,190,066
Convertible promissory notes -- equity
component ................................. 91,746 -- --
Deficit .................................... (3,338,838) (3,659,036) (3,659,036)
------------- ------------- ------------
Total shareholders' equity
(deficit) ................................ $ (842,311) $ 665,030 $ 10,531,030
------------- ------------- ------------
Total capitalization ..................... $ 653,148 $ 692,195 $ 10,558,195
============= ============= ============
</TABLE>
Under U.S. GAAP, giving the same effect to the adjustments described
above, actual, as adjusted and as further adjusted, total capitalization as of
May 31, 1999 would be the same as under Canadian GAAP.
24
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial information below is presented in
Canadian dollars and is derived from our consolidated financial statements for,
and as of the end of, fiscal year ended May 31, 1999 which have been audited by
PricewaterhouseCoopers, LLP, chartered accountants.
The consolidated financial statements have been prepared in accordance
with Canadian GAAP. These principles conform in all material respects with U.S.
GAAP, except as described in note 14 to the consolidated financial statements.
You should read the information presented below in conjunction with the
consolidated financial statements and with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of this
prospectus.
The following tables include a U.S. dollar convenience translation below
using an exchange rate of $1.4725 per US $1.00, the noon buying rate on May 28,
1999. These translations are not necessarily representative of the amounts that
would have been reported if we had historically reported in U.S. dollars, and
the rate used is not necessarily indicative of the rates in effect at any other
time.
In the statements of loss table below, pro forma net loss per common share
has been determined based on the assumption that note holders converted their
notes into 1,128,045 common shares immediately upon issuance as required under
Canadian and U.S. GAAP.
Statements of Loss
<TABLE>
<CAPTION>
(Cdn $)
Year Ended May 31, (US $)
---------------------------------------------------- Year Ended
1997 1998 1999 May 31, 1999
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Canadian GAAP:
Revenue .............................. $ 85,524 $ 870,003 $ 1,399,557 $ 950,463
Cost of revenue ...................... 57,167 386,391 848,769 576,414
---------- ------------ ------------ ------------
Gross profit ......................... 28,357 483,612 550,788 374,049
---------- ------------ ------------ ------------
Expense:
Selling ............................. 125,785 652,118 818,601 555,926
Marketing ........................... 258,256 817,291 612,796 416,160
General and administrative .......... 243,304 350,014 725,713 492,844
Research and development ............ 258,257 510,974 606,088 411,605
---------- ------------ ------------ ------------
Total expense ..................... 885,602 2,330,397 2,763,198 1,876,535
---------- ------------ ------------ ------------
Net loss ............................. $ (857,245) $ (1,846,785) $ (2,212,410) $ (1,502,486)
========== ============ ============ ============
Net loss per share ................... $ (.53) $ (.58) $ (.57) $ (.39)
========== ============ ============ ============
Weighted average number of shares
outstanding ......................... 1,620,669 3,191,297 3,854,579 3,854,579
Pro forma net loss per share ......... $ (.53) $ (.36)
Pro forma weighted average number of
shares outstanding .................. 3,960,964 3,960,964
U.S. GAAP:
Net loss ............................. $ (857,245) $ (1,846,785) $ (4,864,735) $ (3,303,725)
Net loss per share ................... (.53) (.58) (1.26) (.86)
</TABLE>
25
<PAGE>
Balance Sheet Data
<TABLE>
<CAPTION>
(Cdn $) (US $)
As of May 31,
----------------------------------------------- As of
1997 1998 1999 May 31, 1999
----------- -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Canadian GAAP:
Working capital (deficit) .............. $201,386 $ (167,186) $ (1,488,371) $ (1,010,778)
Total assets ........................... 406,537 700,826 2,176,210 1,477,902
Total liabilities ...................... 180,252 833,816 3,416,514 2,320,213
Shareholders' equity (deficit) ......... 226,285 (132,990) (1,240,304) (842,311)
U.S. GAAP:
Working capital (deficit) .............. $201,386 $ (167,186) $ (1,956,924) $ (1,328,981)
Total assets ........................... 406,537 700,826 2,176,210 1,477,902
Total liabilities ...................... 180,252 833,816 3,845,067 2,611,251
Shareholders' equity (deficit) ......... 226,285 (132,990) (1,708,857) (1,160,514)
</TABLE>
The differences between U.S. GAAP as compared to Canadian GAAP as they affect
our consolidated financial statements are explained in note 14 to notes to
consolidated financial statements. Differences between U.S. GAAP and Canadian
GAAP do not affect our consolidated financial statements for fiscal 1997 and
fiscal 1998.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the
consolidated financial statements and notes to the consolidated financial
statements appearing elsewhere in this prospectus. The following discussion is
presented in Canadian dollars.
Evolution of our Business
In 1997, we launched CareerBridge.com, a regional-based job board focused
on the high-technology industry in Ottawa, Canada. We believe that as a result
of aggressive promotion, CareerBridge.com became the leading regional online
job board for technology careers, serving as a free job search service for
individuals, and as a paid posting service for organizations.
Initially, we were a web-based recruitment advertiser, known in the
marketplace as a job board. As a job board, our service allowed organizations
to advertise their job openings on our web site and allowed individuals to
review employment opportunities and apply online. However, we determined early
in our existence that simply offering a web-based job board did not address all
of the recruiting needs of organizations. To address these needs, in March
1999, we launched E-Cruiter Enterprise, a service designed to be a
comprehensive recruitment management service.
In September 1999, we entered into a letter of intent to sell our
CareerBridge.com regional-based job board business to Thomson Canada Limited,
owner of GlobeCareers, a large Canadian job board. As consideration for the
sale, we will have the right to resell GlobeCareers' services for three years,
and, for the first year after closing, we will receive favorable prices to post
jobs to GlobeCareers' job board. We will also receive advertising exposure in
The Globe and Mail, a national Canadian newspaper, and advertising exposure on
the GlobeCareers.com and Globeandmail.com web sites. We estimate that we will
receive consideration in excess of $700,000 over a three year period. We
anticipate the sale will be completed by December 1999. We cannot assure,
however, that this transaction will be completed on the proposed terms or at
all.
Results of Operations
Fiscal year ended May 31, 1999 compared to fiscal year ended May 31, 1998
Our revenue for the year ended May 31, 1999 was $1,399,557, an increase of
60.9% as compared to revenue of $870,003 for the year ended May 31, 1998. Our
revenue is earned principally from two web-based services: (a) E-Cruiter
Enterprise, our comprehensive recruitment management service; and (b) E-Cruiter
Express, our job posting service designed for organizations which just want to
advertise their job requisitions on multiple sites on the Internet. Our
accounting policy is to recognize recruitment services, which includes access
to services, upgrades and enhancements, set up, training and support, ratably
over the term of client contracts. Professional services, which are provided on
a time and materials basis, are recognized as services are delivered. Revenue
from clients who post their jobs on the Internet is recognized when the job
requisition is posted. Nearly all of our revenue has been generated by clients
operating in Canada.
Revenue from E-Cruiter Enterprise services increased 41.5% to $1,094,632
in fiscal 1999 from $773,797 in fiscal 1998. Despite this upward trend, our
revenue from E-Cruiter Enterprise services was less than anticipated due to our
change in sales strategy in mid-fiscal 1999. We decided to target our sales
efforts to medium and larger clients, a change from our original strategy of
targeting sales to small and medium clients. Our change of focus reduced the
number of contracts signed. In fiscal 1999, we signed 49 contracts with a total
completion value of $1,184,000. In fiscal 1998, we signed 116 contracts with a
total completion value of $1,170,696. However, the average size of sales
contracts increased to $24,163 in fiscal 1999 from $10,092 in fiscal 1998.
Revenue from the sale of E-Cruiter Express services increased from $96,165
in fiscal 1998 to $305,013 in fiscal 1999. This 217.2% increase in revenue
primarily relates to the introduction in March 1998 of our new job posting
software which allows organizations to use the same job requisition to post to
multiple job boards at the same time without having to reformat the original
posting each time.
27
<PAGE>
Our cost of revenue in fiscal 1999 was $848,769 compared to $386,391 in
fiscal 1998, an increase of 119.7%. Our cost of revenue includes the cost of
client support, charges for posting to third-party job boards and our network
operations. The change in each of these expenses from fiscal 1998 to fiscal
1999 is explained as follows:
o Client support expenses were $333,093 in fiscal 1999 compared to $127,808
in fiscal 1988, an increase of 160.6%. This reflects an addition of three
client support personnel and the associated costs of providing these
personnel with computers and related work tools. Our goal is to provide
better client support than any of our competitors to result in annual
subscription renewals.
o Charges by PositionWatch Ltd., a company that posts jobs to the Internet
for us on a wholesale basis, totalled $76,932 in fiscal 1999 compared to
$19,232 in fiscal 1998, an increase of 300%. This reflects the
introduction of our multi-posting capability in March 1998 where clients
use our services to post jobs to other job boards.
o The cost of supporting our networks increased to $438,744 in fiscal 1999
from $239,351 in fiscal 1998, an increase of 83.3%. These higher costs
largely reflect the addition of two personnel and increased amortization
charges from the purchase of additional servers and related software. We
made these investments in anticipation of additional business volume in
fiscal 2000. We have established a goal of zero unplanned network down
time given that our client commitment is service availability 24 hours a
day, seven days a week, 365 days a year. Accordingly, we expect that
expenses in this area will continue to increase as business volume
increases.
Total expense increased by 18.6% in fiscal 1999 to $2,763,198 from
$2,330,397 in fiscal 1998. Expense consists of the following cost categories:
selling, marketing, general and administrative and research and development.
The change in total expenses from fiscal 1998 to fiscal 1999 is explained as
follows:
o Selling expense in fiscal 1999 increased to $818,601 from $652,118 in
fiscal 1998. This selling expense was primarily attributable to increased
selling activities during the final two quarters of fiscal 1999. Five new
sales representatives were hired to provide greater direct sales coverage
in Toronto, Ontario. We expect selling expense to continue to increase as
we enter new markets and expand our selling efforts.
o An increase in general and administrative expenses also contributed to
the overall increase in expense for fiscal 1999. General and
administrative expenses were $725,713 in fiscal 1999 compared to $350,014
in fiscal 1998. These costs were higher largely as a result of an
increase in personnel, consulting fees and increased legal costs. Accrued
interest and amortization costs associated with the issuance of
promissory notes in fiscal 1999 accounted for $104,238 of the higher
costs. We did not incur any of these costs in fiscal 1998.
o An increase in research and development costs to $606,088 in fiscal 1999
from $510,974 in fiscal 1998. This increase reflects the addition of
several new software engineering and software verification personnel
during the latter part of the year. We expect that the increase in
additional personnel will further increase our research and development
costs in fiscal 2000 as the additional costs will be incurred for the
full year. Research and development expenses were partially offset by
$103,253 of Canadian federal and provincial government tax credits.
o Lower marketing expenses in fiscal 1999 partially offset our increased
selling, general and administrative and research and development
expenses. Reflecting the change in business strategy in fiscal 1999
described above, marketing expenses decreased to $612,796 in fiscal 1999
from $817,291 in fiscal 1998. Upon changing our business focus from a job
board business to a total recruitment management business, we decreased
our marketing expenditures related to the job posting service. We expect
that marketing expenses will increase, however, as we enter new markets.
Our net loss for fiscal 1999 was $2,212,410 compared to a net loss of
$1,846,785 for fiscal 1998.
Fiscal year ended May 31, 1998 compared to fiscal year ended May 31, 1997
Revenue for fiscal 1998 was $870,003 compared to revenue of $85,524 for
fiscal 1997, due to higher sales volume. Fiscal 1998 represented our first full
year of selling our E-Cruiter services. In fiscal 1997, our business was
limited to recruitment advertising through our job board, CareerBridge.com,
which became commercially available in February 1997.
28
<PAGE>
Our cost of revenue in fiscal 1998 was $386,391 compared to $57,167 for
fiscal 1997. This increase primarily relates to higher business volume and the
associated costs of expanding network operations, customer support activities
and, in the fourth quarter of fiscal 1998, the charges for posting to
third-party job boards. In fiscal 1997, our cost of revenue consisted primarily
of the salary of one employee.
Total expense increased to $2,330,397 in fiscal 1998 from $885,602 in
fiscal 1997. In order to effectively market our services, marketing
expenditures increased by $559,035 from fiscal 1997 to fiscal 1998. In
addition, we established a sales force during fiscal 1998. As a result, selling
costs increased by $526,333. Research and development totalled $510,974 in
fiscal 1998 as compared to $258,257 in fiscal 1997. The increase reflects the
addition of software engineers who were hired to develop our E-Cruiter
recruitment services software.
Our net loss for fiscal 1998 was $1,846,785 compared to a net loss of
$857,245 for fiscal 1997.
Liquidity and Capital Resources
Our capital requirements have exceeded our cash flow from operations as we
have been building our business. As of May 31, 1999, we had a working capital
deficit of $1,488,371. As a result, we have been substantially dependent upon
sales of common shares and private placements of convertible promissory notes
to finance our working capital requirements.
Over the period of May 1996 to October 1999, we raised a total of
approximately $7,773,540 as follows:
Share and note issuances
o In fiscal 1997, we raised $1,083,530 through the issuance of common
shares. Of this total amount, we issued 325,398 common shares to Paul
Champagne at a price of approximately $2.07 per share for proceeds of
$675,000.
o In fiscal 1998, we raised $1,500,010 through the issuance of common
shares to Paul Champagne at a price of approximately $1.84 per share for
proceeds of $1,500,010.
o In fiscal 1999, we raised $1,000,000 from the issuance of common shares
to Paul Champagne at a price of approximately $2.30 per share. As a
result of this purchase, Mr. Champagne became our largest shareholder.
o Over the period of January 22, 1999 to May 26, 1999, we issued 18 senior
secured convertible promissory notes totalling $2,600,000. The cost to
issue the 18 promissory notes totaled $407,079, of which $330,000 was
accrued and unpaid as of May 31, 1999. The notes bear interest at 12% per
year, are secured by substantially all of our assets and mature on
January 22, 2000. The principal and accrued interest on the notes are
convertible into common shares at the rate of 0.433863 shares for every
Canadian dollar of principal and accrued interest on the date of
conversion, the equivalent of $2.30 per share.
Borrowings from a bank
o On September 25, 1997, we entered into a small business loan agreement
with a bank, under which we borrowed $100,000 to finance the purchase of
computers and related equipment, computer software and a voicemail
system. The loan is secured by the assets purchased, bears interest at
the Canadian prime lending rate plus 3% per year, and is payable in equal
monthly installments over the period of January 1998 to December 31,
2000.
o In April 1999, we entered into a $190,000 loan agreement with the same
bank on similar terms for the purchase of computers and related software.
This additional loan is repayable over the two-year period ending July
31, 2001. We have pledged the assets purchased as security for the loan.
Borrowings from a shareholder
o In September 1999, Paul Champagne provided us with a $1,300,000 (US
$882,852) loan which bears interest at the Canadian prime lending rate
plus 3% per year. This loan is due on the earlier of March 2000 and the
closing of this offering.
29
<PAGE>
Our financing practice has been to finance most of our fixed assets
through bank loans and capital leases with third-party financing companies.
From May 24, 1996 to May 31, 1999, we entered into 11 separate leasing
arrangements with annual interest rates that range from 12.3% to 27.0% and
which mature over varying periods of time. We have pledged the assets purchased
as security for the leases. In fiscal 1998, we entered into capital leases
totalling $100,822 to finance the purchase of computers and related equipment.
In fiscal 1999, we entered into capital leases totalling $63,149 to finance the
purchase of computers and related equipment.
Net cash used in operating activities was $1,970,187 in fiscal 1999,
$1,558,718 in fiscal 1998 and $726,348 in fiscal 1997. Net cash used resulted
from operating losses and changes in accounts receivable, prepaid expenses,
investment tax credits, accounts payable and accrued liabilities and deferred
revenue.
Net cash used in investing activities was $105,588 in fiscal 1999, $97,413
in fiscal 1998 and $60,127 in fiscal 1997. Our investing activities during
these periods consisted of purchasing computers, software, office equipment and
furniture. The significant increase in accounts payable and accrued liabilities
at May 31, 1999 as compared to May 31, 1998 reflects the purchase of computer
equipment for new personnel and new equipment and software for our network
operations financed with the small business loan described above.
Gross proceeds from the issuance of promissory notes and common shares
totalled $3,600,000 in fiscal 1999. As discussed above, we received $2,600,000
in proceeds from the issuance of 12% senior secured convertible promissory
notes and $1,000,000 from the issuance of common shares. The cost to issue the
promissory notes totalled $407,079, of which $330,000 was accrued and unpaid as
of May 31, 1999. We used $105,603 to make repayments on our small business loan
and our capital leases during the year. We also used $30,000 to repurchase
13,016 common shares from some of our shareholders at their original issuance
price of approximately $2.30 per share. These shares were subsequently
cancelled. These transactions provided us with $3,387,318 of cash from
financing activities.
Gross proceeds from the issuance of common shares and the small business
bank loan discussed above totalled $1,600,010 in fiscal 1998. We used $34,195
to make repayments on our small business loan and our capital leases. We also
used $12,500 to repurchase 5,423 common shares from some of our shareholders at
their original issuance price of approximately $2.30 per share. These shares
were subsequently cancelled. These transactions provided us with $1,553,315 of
cash from financing activities.
During fiscal 1997, we raised $1,083,530 through the issuance of common
shares.
As of May 31, 1999, we had cash and cash equivalents of $1,505,782.
In September 1999, Paul Champagne provided us with a $1,300,000 (US
$882,852) loan which bears interest at the Canadian prime lending rate plus 3%
per year. This loan is due on the earlier of March 2000 and the closing of this
offering. We used the proceeds of this loan for working capital and general
corporate purposes.
We need the proceeds of this offering to expand our operations and finance
our future working capital requirements. Based on our current plans and
assumptions relating to our business plan, we anticipate that the net proceeds
of this offering will satisfy our capital requirements for at least 12 months
following the closing of this offering. If our plans change or assumptions
prove to be inaccurate, we may need to seek additional financing sooner than
currently anticipated or curtail our operations. We cannot assure you that the
proceeds of this offering will be sufficient to fund our proposed expansion or
that additional financing will become available when needed. We will be
materially adversely affected if we do not obtain financing when needed. We may
seek additional debt or equity financing to fund the cost of continued
operations.
Net Operating Loss Carryforwards
Our net operating loss carryforwards totalled approximately $4,531,000
(US $3,077,080) as of May 31, 1999. Under the Income Tax Act (Canada)
utilization of prior non-capital losses may be limited after an acquisition of
control. This limitation ensures that non-capital losses of prior years are
applied only against income from the same or similar business that gave rise to
the non-capital losses, provided that such business is carried on with a
reasonable expectation of profit throughout the year. Further, any such
acquisition of
30
<PAGE>
control would create a deemed year-end for tax purposes, with the result that
the required time frame for the utilization of non-capital losses is moved
forward by up to one year. The issuance of additional equity securities,
together with our recent financings and this offering, could result in an
acquisition of control, and, thus could limit our use of prior non-capital
losses. In the event we achieve profitable operations, any significant
limitation on the utilization of our non-capital losses would have the effect
of increasing our tax liability and reducing future net income and available
cash reserves. We are unable to determine the availability of these non-capital
losses since the availability is dependent upon future circumstances.
We have incurred scientific research and experimental development
expenditures of approximately $212,000 which remain unused at May 31, 1999 for
tax purposes. These expenditures can be carried forward indefinitely and
applied against operating income to reduce income taxes otherwise payable in
future years.
Year 2000 Issues
We have devised a plan and have substantially completed our review and
assessment of our hardware and software and believe that our hardware and
software are substantially year 2000 compliant and will continue functioning
and be able to process data on a date from and after January 1, 2000. The costs
of our year 2000 compliance program have not been material, and we do not
expect the additional costs of completing our year 2000 review and assessment
to be material.
We are highly dependent upon third-party job posting partners and job
posting suppliers, Internet service suppliers, and telecommunications
suppliers. As part of our year 2000 compliance program, we have sent letters to
our critical vendors requesting assurances of their compliance. These vendors
have advised us that their reviews indicate that their operating systems are
year 2000 compliant or will be year 2000 compliant in a timely manner. However,
we have not made any inquiries about the year 2000 compliance of our clients'
systems.
Due to the significant uncertainties that exist in the software industry
concerning the potential effects associated with the failure of computer
systems and software to be year 2000 compliant, we cannot be certain that our
systems or the systems of our clients, job seekers and critical vendors will in
fact be year 2000 compliant when January 1, 2000 arrives, nor can we be certain
that we have identified in our assessment all of the potential risks to our
business that could result from matters related to the year 2000. We have
identified the following risks of which you should be aware:
o The failure of our services to be fully year 2000 compliant could result
in claims by or liability to our clients.
o The purchasing patterns of our clients and potential clients may be
materially adversely affected by year 2000 issues because they may be
required to expend significant resources on year 2000 compliance matters,
rather than investing in new online recruitment services such as those we
offer. In addition, as the year 2000 approaches, employers may elect to
spend a greater portion of their recruiting budgets on traditional
recruitment methods rather than risk disruption in their job
advertisements in the event of technical difficulties related to year
2000 problems.
o The third-party job posting boards and other online employment sources
with which we have relationships may face disruptions in their services
to the extent they experience year 2000 problems which could prevent them
from being available for our clients.
o Disruptions caused by year 2000 problems could affect Internet usage
generally, which could result in a decline in the use of our services.
If any of these risks materialize, there could be a serious disruption of
our operations, and our business, operating results and financial condition
would be materially adversely affected. We are currently developing a
contingency plan in the event that any third parties with which we do business
have any material year 2000 compliance problems.
Reconciliation of Canadian GAAP to U.S. GAAP
Canadian GAAP differs from U.S. GAAP, as they affect our financial
statements, in the following material respects:
31
<PAGE>
Accounting for options. Under U.S. GAAP, the difference between the
exercise price of options granted to purchase common shares and the fair value
of the underlying shares, generally assumed to be the estimated public offering
price of US $6.00 per share, is accounted for as compensation expense and is
charged against earnings over the vesting period of the options with a
corresponding and equal amount recorded as paid-in-capital.
Accounting for the promissory notes. Under U.S. GAAP, the proceeds from
convertible debt instruments that have non-detachable conversion features where
the fair value of the underlying common shares exceeds the conversion price of
the debt instrument, known as beneficial conversion features, are allocated
between the debt and the equity components of the instruments. The value
ascribed to the beneficial conversion feature is the excess of the fair value
of the underlying shares over the conversion price up to, but not exceeding,
the net proceeds received by the issuer upon issuance of the convertible debt
instruments. The value ascribed to the beneficial conversion feature is
recorded as paid-in-capital. The discount resulting from the allocation of the
proceeds is recognized as interest expense over the minimum period from the
date of issuance to the date at which the debt holder can realize that return.
We have allocated all of the proceeds of the convertible promissory notes to
paid-in-capital. The discount resulting from the allocation was expensed upon
issuance of the convertible promissory notes because the notes are immediately
convertible at the note holders' option.
Quantitative and Qualitative Disclosure About Market Risk
Market risk is the potential risk of loss in fair values, cash flows or
earnings that results from holding financial instrument positions. Our market
risk as of May 31, 1999 consisted only of interest rate exposure with respect
to cash equivalent investments and on our small business loans. This risk was
not significant on the investments because they were highly liquid with terms
to maturity of three months or less. Also, the risk was not significant on the
small business loans due to the small dollar amount and their short term to
maturity.
We do not maintain a trading portfolio and our current trade receivables
and trade payables are denominated in Canadian dollars. We do not utilize
derivative financial instruments.
The proceeds of this offering will be received in US dollars and may be
invested in United States government securities. Also, as we expand our
business into the United States these revenues will be billed in US dollars
while we expect our costs to continue to be predominantly in Canadian dollars.
The exchange rate between Canadian dollars and US dollars has fluctuated
significantly over the last several years. Any strengthening in the value of
the Canadian dollar against the US dollar could result in lower recorded sales
and/or foreign currency translation losses charged against other income for the
period incurred.
New Accounting Pronouncements
During the year ended May 31, 1999, we adopted Statement of Position 97-2
"Software Revenue Recognition", or SOP 97-2, and SOP 98-4 "Deferral of the
Effective Date of a Provision of SOP 97-2" which provide guidance in
recognizing revenue from software transactions. SOP 97-2 conforms with Canadian
GAAP, and the adoption of it did not have a material impact on our results for
the year ended May 31, 1999. In December 1998, SOP 98-9 "Modification of SOP
97-2, Software Revenue Recognition with Respect to Certain Transactions" was
released. We will adopt SOP 98-9 for our fiscal year ending May 31, 2000 and do
not expect it to have a material impact on our recognition of revenue.
In April 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", or SOP 98-1, which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software generally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. We will adopt SOP 98-1 for our fiscal
year ending May 31, 2000 and do not expect it to have a material impact on our
financial statements.
32
<PAGE>
BUSINESS
We provide Internet-based recruiting services to companies of all sizes.
Through use of our E-Cruiter Express software, our corporate clients are able
to write one job advertisement that is reformatted by the software and posted
in multiple job sites, thereby eliminating the need to reformat job postings
for each site. For clients that require more comprehensive recruiting
management services, we provide our E-Cruiter Enterprise service, which
includes the powerful posting features of E-Cruiter Express, as well as the
following features:
o resume processing tools which enable clients to screen, search, organize
and manage resumes submitted by job seekers;
o applicant communication tools, including our proprietary e-mail system
which automatically keeps records of the electronic communication
associated with each job opening and generates automatic messages to job
seekers;
o our corporate career site manager tool which enables clients to quickly
set up and maintain a job site on their corporate web site that is linked
with our services; and
o a powerful suite of multi-user workflow features which allows for
collaborative hiring between human resources personnel and hiring
managers within the same organization.
We believe our services enable companies of every size to take optimal
advantage of the power of the Internet for recruiting, communicating with job
seekers and managing the recruiting process in a cost effective manner. We
believe that, by using our services, companies:
o reduce their time to hire;
o reduce their costs to hire; and
o improve their quality of hire.
Our business is a web-outsourced application service. The cost benefit to
organizations of web-outsourcing is that all software and hardware
infrastructure is physically located at the service provider location, with
clients only requiring standard web browsers on their employees' workstations.
Therefore, because our clients are not required to make a significant initial
investment, we believe this makes our services easy to buy and implement. We
believe that web application outsourcing has advantages over traditional
client-server computing, including:
o reduced total cost of ownership for technology;
o greater flexibility for accommodating future business needs while
maintaining state of the art technology deployment; and
o significantly quicker service deployment, reducing the time-to-benefit
cycle and the cost of adoption.
We believe our key competitive advantage is our human resource background.
We understand the human resource problems arising from ineffective traditional
recruiting strategies. We have matched this knowledge with a web server
technology to deliver web-based services. In 1998, the Society for Canadian
Office Automation Professionals granted to us an Award of Excellence at
Comtech, a technology conference and exhibition for corporate professionals in
Canada. The award was for best implementation or innovative use of information
technology. The Society for Canadian Office Automation Professionals is a
non-profit organization which provides assessments of the management, use and
impact of information technology.
Industry Overview
Our market includes any organization needing to hire employees, especially
those seeking information technology skills and expertise. A 1998 study by the
Information Technology Association of America and Virginia Polytechnic found
that information technology worker shortages are large and growing. The study
showed the number of unfilled information technology positions in the United
States at the time of the study was 346,000.
33
<PAGE>
In a survey conducted in early 1999 by CorpTech of over 4,000 United
States technology companies with fewer than 1,000 employees, over 46% of the
companies surveyed indicated that they planned to expand their workforce by
more than 17% over the next year, and over 16% of the companies surveyed
predicted growth of over 25% in the upcoming year. We believe that this survey
of the United States high technology sector demonstrates significant potential
for web-based recruiting services. We believe it will be difficult for
companies to fill these demands cost effectively and efficiently by applying
traditional recruiting practices.
Responding to critical manpower requirements is now a major operations
function for many organizations. This burden is resulting in a significant
shift in the perceived role of corporate human resources. A recent survey by
Recruiter's Network.com of 1,000 companies indicated that 34% of companies with
more than 10,000 employees had at least one human resources employee dedicated
to Internet advertising. The report also indicated that 10% of the companies
allocated 50% of their budget to recruiting on the Internet. The Gartner Group,
a technology-based industry analyst, has assessed that by 2002, human resources
practices and supporting systems, will be acknowledged as distinguishing
factors of highly successful organizations. According to the Gartner Group,
organizations are increasing their information technology investment in
supporting human resources activities and business processes. The Gartner Group
estimates that 95% of skill-based enterprises will adopt Internet-based
recruiting practices by 2001. We believe that many organizations are beginning
to completely overhaul their human resources information systems to take
advantage of both new technologies and new recruiting concepts.
Forrester Research estimates the market for online jobs will reach $1.7
billion and account for one fifth of classified advertising employment budgets
by 2003. In concert with this shift from print to Internet media, there will be
a considerable growth in the demand for software tools, such as online
screening and text searching, to take advantage of online recruiting. We
anticipate that recruitment spending will shift away from the client-server
human resources services to web-based media hiring processes because of their
lower cost and ease of implementation. We believe that E-Cruiter Enterprise
directly addresses the major challenges facing employers, namely, time to hire
and the cost of hire. The July 1999 Internet Recruiting Intelligence Report,
Lessons from Global 500, found that on average, online recruiting reduced the
recruiting cycle by 20 days. Furthermore, the report notes that the cost
associated with Internet recruiting is well below that of all other recruiting
channels.
Strategy
Our goal is to become a leading provider of web-based recruiting services
in North America. Key elements of our strategy for business development are as
follows:
o Provide a comprehensive recruitment service to our clients and
distribution partners. Our clients range from organizations seeking a
single recruitment advertisement to organizations requiring comprehensive
recruitment management services. We believe that our web-enabled
component-based architecture, scheduled to be released in early 2000 and
discussed in the "Technology Development" section below, will position us
to better serve large and small organizations by providing faster access,
easy customization and other capabilities. It will also position us to
enter into distribution arrangements where we operate multiple versions
of our software simultaneously, scaled to distribution channel
requirements.
o Expand our E-Cruiter Enterprise sales capability into new Canadian and
key U.S. markets. We have marketed our services in the Ottawa market
since 1996. We believe that we are currently well-positioned in the
Ontario market, including Ottawa and Toronto, and anticipate expanding
into additional key Canadian markets, including Quebec and British
Columbia, in late 1999. By early 2000, we plan to enter into our first
U.S. market. Although we have not finalized plans for entering markets in
the United States, we are considering entering Washington, D.C., New York
City, Chicago, Boston and selected cities in California.
o Capitalize on our reputation and success achieved in Canadian markets to
develop strong relationships with key strategic partners. We believe that
organizations are interested in entering into strategic relationships
with us because we have three years experience in operating an Internet
recruiting service. We believe that this interest will increase further
upon our introduction of the flexible, component-based architecture of an
enhanced version of E-Cruiter Enterprise which we currently
34
<PAGE>
expect to release in early 2000, as it will provide capabilities and
flexibility for original equipment manufacturer relationships and
value-added resellers.
In October 1999, we entered into a sales and marketing agreement with WorkLife
Solutions, Inc. to jointly develop web-based recruiting services to be offered
through Internet portal web sites. Under this agreement, we are the exclusive
provider of Internet recruiting services to WorkLife. WorkLife specializes in
the design, development and installation of Internet services for career
management and manages the Career Channel for AltaVista.com. We are currently
developing a web-based service which we plan to introduce on AltaVista.com in
December 1999.
We anticipate that strategic partners will help us develop other sources of
leads to clients. For example, we anticipate that partnerships with print media,
Internet companies and other media partners will provide us with discounted
advertising in the media and increase our sales. We also expect that strategic
relationships will help us develop direct and indirect sales channels. We
anticipate that some of our strategic partners will sell our services directly
to their clients and will indirectly sell our services as a component of their
products or services.
o Maintain technological leadership by developing and acquiring
complementary technologies. One of our key objectives is to remain at the
forefront of web-based service provision, with a proprietary database,
independent platform which offers multi-user performance, scalability to
handle thousands of client accounts, and the flexibility to transfer
portions of our technology into partner networks. Another key objective
is to establish clear leadership in component-based workflow
architecture, enabling additional customization of our services by our
clients and by our distribution partners. We will also seek to license or
acquire market-leading selection technologies, such as competency tests
and extraction engines, to build advanced recruitment processes into our
component workflow framework.
o Continue to provide high-quality and attentive client support. Internet
recruiting is an emerging market where the effectiveness and the value of
Internet recruiting has yet to be firmly established. In our view, our
ability to continue to provide high-quality and attentive services to our
clients will continue to differentiate us from other service providers
and foster client loyalty. We believe that this is a key ingredient for
success in our market where the cost of switching to alternative services
is low. We are now deploying interactive online consultation technologies
for the delivery of training and consulting services to our clients.
o Establish and maintain industry-wide standards for best practices
methodologies. We believe that it is important for our industry to set
and maintain standards. We intend to seek to develop standards and obtain
industry-recognized certification for a number of best practices
methodologies to differentiate our services.
E-Cruiter Services
We designed our services to take advantage of the Internet and offer our
clients a comprehensive recruitment management service. By linking
organizations' recruiting efforts with electronic sources of applicants from
the Internet and allowing them to also download resumes from paper-based
sources into their applicant database, we believe that our services allow
organizations of every size to significantly improve their recruiting
practices. Our services can be accessed with any standard web browser and
require no additional software or hardware deployment by clients.
In our view, organizations purchase our services because they dramatically
reduce time to hire, provide streamlined access to qualified candidates, and
result in significant cost savings. Based on our knowledge of the industry, we
believe that hiring cycles of large organizations employing traditional
recruiting methods can extend beyond 50 days. However, the best information
technology candidates are often hired within five to ten business days.
Therefore, we believe that organizations which do not employ Internet-based
recruiting processes will be unable to compete effectively for good information
technology candidates.
E-Cruiter Enterprise
E-Cruiter Enterprise is a job posting and full workflow service that is
sold with one or more concurrent user licenses. Each concurrent license enables
another user within the organization to access the service simultaneously. One
concurrent license is sufficient for small organizations that have only a few
individuals actively recruiting. One or more concurrent licenses provide for
additional simultaneous users and permits clients to take full advantage of
multi-user functionality.
35
<PAGE>
E-Cruiter Enterprise allows organizations to post jobs to multiple
Internet sites through a posting manager function. Clients write a job
requisition only once, and the job requisition is ready to be advertised on
numerous Internet job boards, newsgroups and the client's own corporate web
site. We intend to continue to add new job boards to our service so that
clients can post job requisitions to additional locations. Our
write-once-post-to-many capability saves time in re-writing job requisitions
and in making arrangements with numerous job boards. Through PositionWatch
Ltd., our job posting partner, we currently post job requisitions to the
following job boards: PositionWatch, CAREERSpan, CareerMosaic, Internet Job
Locator, JobSAT, Netjobs, GlobeCareers, HeadHunter.net and CareerMagazine.
E-Cruiter Enterprise's career site manager capability allows clients to
quickly set up and maintain a job site on their corporate web site posting so
that job seekers can apply to open positions. Our clients' job sites link to
our service to receive the benefit of E-Cruiter Enterprise workflow management
features when job seekers apply. We believe that the career site manager has
other features that help our clients maximize the value of their job site as a
recruiting asset, including a job seeker agent that notifies registered
candidates of employment opportunities and provides statistics on the volume
and source of job seeker traffic to clients.
E-Cruiter Enterprise provides for enhanced communication among candidates,
hiring managers and human resources personnel. Clients can use a set of generic
corporate messages to automatically respond to resumes or other communications
using our auto acknowledge function. For example, an e-mail acknowledging
receipt of resumes can be automatically sent to all candidates. This feature
saves administrative costs to our clients. Our proprietary e-mail system also
maintains records of all electronic communication associated with each job
opening, including online interviews.
We believe our E-Cruiter Enterprise's automatic screening function also
improves our clients' recruiting efforts. Clients screen candidates who apply
online by establishing screening criteria. When resumes are received, they are
automatically compared to the screening criteria. Those job seekers who do not
meet the screening criteria are placed in a rejected folder, while those job
seekers who do meet the screening criteria are flagged for review by employers.
Through the applicant workflow function, clients can manage their
recruiting process using familiar folder hierarchies. Job folders are logically
organized by job opening and can be tailored to the clients' recruiting
process. For example, clients typically set up the following job folders when
using E-Cruiter Enterprise: new applicant, active, rejected, set up interview,
interview schedule and hired. As applications are received, employers move the
applications through the folders as part of managing the recruiting process.
This provides ready access to recruiting status and allows our software to
generate standard reports measuring such things as time taken to hire and
recruiter productivity. Our software also generates standard reports on
advertising effectiveness.
The E-Cruiter Enterprise applicant workflow capability allows human
resources personnel and hiring managers within the same organization to share,
circulate and electronically comment on resumes that have been received. In
addition to permitting various levels of access among hiring managers and
employers, our software allows users to optionally protect their own individual
assessments of candidates.
The following is a list of features that we offer with E-Cruiter
Enterprise:
o Create and manage job requisitions. This feature allows clients to
quickly create job requisitions using a standard template that is
compatible with job boards. Clients can either use the template or use
job requisitions from the posting archive.
o E-Cruiter posting manager. This feature allows clients to quickly post or
unpost job requisitions to multiple Internet sites. Jobs are posted to
regional or national job boards, newsgroups or the client's corporate job
site.
o Create and manage job sites. This feature allows clients to quickly set
up and maintain their own job site on a corporate web site.
o Applicant communication. This feature allows clients to automatically
acknowledge receipt of applications, to conduct online interviews and to
decline applicants both in single or multiple applicant mode.
36
<PAGE>
o Applicant searching. This feature allows clients to search their data for
resumes using powerful search criteria as defined by users.
o Applicant review. This feature allows clients to review, rate and comment
on applications received. Clients can move applications through job
folders to reflect their status.
o Applicant management. This feature allows clients to share applications
among human resources personnel and hiring managers within the same
organization, to e-mail resumes to remote users or to reject applicants.
Applicants can be deleted in single and multi-mode.
o Resume data loading. This feature allows clients to load resumes from
traditional paper based sources into their applicant database to
integrate their traditional recruiting activities with their Internet
recruiting and more effectively manage their overall recruitment
activities.
o Administration -- account management. This feature allows clients to set
up individual users, assign posting or hiring privileges, assign default
screen layouts and modify passwords.
o Generate reports. This feature allows clients to generate standard
reports on advertising effectiveness, time to hire, and recruiter
productivity.
Our E-Cruiter Enterprise subscription contracts are generally for one year
with automatic renewals, one or more simultaneous user licenses, user training
and set up and a menu of Internet posting services. Clients are charged a
monthly subscription fee for concurrent user access licenses, career site
management, product upgrades and customer support. We charge one-time fees for
initial set up and training and provide professional consultation services on a
time and materials basis. Clients who use third parties' resume scanning
services contract directly with them for the services. We charge a small per
resume fee to input data into our clients' databases. Internet posting services
are provided on a pay-per-job posting basis.
We believe that our E-Cruiter Enterprise's pricing formula provides
clients with a low-risk avenue to access the benefits of online recruiting at a
reasonable cost compared to client-server technology. Furthermore, since the
required technology infrastructure investments are nominal by comparison,
clients experience lower initial costs for full access to the comprehensive
service that E-Cruiter Enterprise provides. We believe that the subscription
formula provides us with the opportunity to earn annuity-based returns as
subscriptions are renewed. This pricing practice is consistent with similarly
offered web-based services.
<PAGE>
E-Cruiter Express
E-Cruiter Express is our job posting software for clients who want to use
the Internet only to advertise their open positions. E-Cruiter Express is a
quick, easy and affordable way for clients to post jobs to multiple Internet
sites. Clients only have to write a job description once, and it is ready to be
advertised on numerous Internet job boards and news groups at the same time.
For example, at the click of a mouse, an advertisement could be placed on one
or more of the following job boards: PositionWatch, CAREERSpan, CareerMosaic,
Internet Job Locator, JobSat, Netjobs, Careershop, GlobeCareers and
CareerMagazine. We intend to continue to add job boards to our service so that
clients can post job requisitions to additional locations. Our
write-once-post-to-many capability saves time in re-writing job requisitions
and saves administrative time in making arrangements with numerous job boards.
E-Cruiter Express clients can review their job seeker applications online
and delete unwanted applications. Clients can also electronically communicate
with job seekers using our proprietary e-mail system.
E-Cruiter Express is priced on a per job posting basis and can be paid for
by credit card by clients using our electronic commerce capabilities.
Client Services
Our client services department was formed in May 1998 in response to our
recognition that building post-sales client satisfaction with and loyalty to
our services is instrumental to obtain a high renewal rate for current clients,
generate additional revenue from new clients and sell additional services to
the same client.
37
<PAGE>
Our client services department interacts directly with our clients and
prospects. Its mission is to guarantee a maximum level of client service and
responsiveness. Client services representatives foster long-term relationships
with end users, their management and technical support personnel, yielding
customer loyalty and valuable product feedback. Potential new value-added
services to enhance our product experience are also identified through direct
client feedback.
The support and professional services provided by our client services team
include delivering implementation planning and consulting, training, corporate
career web site implementation, and general support to end users. The
department undertakes routine formal client evaluations of the services to
ensure a high level of client satisfaction.
In response to general industry service trends and web-based service
delivery trends, we anticipate that our client services department will
continue to build programs using innovative technology services to provide
education, demonstrations, and support to clients. We are currently using
web-based online conferencing to deliver to the clients' desktop, at their
convenience, online seminars, feature updates, and proactive support. This
service also provides remote, interactive collaboration between clients and the
professional service staff, enabling clients to deploy our services more
quickly throughout their organization.
Marketing and Advertising
Our marketing goal is to increase the exposure and recognition of our name
and to build a reputation for delivering top-quality E-Cruiter Enterprise and
E-Cruiter Express services. Consistent with the deployment of sales resources,
our marketing team plans to focus its efforts and lead generation activities in
targeted geographic regions. We intend to strategically focus our marketing
efforts in order to gain maximum benefit and the most leverage and exposure
from our spending. We anticipate that our marketing efforts will consist of the
following:
o Advertising our brand in key industry print magazines, on radio in our
target markets and in other media;
o Advertising our brand and services through joint venture media partners;
o Implementing a public and media relations campaign to secure positive
articles on our industry, our services and our performance within it;
o Forming relationships with industry analysts and human resources
professional associations so they understand our services and their
capabilities;
o Developing partnership agreements that will facilitate delivery of our
services and increase our brand awareness;
o Attending key North American trade shows to build brand awareness and
generate leads;
o Using our client base as a strategic asset, continuing to secure top-name
clients and references within the target market to continue to build our
service capability;
o Developing our web site as a place to obtain information on all our
services and as a full service electronic commerce capability which
clients access for general information and where prospective clients and
potential clients obtain information and purchase our services;
o Using E-Cruiter seminars and client user groups to generate sales leads;
o Direct mailing of information on our services to our targeted client
groups to generate sales leads; and
o Developing brochures and other information for our sales representatives
to leave with potential clients after sales calls.
We intend to use our web site to provide potential clients information
about E-Cruiter and our services. In our advertising and media references, we
will direct our audiences to our web site to maximize communication from this
single source.
38
<PAGE>
Our initial marketing efforts will be concentrated in Canada. Once we have
built a strong brand awareness and reputation for quality in additional key
Canadian markets, we intend to launch marketing programs in key geographic
regions in the United States. We will design our programs to be generic in
nature so that our services benefit from market exposure at the same time we
build brand awareness. We intend to begin marketing efforts in new markets
before establishing a sales presence in the market to create brand recognition
and visibility for our services.
Sales
We sell our services through the Internet, a direct sales force and
telemarketers. We intend to sell our services through third-party distribution
channels, including value-added sales partners and original equipment
manufacturers and other strategic alliances. We also intend to devote
significant resources to marketing and business development activities to
expand our business to additional distribution channels.
Direct sales
We plan to continue to use a direct sales force to drive sales of
enterprise-wide deployments of our services in organizations with 500 employees
and greater. Initially, we anticipate that our direct sales will focus on the
Canadian markets, which include Ontario, Quebec and British Columbia.
Currently, one sales representative is located in the Ottawa market, one is in
the Vancouver market and six are in the Toronto market. In early 2000, we plan
to expand significantly our direct sales effort into selected United States
geographic regions. We intend to hire approximately 20 additional sales
representatives for the United States and Canadian markets over the 12 months
after this offering.
Our telemarketing team's responsibilities are to obtain sales with
E-Cruiter Express prospects generated by our Internet marketing efforts,
participate in telephone selling, assist the direct sales force by assessing
E-Cruiter Enterprise leads and support indirect sales partners. Our goal is to
have our telemarketing team turn over qualified leads to a direct sales
representative or to the appropriate partner.
Indirect sales
One aspect of our strategy to expand our sales contemplates entering into
agreements with value-added sales partners in early 2000. Because our services
are outsourced web-based applications, our sales partners will not be required
to carry product inventory nor incur product development and infrastructure
investments. We intend that the ongoing responsibility for support and delivery
of our service and infrastructure and technology investment will remain with
us. As a result, our partners will not have to provide support to clients or
carry product inventory as part of the on-going service to clients, as with
traditional distribution models. We anticipate that end users will enter into a
contract with us for our service, while our partners will provide local
value-added services for training, configuration and set up and consultation,
in addition to their own complementary products and services.
We plan to select our value-added sales partners on the basis that they
can:
o extend the distribution of our services into geographical regions that we
cannot economically address directly or choose not to address directly;
o provide ancillary products and/or services that are complementary to our
services;
o provide access to important clients and/or market areas that we could not
reach without their help; and/or
o offer industry, human resources or technology expertise and experience
that add overall value to our clients' experience using our services.
39
<PAGE>
Clients
Our clients represent a wide range of commercial enterprises, including
financial, telecommunications and high technology and other industries. Our
services are structured and priced to appeal to clients ranging from single
users seeking recruitment advertising to organizations requiring total
recruitment management.
Until recently, we have marketed our services primarily in the Ontario
market, including Ottawa and Toronto. Consequently, a large number of our
current clients are enterprises that are based in Ontario or that seek to fill
job openings in Ontario.
The following is a list of our ten largest revenue-generating clients for
our fiscal year ended May 31, 1999:
o Bell Canada Enterprises Inc. o Dell Computer Corporation
o Canadian Imperial Bank of Commerce, o Entrust Technologies Inc.
known as CIBC o Loblaws Supermarkets Limited
o Clearnet Communications Inc. o Performance Systematix Inc.
o Compugen Systems Ltd. o Siemens Information and
o Corel Corporation Communications Networks, Inc.
These clients' business represented approximately 35% of our revenue. We
have recently signed contracts for our E-Cruiter Enterprise service with
MacKenzie Financial Corporation, a large publicly-owned Canadian company, and
Fidelity Investments Canada Ltd.
Technology
Network infrastructure
Our network consists of a series of servers, routing and
Internet-networking equipment, workstations and management systems relating to
hardware and software which isolates our local network from external networks,
known as a firewall. We use industry standard secure socket layer encryption
combined with a challenge/response authentication system to ensure data
security. We also use adjustable time-out and forced-expire mechanisms to
provide additional controls. We believe our network architecture provides
adequate security.
We believe that the network and security architectures, hardware and
software tools we implement for security are very effective because they are
proactively monitored and managed by experienced personnel. To ensure total
network security, we have in place:
o continuous monitoring by experienced security personnel and Internet
engineers, 24 hours a day, seven days a week, 365 days of the year;
o real-time usage and audit reporting;
o maintenance and testing of software, hardware, and security modifications
in a test environment before installing the software onto our network
servers for use by our clients; and
o use of proven, policy-based procedures along with the latest technologies
to accurately track incidents, identify potential security breaches and
provide rapid, appropriate response.
Despite being relatively new as a service, we believe that we have a solid
track record for service availability. Unplanned outages have been minor and
few in number. In fiscal 1999, it became obvious to us that our services must
be available 24 hours per day, 7 days per week, or a 24 x 7 basis, to attract
and retain a core group of medium to large customers. We created an operations
department to address this priority.
Our operations department is committed to reviewing our technology
infrastructure to ensure that we are using top-of-the-line technology and
practices and that we are implementing a secure, fault-tolerant network
infrastructure that delivers reliable 24 x 7 service to our clients. Our
operations department is also committed to ensuring that backup, recovery and
redundant processing capabilities are consistent with clients' expectations for
outsourced services.
40
<PAGE>
Data Handling and Disaster Recovery Procedures
We provide secure electronic data handling for all our clients and have
disaster recovery procedures in place in the event of a software and/or
hardware failure or other unforeseen event. Our principal efforts include:
o keeping all electronic versions of client data logically apart from the
data of any of our other clients;
o strictly limiting access to all client data to authorized users only;
o storing all client data generated by the software in a single location of
service operation;
o implementing a full tape backup process, beginning at midnight of each
day, of all client data;
o shipping a tape copy of all client data offsite on a next business day
basis to a dedicated media storage facility;
o through use of a commercial archival and storage service, providing a
dedicated media storage facility, tape backup collection, storage and
delivery services; and
o regularly testing our disaster recovery procedures to ensure that all
client data is available in the event of a disaster.
Application Technology
The customer interface, or client as it is commonly called, is a standard
web browser, for example, Microsoft Internet Explorer or Netscape Navigator,
running on any desktop computer, for example, personal computers, MacIntosh
computers, or UNIX workstations. Users can conduct all their business, from
retrieving resumes to creating postings, from within this familiar browser
interface by logging on to our web site.
Our service was designed with a unique web application architecture to
deliver significant advantages in performance, reliability, security, and
enterprise scalability. E-Cruiter Enterprise was built with scalability as a
prime function. We have employed various technologies that support the building
of scalable applications that integrate browser, server and database
technologies.
Our technology is supported by an internal staff of developers and
operations support specialists, 24 hours a day, seven days a week. We
supplement our programming staff by a team of quality control analysts and
product managers who ensure that the final service is user-friendly and
dependable. In addition to supporting our web-based services, our staff
continually researches new technologies, enhances the software and hardware
infrastructure and develops new services. Our software is designed to be easily
adaptable to new technologies and new features.
Technology Development
We have made a substantial investment in research and development since
our inception.
We are jointly developing, with WorkLife Solutions, Inc., a web-based
recruiting service that can be offered through Internet portal web sites. We
plan to introduce this service on AltaVista.com in December 1999. This service
will allow enterprises of any size to easily purchase services with automated
account set-up and credit card clearance online.
In our fiscal year ended May 31, 1999, we spent 51% of our revenue on
research and development before accounting for research and development tax
credits provided by the Canadian federal and provincial governments. In our
fiscal year ended May 31, 1998, we spent 59% of our revenue on research and
development. As revenue grows, we intend to commit a significant portion of our
revenue to research and development.
In early 2000, we plan to launch a new component-based architecture for
our E-Cruiter Enterprise service. This new architecture represents an
enhancement of the E-Cruiter Enterprise service because it will allow easier
scalability, higher volume in terms of concurrent users and rapid customization
by our clients.
We plan to continue to invest in technology development that we anticipate
will lead the marketplace in terms of:
41
<PAGE>
o application service provider architecture and reliability;
o service flexibility and customization;
o client services efficacy and value; and
o applicant screening and selection features.
Competition
The market for web-based recruiting services on the Internet is highly
fragmented and intensely competitive. In our view, we compete on the Internet
nationally and internationally with web-based recruitment services companies,
client-server resume management companies and Internet job posting companies.
We believe that the principal competitive factors in our market are:
o quality;
o performance;
o price;
o timeliness;
o customer support;
o reputation; and
o product features, such as compatibility and functionality.
In our view, some of our main competitors, such as Hire Systems, WebHire
and Hire.com, have introduced or are introducing services which are intended to
be complete recruitment management services. We also believe that established
vendors of client-server resume management systems, such as Resumix, and
recruiting systems, such as Personic and SkillSet, are moving to establish
web-based versions of their client-server offerings and may become serious
competitors in our market. As we expand internationally, we expect that
additional competitors will include job boards and posting network companies as
they offer additional services to their present client base. Some of these
existing and potential competitors have a stronger position in national
markets, including the United States, greater name recognition, and
significantly greater financial, technical and marketing resources than we do.
We also indirectly compete with traditional advertising media, such as
print, and traditional recruiting firms, for a share of employers' total
recruitment budgets. We believe, however, that our services can be used to
optimize the effectiveness of all elements of the recruiting supply chain,
making an existing budget result in faster hires of a higher quality, with
greater productivity of human resources and line management resources working
with their suppliers. We believe that our services complement traditional
methods rather than replace them.
It is our belief that we do not compete directly with job posting services
such as Monster, CareerMosaic, JobOptions, CareerBuilder or HotJobs; rather,
our services are designed to allow companies to more efficiently access the job
posting services. Our strategy is to allow our clients to use our software to
post jobs on multiple job posting boards simultaneously. We anticipate that
many of these job posting services will offer services for applicant management
that could compete with elements of our services. We believe that our services
will provide a more comprehensive service for recruitment management because we
expect to continue to develop relationships with multiple job posting services
to enable our clients to post to additional posting services.
We believe that the barriers to entry by competitors presently in the
market for Internet-based recruitment services are few. Current and new
competitors can launch similar services in our markets at a relatively low-cost
within a relatively short-time period. Therefore, we expect competition to
persist and intensify, and the number of competitors could increase
significantly in the future.
42
<PAGE>
Intellectual Property Rights
We rely on a combination of copyright, trademark and trade secrets laws
and non-disclosure agreements to protect our proprietary technologies, ideas,
know-how and other proprietary information. We have registered the trademark
E-Cruiter in Canada and an application is pending in the United States for this
trademark. We have made applications to register the trademarks, E-Cruiter
Express and E-Cruiter Enterprise, in Canada and the United States. We have no
patents or registered copyrights. Notwithstanding the precautions we take,
third parties may copy or otherwise obtain and use our proprietary
technologies, ideas, know-how and other proprietary information without
authorization or independently develop technologies similar or superior to our
technologies. In addition, the non-disclosure and non-competition agreements
between us and some of our employees, distributors and clients may not provide
meaningful protection of our proprietary technologies or other intellectual
property in the event of unauthorized use or disclosure. Policing unauthorized
use of our technologies and other intellectual property is difficult,
particularly because the global nature of the Internet makes it difficult to
control the ultimate destination or security of software or other data
transmitted.
There has been substantial litigation in the software industry involving
intellectual property rights. We believe that our technologies and trading
systems have been developed independent of others. Third parties may however
assert infringement claims against us and our technologies and services may be
determined to infringe on the intellectual property rights of others.
Personnel
As of October 31, 1999, we employed on a full-time basis a total of 49
persons, of whom 5 are engaged in executive management, 16 in selling and
marketing activities, 7 in customer support, 17 in research and development and
network operations and 4 in other functions. In addition, we retain software
development services from one individual and a consulting firm. We believe our
relations with our employees and consultants are generally good, and we have no
collective bargaining agreements with any labor unions.
Our success will depend on our ability to hire and retain additional
qualified marketing, sales, technical and financial personnel. Qualified
personnel are in high demand. We face considerable competition from other
web-based recruitment companies, Internet job posting services and
client-server recruitment companies, many of which have significantly greater
resources than we have.
Properties
Our principal offices are located at 1510 - 360 Albert Street, Ottawa,
Ontario, Canada where we occupy approximately 7,700 square feet at an annual
rent cost of approximately $253,000 per year or approximately $21,070 per
month. We are obligated to pay rent for these premises until December 31, 2001.
By April 2000, we intend to sublet the premises we currently occupy and
relocate our principal offices to larger facilities in Ottawa to accommodate a
planned increase in our number of personnel. We have not yet finalized
arrangements for new facilities, but believe that there is suitable office
space available.
Legal Proceedings
We are not involved in any legal proceedings and we are not aware of any
such proceedings being threatened or contemplated.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Name Age Positions
- ---- ----- --------
<S> <C> <C>
John Gerard Stanton .......... 51 President, Chief Executive Officer and Chairman of the Board
Evelyn R. Ledsham ............ 43 Vice President of Sales
Rajesh D. Rao ................ 31 Vice President of Research and Development
Jeffery E. Potts ............. 38 Chief Financial Officer
Kimberly A. Layne ............ 36 Director of Marketing and Communications
Roderick M. Bryden ........... 58 Director
Matthew J. Ebbs .............. 34 Director
John T. McLennan ............. 53 Director
</TABLE>
John Gerard Stanton co-founded E-Cruiter in May 1996, and he has been our
President, Chairman of the Board and Chief Executive Officer since our
inception. In 1986, Mr. Stanton founded an out-placement services business,
Drake Beam Morin (Ottawa) Inc., which he operated until March 1998. From 1985
to 1989, he operated Stanton and Associates, a regional executive search firm
that specialized in high technology searches. From 1978 to 1984, Mr. Stanton
was Vice President of Human Resources for Mitel Corporation, a company that
designs and sells telecommunications equipment and semiconductor devices. Mr.
Stanton received his Bachelor of Arts from Carleton University in 1972.
Evelyn Ledsham has been our Vice President of Sales since March 1999. From
July 1996 to March 1999, Ms. Ledsham owned and operated ERL & Associates, a
consulting company. From 1990 to June 1996, she was a regional manager for
Kelly Services (Canada) Ltd., a recruitment company. From 1992 to June 1996,
she was also a member of the Kelly Manager Committee of Canada. Ms. Ledsham was
employed at Drake International from 1984 to 1990.
Rajesh Rao has been our Vice President of Research and Development since
January 1999. He joined us in June 1998 and has been responsible for building
our research and development infrastructure, as well as streamlining our
product development process. From March 1995 to June 1998, Mr. Rao was employed
by Corel Corporation, a software company, where he was most recently in charge
of the Paradox Group. From May 1993 to March 1995, he developed software for
Boshu Technics Corporation, and from June 1992 to March 1993, he developed
software for Mahindra Ugine Steel. Mr. Rao received a Masters in Computer
Science from the University of Bombay, India.
Jeffery Potts has been our Chief Financial Officer since November 1997.
Mr. Potts joined us in August 1997 and is in charge of our financial and
administrative affairs. From 1989 to August of 1997, Mr. Potts was employed by
Atomic Energy of Canada Limited, a global company that designs, sells and
installs nuclear power systems and research reactors, most recently as its
Director of Internal Audit. He received his Bachelor of Commerce with high
honors from Carleton University in 1985. Mr. Potts articled with Arthur
Andersen and Company and earned his Chartered Accountant designation in 1988.
Kimberly Layne has been our Director of Marketing and Communications since
May 1999. From January 1994 to May 1999, Ms. Layne was employed by Necho
Systems Corp, a web-based software company, where she assisted in the
development and delivery of enterprise software application to the Canadian and
U.S. marketplace. From October 1992 to January 1994, Ms. Layne was employed by
Rider BTI, where she was a member of a small strategic team that developed
automated expense report processing services.
Roderick Bryden has been a member of our board since November 1997. In
April 1996, Mr. Bryden co-founded World Heart Corporation and currently serves
as its Chairman and Chief Executive Officer. Mr. Bryden is also the majority
owner, Chairman of the Board and Governor of the Ottawa Senators hockey club, a
member of the National Hockey League. In 1974, Mr. Bryden founded SHL
Systemhouse, Inc., with seven senior information systems professionals. SHL
Systemhouse, Inc. became a leading computer integration
44
<PAGE>
company with over 3,000 employees and Mr. Bryden was President and Chairman of
SHL Systemhouse Inc. until June of 1991. Mr. Bryden received his Bachelor of
Arts from Mount Allison University in 1962, his Bachelor of Laws from the
University of New Brunswick in 1965 and his Master of Laws from the University
of Michigan in 1966.
Matthew Ebbs has been a member of our board since October 1999. Presently,
Mr. Ebbs is the Chairman, Chief Executive Officer and a director of Canshop.com
Corporation, an electronic business and online catalogue company. Since January
1998, Mr. Ebbs has been a member of Perley-Robertson, Hill & McDougall, our
Canadian legal counsel. From February 1993 to December 1997, Mr. Ebbs was a
lawyer at the firm of Ebbs and Ebbs. Mr. Ebbs received a Bachelor of Arts from
Carleton University in 1987 and his Bachelor of Laws from the University of
Ottawa in 1990.
John McLennan has been a member of our board since November 1997.
Presently, Mr. McLennan is director of the following public companies:
Hummingbird Communications Ltd., Leitch Tech Corp., MDSI Mobile Data Solutions
Inc. and Teletech Holdings Inc. He is also presently a director of Architel
Systems Corporation, a private company and President of Jenmark Consulting Inc.
From 1993 to October 1997, Mr. McLennan was President of Bell Canada. In 1994,
Mr. McLennan became Bell Canada's Chief Executive Officer. From 1983 to 1993,
Mr. McLennan held a number of principal positions for other telecommunications
companies. Mr. McLennan received his Bachelor of Science from Clarkson
University in 1968 and his Master of Sciences from Clarkson University in 1969.
Our articles of incorporation provide for a range of one to nine directors
on our board of directors. Our shareholders have the statutory right to vote to
increase or decrease the size of our board within this range. Our board of
directors currently consists of four directors.
Directors are elected at each annual meeting of our shareholders and hold
office until the next annual meeting of shareholders and the election and
qualification of their successors. Executive officers are elected by and serve
at the discretion of the board of directors.
Our by-laws provide that a quorum of our board of directors can fill a
vacancy on our board, except a vacancy resulting from an increase in the
minimum number of directors or from a failure of our shareholders to elect the
minimum number of directors. In the absence of a quorum of our board, or if a
vacancy has arisen from a failure of our shareholders to elect the minimum
number of directors, then our shareholders will vote to fill the vacancy on the
board.
We have agreed, for a period of three years from the date of this
prospectus, if so requested by the underwriter, to nominate and use our best
efforts to elect a designee of the underwriter as a director of E-Cruiter or,
at the underwriter's option, as a non-voting advisor to our board of directors.
Our officers, directors and current shareholders have agreed to vote their
shares in favor of this designee of the underwriter. The underwriter has not
yet exercised its right to designate a person.
Key Employees
Robert Richards has been our Director of Strategic Alliances since
February 1999. Mr. Richards joined us in June 1997 and has been responsible for
sales, marketing and product management over the course of his employment with
us. From September 1996 to June 1997, Mr. Richards was the Vice President of
Technical Marketing for Noram Corporation, a design and manufacturing company,
where he was the principal corporate representative in implementing a strategic
joint venture between a Canadian high technology start-up and the Polish
division of Daimler-Benz. From December 1994 to August 1996, Mr. Richards was
the President and owner of a brand marketing company, Sursun International Inc.
From January 1991 to November 1994, Mr. Richards provided consulting services
to: Northern Telecom, Consumers Distributions, Statistics Canada, Revenue
Canada, Canada Post and Scouts Canada. Mr. Richards received his Bachelor of
Science in Co-op Applied Physics from the University of Waterloo in 1983.
Robert Vainola has been our Director of Product Marketing since January
1999. Mr. Vainola joined us in November 1997. From November 1996 to October
1997, Mr. Vainola was employed by Fulcrum Technologies, a software company,
where he was the head of Strategic/Competitive Intelligence. From 1993 to
November 1996, he was employed by Doncor Information Systems Inc. where he was
Director of Operations. Prior to this, he worked as an independent contractor.
Mr. Vainola received his Bachelor of Arts from Carleton University in 1986.
45
<PAGE>
Nancy Field has been our Director of Human Resources since June 1999. From
May 1998 to May 1999, Ms. Field worked for JetForm Corporation, a software
company, in the human resources department, most recently as Manager of
Training where she was responsible for training and skills development. From
October 1993 to May 1998, Ms. Field was employed by SHL Systemhouse, Inc. From
January 1990 to September 1993, Ms. Field was employed by Geovision Systems
Incorporated.
Lynne Freeman has been our Director of Client Services since April 1998.
She joined us in November 1997 as our Manager of Network Operations. From
September 1995 to November 1997, she worked as an independent consultant for
the Canadian federal government, advising on national Internet projects. From
1985 to 1995, Ms. Freeman worked for the Ontario Ministry of Education, where
she held a variety of senior technical and management positions over this
period. In 1976, Ms. Freeman received her Bachelor of Education from the
University of Western Ontario.
Board Committees
Our board of directors has established an Audit Committee, comprised of
Roderick Bryden, John McLennan and John Gerard Stanton. Our Audit Committee
recommends to the board of directors the annual engagement of a firm of
independent accountants and reviews with the independent accountants the scope
and results of audits, our internal accounting controls and audit practices and
professional services rendered to us by the independent accountants. Our Audit
Committee also makes recommendations to the board of directors on the
compensation of our Chief Executive Officer and President and administers our
option plans.
Compensation of Directors and Officers
During the fiscal year ended May 31, 1999, we paid to all our officers and
directors as a group aggregate compensation for services in all capacities of
$441,228 (US $299,646) and no officer received salary and bonus compensation
which exceeded US $100,000. This group includes three non-employee directors
and five officers.
During fiscal 1999, we also granted to our officers and directors as a
group options to acquire 141,006 common shares. The exercise prices of these
options range from $2.30 (US $1.56) to $8.07 (US $5.48). Of these options,
97,620 options vest as to one-third of the shares each year and expire five
years from the date of grant. The remaining 43,486 options vest at various
times during fiscal 2000 based on the performance of our officers and expire in
March 2004. The total number of options held by our officers and directors as
of the date of this prospectus is 287,778.
In addition, all directors, other than employees, are reimbursed for their
reasonable expenses incurred in attending meetings of the board of directors
and its committees. During fiscal 1999, however, we did not pay any amounts to
our directors for expenses incurred in attending meetings.
On June 24, 1999, we granted non-plan options to Sandra Bryden, the spouse
of our director Roderick Bryden, to purchase, on or before June 24, 2001,
21,693 common shares at a price of $2.30 (US $1.56) per share. We granted these
options to Ms. Bryden in consideration for Mr. Bryden's services to us as a
director.
Employment Agreements
On June 1, 1999, we entered into an employment agreement with John Gerard
Stanton for a period of two years and seven months from June 1, 1999 to
December 31, 2001. The agreement is automatically renewable for additional
one-year terms. Mr. Stanton's employment agreement provides for an annual base
salary of $120,000 (US $81,494) and annual bonuses based on performance in
amounts to be determined by the Audit Committee.
Mr. Stanton's employment agreement requires Mr. Stanton to devote his full
time and efforts to our business, and the agreement contains non-competition
and non-disclosure covenants of Mr. Stanton for the term of his employment and
for one year after his employment ends. Mr. Stanton has also agreed that all
inventions, improvements, modifications, discoveries, designs, formulae,
methods and processes made by him
46
<PAGE>
during his employment and all patents and patent applications relating to any
inventions are the property of E-Cruiter and has assigned to us all his rights,
title and interest in any inventions, improvements, modifications, discoveries,
designs, formulae, methods and processes made by him during his employment and
all patents and patent applications relating to any inventions.
At any time after the one year following the closing of this offering, Mr.
Stanton may terminate the agreement upon 90 days' written notice. We can
terminate the agreement with cause upon 30 days' written notice and without
cause upon payment to Mr. Stanton of $240,000 (US $162,988).
We also have employment agreements for at will term periods with Evelyn
Ledsham, Jeffery Potts, Rajesh Rao and Kimberly Layne. During the term of their
employment and thereafter, each employee has agreed that he or she will not
disclose our proprietary confidential information to third parties without our
consent. Furthermore, each of Mr. Potts, Mr. Rao and Ms. Layne has agreed with
us that during the term of his or her employment and for a period of 12 months
following termination of employment, he or she will not compete, directly or
indirectly, either alone or in conjunction with any individual, firm,
corporation or any other entity, whether as principal, agent, shareholder,
employee or in any other capacity whatsoever, with our business in any
territory where we presently or in the future carry on business. Ms. Ledsham
has agreed with us that during the term of her employment and for a period of
six months following termination of employment, she will not compete, directly
or indirectly, either alone or in conjunction with any individual, firm,
corporation or any other entity, whether as principal, agent, shareholder,
employee or in any other capacity whatsoever, with our business in any
territory where we presently or in the future carry on business. Ms. Ledsham,
Mr. Potts, Mr. Rao and Ms. Layne have also agreed that after the termination of
their employment with us, they will not attempt to hire any of our employees or
encourage any of our employees to leave their employ.
Key-man Life Insurance
We have obtained key-man life insurance in the amount of US $2,000,000 on
the life of John Gerard Stanton.
Option Plans
1997 Option Plan
In April 1997, we established an option plan for our directors and
employees. The intention of this plan was to develop interest in E-Cruiter and
to provide an incentive to eligible employees and directors to help us grow and
develop.
Eligibility for participation in this plan is limited to our employees and
directors. The number of shares that may be optioned is determined from time to
time by our board of directors. The plan provides that the option price is to
be fixed by the directors from time to time, but may not be lower than the fair
market value of our common shares. All options under this plan are
non-assignable and terminate 180 days after the death, disability or retirement
of a participant. In addition, all options under this plan expire upon the
termination of the employee's employment or services other than for reason of
death, disability or retirement, except that the options which have vested may
be exercised within 60 days following the date of termination.
During our fiscal year ended May 31, 1999, no options were exercised. As
of the date of this prospectus, 516,641 options granted under the plan were
outstanding and the exercise price of the options ranges from $2.30 (US $1.56)
to $8.85 (US $6.00). No additional options will be granted under this plan.
47
<PAGE>
1999 Option Plan
In September 1999, we established a new option plan for our directors and
employees. The intention of this plan is to develop an interest in E-Cruiter
and to provide an incentive to eligible employees and directors to help us grow
and develop.
Eligibility for participation in the plan is limited to our employees and
directors. For United States directors and employees, the common shares to be
optioned will be designated, at the date of grant, as either incentive stock
options or non-qualified stock options. An incentive stock option is an option
granted under the plan, which is designated as such and meets the definition of
section 422 of the Internal Revenue Code of 1986. To meet the definition of
section 422, the individual, at the time the option is granted, cannot own more
than ten percent of all classes of our voting shares, unless the exercise price
of the option is equal to at least 110% of the fair market value of the
underlying common shares. A non-qualified stock option is an option granted
under the plan, which is designated as such and does not constitute an
incentive stock option within the meaning of section 422 of the Internal
Revenue Code.
The number of common shares that may be optioned at any time will be
determined from time to time by our Audit Committee. The plan provides that the
Audit Committee will fix the terms of the option and the option price, but the
option price may not be lower than the fair market value of our common shares
on the date of grant of the option. The options will expire five years after
their grant, and unless otherwise determined by the Audit Committee, awards
will vest one-third each year. In some cases, the Audit Committee may deem it
appropriate to accelerate the vesting period of the options. Options issued
under the plan will be non-transferable and terminate 180 days after the death,
disability or retirement of a participant. Unless otherwise determined by the
Audit Committee, if a participant's employment or services terminate for any
reason other than death, disability or retirement, any options held by the
participant will terminate, except that vested options will be exercisable for
60 days after the termination date.
We have reserved 250,000 common shares for issuance upon exercise of
options granted under this plan, and we have not yet granted any options to any
individuals under this plan.
48
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table presents information known to us, as of the date of
this prospectus and as adjusted to reflect the sale by us of 2,000,000 common
shares offered under this prospectus and 131,838 common shares to be sold by
selling shareholders, relating to the beneficial ownership of common shares by:
(a) each person who is known by us to be the beneficial holder of more than 5%
of our common shares; (b) our directors and executive officers as a group; and
(c) each selling shareholder.
We believe that all persons named in the table have sole voting and
investment power with respect to all common shares beneficially owned by them.
A person is deemed to be to be the beneficial owner of securities that can
be acquired by that person within 60 days from the date of this prospectus upon
the exercise of options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that options, warrants
or other convertible securities that are held by that person, but not those
held by any other person, and which are exercisable within 60 days of the date
of this prospectus, have been exercised and converted. The table also assumes
(a) a base of 5,062,449 common shares outstanding before this offering,
assuming conversion of convertible promissory notes on October 31, 1999, and
(b) a base of 7,062,449 common shares outstanding immediately after this
offering, before any consideration is given to outstanding options or warrants.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Name of Beneficial Owner Owned Before Offering Shares Being Offered Owned After Offering
- ------------------------------------- -------------------------- ---------------------- -------------------------
Number Percentage Number Percentage
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Paul Champagne ...................... 2,386,220 47.1% 0 2,386,220 33.8%
John Gerard Stanton ................. 1,149,738 22.7 0 1,149,738 16.3
Les Kirkland ........................ 374,207 7.4 0 374,207 5.3
Matthew Ebbs ........................ 374,207 7.4 0 374,207 5.3
Roderick Bryden ..................... 36,155 * 0 36,155 *
John McLennan ....................... 27,478 * 0 27,478 *
Directors and executive officers as
a group (8 persons) ................ 1,666,925 32.2 0 1,666,925 23.2
Clarion Finanz A.G. ................. 22,806 * 5,392 17,414 *
Donald Dijkstal ..................... 22,806 * 5,392 17,414 *
John Hanemaayer ..................... 22,806 * 5,392 17,414 *
Hathaway II Limited Partnership ..... 93,448 1.8 22,092 71,356 1.0
William Kertes ...................... 37,927 * 8,966 28,961 *
Peter Miller ........................ 71,113 1.4 16,812 54,301 *
Fevzi Ogleman ....................... 69,958 1.4 16,539 53,419 *
Securities Trading SA ............... 45,612 * 10,783 34,829 *
SteppingStone Funding Partners I
Inc. ............................... 45,612 * 10,783 34,829 *
SteppingStone Funding Partners II
Inc. ............................... 116,186 2.3 27,468 88,719 1.3
Farida Tavares ...................... 4,694 * 1,110 3,584 *
Maurice Tavares ..................... 4,694 * 1,110 3,584 *
</TABLE>
- ------------
* Represents less than 1% of total beneficial ownership of common shares.
49
<PAGE>
The shares beneficially owned by Paul Champagne include 596,533 common
shares issuable upon conversion of convertible promissory notes immediately
before the closing of this offering, assuming a closing on October 31, 1999.
The shares beneficially owned by John Gerard Stanton include 238,625
common shares owned by Mr. Stanton's spouse.
The shares beneficially owned by Les Kirkland include 130,159 common
shares owned by Mr. Kirkland's spouse.
The shares beneficially owned by Roderick Bryden consist of options to
purchase common shares, of which 21,693 are held by his spouse.
The shares beneficially owned by John McLennan consist of options to
purchase 27,478 common shares.
The shares beneficially owned by Clarion Finanz A.G., Donald Dijkstal,
John Hanemaayer, Hathaway II Limited Partnership, William Kertes, Peter Miller,
Fevzi Ogleman, Securities Trading SA, SteppingStone Funding Partners I Inc.,
SteppingStone Funding Partners II Inc., Farida Tavares, and Maurice Tavares
reflect the conversion of convertible promissory notes into common shares
immediately before the closing of this offering, assuming a closing on October
31, 1999.
50
<PAGE>
RELATED PARTY TRANSACTIONS
Transactions with John Gerard Stanton and Les Kirkland
Our principal offices are leased from 871484 Ontario Inc., a corporation
owned and controlled by John Gerard Stanton, our President, Chief Executive
Officer and shareholder. 871484 Ontario Inc., was formerly operated by Mr.
Stanton as Drake Beam Morin (Ottawa) Inc., an outplacement firm. In 1994,
871484 Ontario Inc. entered into an office space lease agreement with Omers
Realty Corporation for an eight-year term. We paid rent to 871484 Ontario Inc.
as follows: $62,337 in fiscal 1997, $115,967 in fiscal 1998 and $190,227 in
fiscal 1999. In October 1998, we agreed to occupy 100% of the premises by
having the head lease arrangement assigned to us by 871484 Ontario Inc. We are
obligated to pay rent at a cost of approximately $21,070 per month until
December 31, 2001.
In fiscal 1997, we made payments to 871484 Ontario Inc. for administrative
services totalling $45,663. In fiscal 1998, we made payments to 871484 Ontario
Inc. for administrative services totalling $45,804. After fiscal 1998, 871484
Ontario Inc. did not provide administrative services to us.
In October 1997, we provided 871484 Ontario Inc. with a temporary advance
of $106,083. In March 1998, 871484 Ontario Inc. fully repaid the principal,
with accrued interest at the rate of 4% per year.
Les Kirkland, our co-founder, shareholder and former director, owns and
controls Daetus Consulting Inc., a software consulting company. Daetus
Consulting Inc. has provided us with software design, coding and other related
services since May 1996. We made the following payments to Daetus Consulting
Inc.: $136,000 in fiscal 1997, $119,910 in fiscal 1998, and $130,200 in fiscal
1999. On July 22, 1999, we entered into a consulting agreement with Daetus
Consulting Inc. whereby Daetus Consulting Inc. agreed to provide us with
software consulting services for a specific project to be completed by February
9, 2000. Pursuant to the terms of this consulting agreement, we agreed to pay
to Daetus Consulting Inc. the aggregate sum of $154,800 plus taxes for the
services of the agents or employees of Daetus Consulting Inc., including the
sum of $75,950 plus taxes for the services of Les Kirkland. We have agreed to
reimburse Daetus Consulting Inc. for all reasonable and necessary business
expenses incurred by it in performing the consulting services. Under the terms
of the consulting agreement, Daetus Consulting Inc. assigned to us all right,
title and interest in the services provided. In addition, Daetus Consulting
Inc. waived all claims to moral rights over the work. Moral rights protect the
personality or reputation of an author and are retained by an author even after
he or she has assigned the copyright in a work.
Transactions with Paul Champagne
We have sold a total of 1,572,755 shares to Paul Champagne for total
proceeds of $3,175,000 over the period of March 10, 1997 to June 11, 1998. On
March 10, 1997, we issued 204,880 common shares to Paul Champagne at a price of
approximately $2.07 per share for proceeds of $425,000. On May 13, 1997, we
issued 120,518 common shares to Mr. Champagne at a price of approximately $2.07
per share for proceeds of $250,000. On September 19, 1997, we issued 813,494
common shares to Paul Champagne at a price of approximately $1.84 per share for
proceeds of $1,500,000. On June 11, 1998, we issued 433,863 common shares to
Paul Champagne at a price of approximately $2.30 per share for proceeds of
$1,000,000. As a result of these purchases, Mr. Champagne became our largest
shareholder.
On September 23, 1998, Paul Champagne purchased from John Gerard Stanton
108,466 common shares for a total purchase price of $250,000.
On September 23, 1998, Paul Champagne purchased from Les Kirkland 108,466
common shares for a total purchase price of $250,000.
On May 19, 1999, Paul Champagne purchased from us a $1,305,000 principal
amount convertible promissory note, on the same terms as the other purchasers
of convertible promissory notes. Mr. Champagne's promissory note is convertible
into approximately 596,533 common shares immediately before the closing of this
offering. Mr. Champagne is not selling any of the common shares held by him in
this offering.
51
<PAGE>
In September 1999, Mr. Champagne provided to us a $1,300,000 (US $882,852)
loan which bears interest at the Canadian prime lending rate plus 3% per year.
This loan is due on the earlier of March 2000 and the closing of this offering.
On October 13, 1999, we entered into a sales and marketing agreement with
WorkLife Solutions, Inc. providing for the joint development of web-based
recruiting services that can be offered through Internet portal web sites.
Simultaneously, Mr. Champagne invested US $800,000 in WorkLife, bringing his
total investment in WorkLife to US $1,000,000. Mr. Champagne's investment is
currently in the form of secured promissory notes issued by WorkLife, but he
agreed to convert the US $1,000,000 of notes into a 15% equity interest in
WorkLife upon satisfaction of specified conditions by WorkLife. In connection
with his investment, Mr. Champagne received the right to nominate a director to
WorkLife's Board of Directors. Mr. Champagne has advised us that he intends to
nominate Mr. Stanton as his designee. Mr. Champagne has the right to acquire
WorkLife for an amount to be determined by an agreed upon third-party valuation
if WorkLife does not receive agreed upon financing by early 2000, and a right
of first refusal to acquire WorkLife on the same terms as a third-party offer.
We also entered into an option agreement with Mr. Champagne which gives us the
option to acquire Mr. Champagne's interest and related rights in WorkLife for
the greater of the fair market value of his interest and related rights in
WorkLife and US $1,000,000 at any time from April 13, 2000, subject to
extension to October 13, 2000.
Transactions with Roderick Bryden
We entered into an advertising agreement on January 11, 1997 for a term
ending June 30, 1999 with Palladium Corporation. This agreement relates to
advertising placed in the Corel Centre located in Ottawa, Canada. The Corel
Centre is owned and operated by Palladium Corporation, a corporation controlled
by Roderick Bryden, one of our directors. During the term of the agreement we
paid to Palladium Corporation a total of $119,520. We did not renew this
agreement.
Transactions with other Executive Officers
On February 24, 1999, Jeff Potts, our Chief Financial Officer, subscribed
for and purchased from us a 12% senior secured convertible promissory note in
the principal amount of $10,000. Mr. Potts' promissory note is convertible into
approximately 4,694 common shares immediately before the closing of this
offering. Mr. Potts is not selling any of these common shares in the offering.
On March 18, 1999, Evelyn Ledsham, our Vice President of Sales, subscribed
for and purchased from us a convertible promissory note in the principal amount
of $50,000. Ms. Ledsham's promissory note is convertible into approximately
23,312 common shares immediately before the closing of this offering. Ms.
Ledsham is not selling any of these common shares in the offering.
We believe that the foregoing transactions with our officers, directors
and principal shareholders and their affiliates were for bona fide business
purposes and were on terms no less favorable than could have been obtained from
unaffiliated third parties. However, our Board of Directors did not have
sufficient disinterested independent directors at the time of some of these
transactions.
Future Related Party Transactions
All future transactions between us and our officers, directors or 5%
shareholders, and their respective affiliates, will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of our independent, disinterested directors.
DESCRIPTION OF COMMON SHARES
Immediately before the date of this prospectus, we filed an amendment to
our articles of incorporation which converted all classes of shares to one
class of common shares on a reverse share split basis of 1-for-.216932. Our
authorized capital consists of an unlimited number of common shares, without
nominal or par value. As of the date of this prospectus, 3,863,987 common
shares were issued and outstanding as fully
52
<PAGE>
paid and non-assessable, which are held of record by 45 shareholders. Upon the
closing of this offering, after the conversion of promissory notes immediately
before the closing of this offering into common shares, approximately 7,062,449
common shares will be issued and outstanding as fully paid and non-assessable.
Holders of our common shares are entitled to one vote for each share held
on all matters submitted to a vote of shareholders, including the election of
directors. Holders of our common shares do not have any cumulative voting
rights. Accordingly, holders of a majority of our common shares entitled to
vote in any election of directors may elect all of the directors standing for
election.
Holders of our common shares are entitled to receive dividends, if any, as
may be declared by the board of directors out of legally available funds. In
the case of a liquidation, dissolution or winding-up of E-Cruiter, the holders
of our common shares are entitled to receive ratably our net assets available
after the payment of all debts and liabilities and subject to the prior rights
of any outstanding preferred stock.
Holders of our common shares have no pre-emptive, subscription or
conversion rights. There are no redemption or sinking fund provisions
applicable to our common shares. The outstanding common shares are, and the
shares offered by us in this offering will be, when issued in consideration for
the payment of the common shares, fully paid and non-assessable.
Subject to the Canada Business Corporations Act, in the event that we were
to issue a different class of our equity shares, the holders of our common
shares would be entitled to vote separately as a class and to dissent on a
proposal to amend our articles of incorporation to:
o change the maximum number of authorized common shares;
o increase the maximum number of authorized shares of any class or series of
a class having rights or privileges equal or superior to our common shares;
o add, change or remove the rights, privileges, restrictions or conditions
attached to our common shares;
o increase the rights or privileges of any class of shares having rights or
privileges equal or superior to the common shares;
o effect an exchange or create a right of exchange of all or part of our
common shares into another class of shares;
o constrain the issue, transfer or ownership of our common shares or change
or remove this constraint;
o effect an exchange, reclassification or cancellation of our common shares;
or
o create a new class or series of a class of shares equal or superior to our
common shares.
<PAGE>
Limitations Affecting Holders of Our Common Shares who are not Canadian
Residents
There is no law or government decree or regulation in Canada that
restricts the export or import of capital, or that affects the remittance of
dividends, interest or other payments to a non-resident holder of common
shares, other than withholding tax requirements. Our articles of incorporation
and our by-laws do not limit the right of a Canadian non-resident to hold or
vote our common shares, or to directly acquire control of us. The Investment
Canada Act requires Canadian government review of some acquisitions of control
of Canadian businesses by non-Canadians. A direct acquisition of control by a
WTO investor of a Canadian business engaged in activity similar to our activity
is reviewable in situations where the gross book value of the assets of the
target Canadian business equals or exceeds $184,000,000 in 1999 dollars, as
indicated in the target company's most recent financial statements. A WTO
investor is defined in the Investment Canada Act as an individual or other
entity that is a national of, or has the right of permanent residence in, a
member of the World Trade Organization, or a WTO investor controlled entity, as
defined in the Investment Canada Act. Current members of the World Trade
Organization include the European Union, Germany, Japan, Mexico, the United
Kingdom and the United States.
53
<PAGE>
Registration Rights
We have granted registration rights under the Securities Act to Messrs.
Champagne, Stanton and Kirkland, with respect to approximately 3,671,540 common
shares that will be held by them on the closing of this offering. We granted
these registration rights in consideration of the agreement of these
shareholders to waive the registration rights to which they were entitled in
connection with this offering. We have filed a copy of the registration rights
agreement with Messrs. Champagne, Stanton and Kirkland as an exhibit to the
registration statement of which this prospectus forms a part. Pursuant to the
registration rights agreement, we have agreed that upon the request of Mr.
Champagne or Mr. Stanton, we will, at our expense on two occasions, in the case
of Mr. Champagne, and, on one occasion in the case of Mr. Stanton, register the
common shares held by them under the Securities Act. Furthermore, whenever we
propose to register any of our shares under the Securities Act for our own
account or for the account of other security holders, we have agreed to
promptly notify the holders of each of the registerable shares of the proposed
registration. We may be required to include all registerable shares which these
holders may request to be included in the registration. Each of Messrs.
Champagne, Stanton and Kirkland is entitled to two piggyback registrations. The
registration rights that we have granted to Messrs. Champagne, Stanton and
Kirkland become exercisable 12 months following the closing of this offering,
and each of them has agreed not to sell or dispose in another manner of the
registerable shares for a period of 12 months following the date of this
prospectus.
In connection with this offering, we have agreed to grant to the
underwriter registration rights in connection with the 213,184 common shares
issuable upon exercise of the underwriter's warrants. These rights are
described in the "Underwriting" section of this prospectus.
Rights of Shareholders under the Canada Business Corporations Act
In accordance with the provisions of the Canada Business Corporations Act,
the following amendments of rights of holders of our common shares requires the
approval of at least two-thirds of the votes cast by the holders of common
shares voting at a special meeting of the holders:
o an amendment to our articles of incorporation;
o a reorganization of our share capital;
o an amalgamation;
o a transfer of all of our property to another corporation;
o an exchange of our securities for money, property or other securities of
that corporation or another corporation;
o a liquidation or dissolution of E-Cruiter;
o a continuation of E-Cruiter under the laws of another jurisdiction;
o a voluntary wind-up of E-Cruiter;
o a sale, lease or exchange of all or substantially all of our property
other than in our ordinary course of business; and
o a reduction of our stated capital account, which records the full amount
of any consideration received by us for each class and series of shares.
In accordance with our by-laws, the quorum requirements for a meeting of
the holders of common shares are met if at least one-third of the common shares
entitled to vote at a meeting are represented either in person or by proxy.
Holders of our common shares will have the right under the Canada Business
Corporations Act to dissent and require that we pay them the fair value of
their common shares in the following circumstances:
o amend our articles of incorporation to change share rights or to change
our business;
o amalgamate with another company;
54
<PAGE>
o continue under the laws of another jurisdiction; or
o sell, lease or exchange all or substantially all of our property other
than in the ordinary course of our business.
Transfer Agent
The transfer agent for our common shares is American Stock Transfer and
Trust Company, 40 Wall Street, New York, New York 10005.
MATERIAL INCOME TAX CONSIDERATIONS
In this section, we summarize the material Canadian and U.S. federal
income tax consequences of the acquisition, ownership and disposition of our
common shares. Readers are cautioned that this is not a complete technical
analysis or listing of all potential tax effects that may be relevant to
holders of our common shares. In particular, this discussion does not deal with
the tax consequences applicable to all categories of investors, some of which
may be subject to special rules, and does not address the tax consequences
under Canadian provincial or territorial tax laws, United States state or local
tax laws, or tax laws of jurisdictions outside of Canada and the United States.
Accordingly, you should consult your own advisor regarding the particular tax
consequences to you of an investment in our common shares.
The statements of Canadian and United States federal tax laws that we make
below are based upon laws, regulations and relevant interpretations of the laws
and regulations in effect as of the date of this prospectus, all of which are
subject to change, possibly retroactively.
Material Canadian Federal Income Tax Considerations
The following is a summary of the material Canadian federal income tax
considerations generally applicable to a person who acquires common shares
offered by this prospectus and who, for purposes of the Income Tax Act (Canada)
and the Canada-United States Income Tax Convention, 1980, as applicable, and at
all relevant times, is a U.S. holder. This summary is based on the advice of
our Canadian counsel, Perley-Robertson, Hill & McDougall. For purposes of the
Income Tax Act (Canada) and the Canada-United States Income Tax Convention,
1980, a U.S. holder is a person that:
o throughout the period during which the person owns our common shares is
not resident in Canada and is a resident of the United States;
o holds our common shares as capital assets, that is, generally as
investments;
o deals at arm's length with us within the meaning of the Income Tax Act
(Canada);
o does not have a permanent establishment or fixed base in Canada, as
defined by the Canada-United States Income Tax Convention, 1980; and
o does not own and is not treated as owning, 10% or more of our outstanding
voting shares.
Special rules, we do not address in this discussion, may apply to a U.S.
holder that is (a) an insurer that carries on an insurance business in Canada
and elsewhere, or (b) a financial institution subject to special provisions of
the Income Tax Act (Canada) applicable to income gain or loss arising from
mark-to-market property.
This discussion is based on the current provisions of the Canada-United
States Income Tax Convention, 1980, the Income Tax Act (Canada) and their
regulations, all specific proposals to amend the Income Tax Act (Canada) and
regulations announced by the Minister of Finance (Canada) before the date of
this prospectus and counsel's understanding of the current published
administrative practices of Revenue Canada. This discussion is not exhaustive
of all potential Canadian tax consequences to a U.S. holder and does not take
into account or anticipate any other changes in law, whether by judicial,
governmental or legislative decision or action, nor does it take into account
the tax legislation or considerations of any province, territory or foreign
jurisdiction.
55
<PAGE>
Taxation of Dividends
Dividends paid or credited or deemed to be paid or credited on common
shares owned by a U.S. holder will be subject to Canadian withholding tax under
the Income Tax Act (Canada) at a rate of 25% on the gross amount of the
dividends. The rate of withholding tax generally is reduced under the
Canada-United States Income Tax Convention, 1980 to 15% where the U.S. holder
is the beneficial owner of the dividends. Under the Canada-United States Income
Tax Convention, 1980, dividends paid to religious, scientific, charitable and
similar tax exempt organizations and pension organizations that are resident
and exempt from tax in the United States and that have complied with the
administrative procedures specified in the Tax Convention are exempt from this
Canadian withholding tax.
Taxation of Capital Gains
A gain realized by a U.S. holder on a sale, disposition or deemed
disposition of our common shares generally will not be subject to tax under the
Income Tax Act (Canada) unless the common shares constitute taxable Canadian
property within the meaning of the Income Tax Act (Canada) at the time of the
sale, disposition or deemed disposition. Our common shares generally will not
be taxable Canadian property provided that: (a) they are listed on a prescribed
stock exchange, and (b) at no time during the five-year period immediately
preceding the sale, disposition or deemed disposition, did the U.S. holder,
persons with whom the U.S. holder did not deal at arm's length, or the U.S.
holder acting together with those persons, own or have an interest in or a
right to acquire 25% or more of the issued shares of any class or series of our
shares. A deemed disposition of common shares will occur on the death of a U.S.
holder.
If our common shares are taxable Canadian property to a U.S. holder, any
capital gain realized on a disposition or deemed disposition of those shares
will generally be exempt from tax under the Income Tax Act (Canada) by the
Canada-United States Income Tax Convention, 1980, so long as the value of our
common shares at the time of the sale, disposition or deemed disposition is not
derived principally from real property situated in Canada, as defined by the
Canada-United States Income Tax Convention, 1980. We have been advised that
currently our common shares do not derive their value principally from real
property situated in Canada; however, the determination as to whether Canadian
tax would be applicable on a sale, disposition or deemed disposition of common
shares must be made at the time of that sale, disposition or deemed
disposition.
Material United States Federal Income Tax Considerations
The following summarizes the material United States federal income tax
consequences of the acquisition, ownership and disposition of our common shares
is based on the advice of our U.S. counsel, Weil, Gotshal & Manges LLP. This
summary is based on current provisions of the Internal Revenue Code of 1986,
known as the Code, current and proposed Treasury regulations promulgated under
the Code, and administrative and judicial interpretations of the Code and
Treasury regulations, all as in effect on the date of this prospectus and all
of which are subject to change, possibly on a retroactive basis.
This summary considers only U.S. holders who will own common shares as
capital assets, that is generally as investments. For purposes of this
discussion a U.S. holder is:
o a citizen or resident of the United States;
o a corporation organized under the laws of the United States, of any state
of the United States or the District of Columbia;
o an estate, the income of which is subject to United States federal income
tax regardless of the source;
o a trust, if a court within the United States is able to exercise primary
jurisdiction over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust; or
o trusts in existence on August 20, 1997 which were treated as U.S. persons
under the law in effect immediately before that date and which make a
valid election to continue to be treated as a U.S. person under the Code.
56
<PAGE>
We discuss the material aspects of United States federal income taxation
relevant to holders that are not U.S. holders, or non-U.S. holders, separately
below.
This discussion does not address all aspects of United States federal
income taxation that may be relevant to any particular holder based on the
holder's individual circumstances. In particular, not addressed are the
potential application of the alternative minimum tax or the United States
federal income tax consequences to holders that are subject to special
treatment, including:
o broker-dealers in securities or currencies;
o insurance companies, regulated investment companies or real estate
investment trusts;
o banks, thrifts or other financial institutions or "financial services
entities";
o taxpayers who have elected mark-to-market accounting;
o tax-exempt entities;
o taxpayers who hold common shares as a position in a "straddle", or as
part of a "synthetic security" or "hedge", "conversion transaction" or
other integrated investment;
o holders owning directly, indirectly or by attribution at least 10% of our
voting power; and
o except to the extent discussed below under "Tax Consequences for Non-U.S.
Holders of Common Shares," taxpayers whose functional currency is not the
U.S. dollar.
In addition, this discussion does not address any aspect of United States
federal gift or estate tax, or state, local or non-United States tax laws and
does not consider the tax treatment of persons who hold common shares through a
partnership or other pass-through entity.
Prospective investors are advised to consult their own tax advisor with
respect to the specific tax consequences to them of purchasing, holding or
disposing of our common shares.
Taxation of Dividends Paid On Common Shares
We have never paid dividends, and we currently do not intend to pay
dividends in the future. In the event that we do pay a dividend, and subject to
the discussion of the passive foreign investment company, or PFIC, rules below,
a U.S. holder will be required to include in gross income as ordinary income
the amount of any distribution paid on our common shares, including any
Canadian taxes withheld from the amount paid, on the date the distribution is
received to the extent the distribution is paid out of our current or
accumulated earnings and profits as determined for United States federal income
tax purposes. Distributions in excess of these earnings and profits will be
applied against and will reduce the U.S. holder's basis in the common shares
and, to the extent that basis is exceeded, will be treated as capital gain.
Distributions of current or accumulated earnings and profits paid in a
currency other than the U.S. dollar will be included in the income of a U.S.
holder at the U.S. dollar amount calculated by reference to the exchange rate
on the date the distribution is received. The amount of any distribution of
property other than cash will be the fair market value of the property on the
date of distribution. A U.S. holder that receives a distribution in a currency
other than the U.S. dollar and converts the non-U.S. currency into U.S. dollars
subsequent to its receipt will have foreign exchange gain or loss based on any
appreciation or depreciation in the value of the non-U.S. currency against the
U.S. dollar, which will generally be U.S. source ordinary income or loss.
U.S. holders will have the option of claiming the amount of any Canadian
income taxes withheld at source or paid with respect to dividends either as a
deduction from gross income or as a dollar-for-dollar credit against their
United States federal income tax liability. Individuals who do not claim
itemized deductions, but instead utilize the standard deduction, may not claim
a deduction for the amount of the Canadian income taxes withheld, but those
individuals may still claim a credit against their United States federal income
tax liability.
57
<PAGE>
The amount of foreign income taxes which may be claimed as a credit in any
year is subject to complex limitations and restrictions, which must be
determined on an individual basis by each shareholder. The total amount of
allowable foreign tax credits in any year cannot exceed the pre-credit U.S.
federal income tax liability for the year attributable to foreign source
taxable income, which would include any dividends paid by us but generally
would not include any gain realized upon a disposition of common shares. A U.S.
holder will be denied a foreign tax credit with respect to Canadian income tax
withheld from dividends received on our common shares to the extent the U.S.
holder has not held the common 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 the U.S. holder is under an obligation to make 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. In addition, distributions of our current or accumulated earnings and
profits will, for United States foreign tax credit purposes, be foreign source
passive income or, in the case of some U.S. holders, foreign source financial
services income, and will not qualify for the dividends received deduction
available to corporations.
Taxation of the Disposition of Common Shares
Subject to the discussion of the PFIC rules below, upon the sale, exchange
or other disposition of our common shares, a U.S. holder will recognize capital
gain or loss in an amount equal to the difference between the U.S. holder's
basis in the common shares, which is usually the cost of the shares, and the
amount realized on the disposition. If the shares are publically traded, as our
common shares will be, a disposition of shares will be considered to occur on
the trade date regardless of the holders method of accounting. Capital gain
from the sale, exchange or other disposition of common shares held more than
one year is long-term capital gain and is eligible for a maximum 20% rate of
taxation for non-corporate holders. Gain or loss recognized by a U.S. holder on
a sale, exchange or other disposition of our common shares generally will be
treated as United States source income or loss for United States foreign tax
credit purposes. The deductibility of a capital loss recognized on the sale,
exchange or other disposition of common shares is subject to limitations.
With respect to foreign currency gain or loss on the sale of our common
shares, a U.S. holder that uses the cash method of accounting calculates the
U.S. dollar value of the proceeds received on the sale as of the date that the
sale settles, while a U.S. holder that uses the accrual method of accounting is
required to calculate the value of the proceeds of the sale as of the trade
date and may therefore realize foreign currency gain or loss, unless the U.S.
holder has elected to use the settlement date to determine its proceeds of sale
for purposes of calculating the foreign currency gain or loss. In addition, a
U.S. holder that receives non-U.S. currency upon disposition of our common
shares and converts the non-U.S. currency into U.S. dollars subsequent to its
receipt will have foreign exchange gain or loss based on any appreciation or
depreciation in the value of the non-U.S. currency against the U.S. dollar,
which will generally be U.S. source ordinary income or loss.
Tax Consequences if we are a Passive Foreign Investment Company
We will be a PFIC if:
o 75% or more of our gross income in a taxable year, including the pro rata
share of the gross income of any company, U.S. or foreign, in which we
are considered to own 25% or more of the shares by value, is passive
income; or
o 50% or more of our assets in a taxable year, averaged over the year and
ordinarily determined based on fair market value and including the pro
rata share of the assets of any company in which we are considered to own
25% or more of the shares by value, are held for the production of, or
produce, passive income.
Passive income includes dividends, interest, rents and income equivalent
to interest and would include amounts derived by reason of the temporary
investment of funds raised in this offering. We believe that we will not be a
PFIC for fiscal 2000. The tests for determining PFIC status, however, are
applied annually, and it is difficult to make accurate predictions of future
income and assets, which are relevant to this determination. Accordingly, we
cannot assure you that we will not become a PFIC in the future.
58
<PAGE>
If we were a PFIC, and a U.S. holder did not make a election to treat us
as a qualified electing fund, or QEF, as described below:
o Excess distributions by us to a U.S. holder would be taxed in a special
way. Excess distributions are amounts received by a U.S. holder with
respect to our shares in any taxable year after the taxable year in which
our common shares are acquired that exceed 125% of the average
distributions received by such U.S. holder from us in the shorter of
either the three previous years or the U.S. holder's holding period for
common shares before the present taxable year. Excess distributions must
be allocated ratably to each day that a U.S. holder has held our shares.
A U.S. holder must include amounts allocated to the current taxable year
in its gross income as ordinary income for that year. A U.S. holder must
pay tax on amounts allocated to each prior taxable year at the highest
rate in effect for that year on ordinary income and the tax is subject to
an interest charge at the rate applicable to deficiencies for income tax.
o The entire amount of gain that is realized by a U.S. holder upon the sale
or other disposition of our common shares in any taxable year after the
taxable year in which the common shares were acquired will be treated as
if it were an excess distribution and will be subject to tax as described
above.
o A U.S. holder's tax basis in our shares that were acquired from a
decedent would not receive a step-up to fair market value as of the date
of the decedent's death but would instead be equal to the decedent's
basis, if lower.
The special PFIC rules described above would not apply to a U.S. holder if
the U.S. holder makes an election to treat us as a QEF in the first taxable
year in which the U.S. holder owns our common shares and if we comply with the
specified reporting requirements. Instead, a shareholder of a qualified
electing fund is required for each taxable year to include in income a pro rata
share of the ordinary earnings of the qualified electing fund as ordinary
income and a pro rata share of the net capital gain of the qualified electing
fund as long-term capital gain, subject to a separate election to defer payment
of taxes, which deferral is subject to an interest charge. We have agreed to
supply U.S. holders with the information needed to report income and gain
pursuant to a QEF election in the event we are classified as PFIC. The QEF
election is made on a shareholder-by-shareholder basis and can be revoked only
with the consent of the U.S. Internal Revenue Service, or IRS. A shareholder
makes a QEF election by attaching a completed IRS Form 8621, including the PFIC
annual information statement, to a timely filed United States federal income
tax return and by filing that form with the IRS Service Center in Philadelphia,
Pennsylvania. Even if a QEF election is not made, a shareholder in a PFIC who
is a U.S. person must file a completed IRS Form 8621 every year.
A U.S. holder of PFIC stock which is publicly traded could elect to mark
the stock to market annually, recognizing as ordinary income or loss each year
an amount equal to the difference as of the close of the taxable year between
the fair market value of the PFIC stock and the U.S. holder's adjusted tax
basis in the PFIC stock. Losses would be allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election
for prior taxable years. If the mark-to-market election were made, then the
rules described above would not apply for periods covered by the election.
U.S. holders who hold common shares during a period when we are a PFIC
would be subject to the rules described above, even if we cease to be a PFIC,
subject to some exceptions for U.S. holders who made a QEF election. We
strongly urge U.S. holders to consult their tax advisors about the PFIC rules,
including the consequences to them of making a mark-to-market or QEF election
with respect to our common shares, in the event that we qualify as a PFIC.
Tax Consequences for Non-U.S. Holders of Common Shares
Except as described in "Information Reporting and Back-up Withholding"
below, a non-U.S. holder of our common shares will not be subject to United
States federal income or withholding tax on the payment of dividends on, and
the proceeds from the disposition of, our common shares, unless:
o the dividend or disposition proceeds are effectively connected with the
conduct by the non-U.S. holder of a trade or business in the United
States and, in the case of a resident of a country which has a treaty
with the United States, the dividend or disposition proceeds are
attributable to a permanent establishment or, in the case of an
individual, a fixed place of business, in the United States;
59
<PAGE>
o the non-U.S. Holder is an individual who holds the common shares as a
capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition and does not qualify for an
exemption; or
o the non-U.S. Holder is subject to tax pursuant to the provisions of
United States tax law applicable to U.S. expatriates.
Information Reporting and Back-up Withholding
U.S. holders, other than corporations, generally are subject to annual
information reporting requirements with respect to dividends paid in the United
States on our common shares. Under existing regulations, these dividends are
not subject to back-up withholding. U.S. holders are subject to information
reporting and back-up withholding at a rate of 31% on proceeds paid from the
disposition of our common shares unless the U.S. holder provides an IRS Form
W-9 or otherwise establishes an exemption.
Non-U.S. holders generally are not subject to information reporting or
back-up withholding with respect to dividends paid on, or upon the disposition
of, our common shares, so long as the non-U.S. holder provides a taxpayer
identification number, certifies to its foreign status, or otherwise
establishes an exemption.
Treasury regulations effective January 1, 2001 may alter the rules
regarding information reporting and back-up withholding. In particular, those
regulations would impose back-up withholding on dividends paid in the United
States on our common shares unless the U.S. holder provides an 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 our common shares.
The amount of any back-up withholding would be allowed as a credit against
a U.S. holder's or non-U.S. holder's United States federal income tax liability
and may entitle such holder to a refund, provided that the holder provides
required information to the IRS.
Pending Legislation
In addition, there is presently pending legislation in the United States
which may result in tax rate reductions for U.S. individuals and in the
indexing for inflation of the adjusted bases of some assets. At present it is
not possible to determine the specific effect that this legislation, if
enacted, might have on holders of our common shares. In view of the
uncertainty, prospective purchasers of our common shares should consult their
own tax advisors.
SHARES ELIGIBLE FOR FUTURE SALE
After the closing of this offering, we will have approximately 7,062,449
common shares issued and outstanding of which the 2,131,838 shares offered by
this prospectus will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by any
affiliate of us. An affiliate of us is generally a person who has a controlling
position with regard to us. Any shares purchased by our affiliates will be
subject to the resale limitations of Rule 144 promulgated under the Securities
Act.
Of the approximately 4,930,611 remaining common shares that will be
outstanding, none are restricted securities as that term is defined under Rule
144. However, approximately 3,938,171 of those shares are held by executive
officers and directors and persons who hold more than 10% of our shares, all of
whom may be deemed to be our affiliates. Consequently these shares will be
subject to the resale limitations of Rule 144. We have also granted options and
warrants to purchase 751,518 common shares, including the 213,184 common shares
issuable upon exercise of the underwriter's warrants.
We have granted registration rights to Paul Champagne, John Gerard Stanton
and Les Kirkland with respect to 3,671,540 shares that will be held by them in
the aggregate on the closing of this offering. We also have granted
registration rights to the underwriter with respect to the 213,184 common
shares issuable upon exercise of the underwriter's warrants. These rights
become exercisable twelve months after the closing of this offering.
60
<PAGE>
The holders of approximately 4,926,272 of our common shares, including
Messrs. Champagne, Stanton and Kirkland, have agreed not to sell or dispose of
any of the common shares held by them, including in accordance with Rule 144,
for a period of twelve months following the date of this prospectus without the
underwriter's prior written consent. For the second year following the closing,
our officers, directors and principal shareholders have agreed that, without
the underwriter's written consent, they will not sell common shares during any
three-month period in excess of the amount they would be allowed to sell if
they were deemed an affiliate of ours and the shares were deemed restricted as
defined under Rule 144 of the Securities Act. This amount is the greater of:
(a) 1% of the then outstanding common shares; and (b) the average weekly
trading volume of the common shares during the four calendar weeks preceding a
sale.
In general, under Rule 144, as currently in effect, beginning 90 days
after the date of this prospectus, a person or group of persons whose shares
are aggregated, who has beneficially owned restricted shares for at least one
year, including the holding period of any prior owner except an affiliate of
us, would be entitled to sell, within any three month period, a number of
shares that does not exceed the greater of:
o 1% of the then outstanding common shares; or
o The average weekly trading volume of our common shares during the four
calendar weeks preceding the sale, provided, that, public information
about us as required by Rule 144 is then available and the seller
complies with manner of sale provisions and notice requirements.
The volume limitations described above, but not the one-year holding
period, also apply to sales of our non-restricted securities by affiliates of
us.
A person who is not an affiliate, has not been an affiliate within three
months before the sale and has beneficially owned the restricted securities for
at least two years, is entitled to sell the restricted shares under Rule 144
without regard to any of the limitations described above.
Before this offering, there has been no public market for our common
shares. We can not predict the effect, if any, that market sales of common
shares or the availability of additional shares for sale will have on the
market price prevailing from time to time. Nevertheless, the possibility that
substantial amounts of common shares may be sold in the public market may
adversely affect the prevailing market price for our common shares and could
impair our ability to raise capital through the sale of our equity securities.
UNDERWRITING
Whale Securities Co., L.P., as underwriter, has agreed, subject to the
terms and conditions contained in the underwriting agreement relating to this
offering, to purchase the 2,000,000 common shares offered by us and 131,838
common shares offered by the selling shareholders.
The underwriting agreement provides that the obligations of the
underwriter are subject to the delivery of an opinion of our counsel and to
various other conditions. The underwriter is committed to purchase and pay for
all of the common shares offered by this prospectus if any of those shares are
purchased.
The underwriter has advised us that it proposes to offer our common shares
to the public at the public offering price indicated on the cover page of this
prospectus. The underwriter may allow selected dealers who are members of the
National Association of Securities Dealers, Inc., known as the NASD,
concessions, not in excess of $. per share, of which not in excess of $. per
share may be reallowed to other dealers who are members of the NASD.
We have granted to the underwriter an option, exercisable not later than
45 days after the date of this prospectus, to purchase up to 319,776 common
shares at the public offering price indicated on the cover page of this
prospectus, less the underwriting discounts and commissions. The underwriter
may exercise this option only to cover over-allotments, if any, made in
connection with the sale of the common shares offered by this prospectus. If
the underwriter exercises its over-allotment in full, the total price to the
public would be US $14,709,684, the total underwriting discounts and
commissions would be US $1,421,936 and the total proceeds to E-Cruiter, before
payment of the expenses of this offering, would be US $12,573,186.
61
<PAGE>
We have agreed to pay to the underwriter a non-accountable expense
allowance equal to 3% of the gross proceeds from the sale of the shares offered
by us, including any securities sold pursuant to the underwriter's
over-allotment option, of which US $50,000 has been paid as of the date of this
prospectus. The selling shareholders have agreed to pay the underwriter a
non-accountable expense allowance equal to 3% of the gross proceeds from the
sale of the shares offered by the selling shareholders. We have also agreed to
pay all expenses in connection with qualifying the shares offered under the
laws of the states as the underwriter may designate, including expenses of
counsel retained for this purpose by the underwriter. We estimated our expenses
of this offering to be US $2,134,000, including the underwriter's discounts and
commission, or US $2,377,030 if the underwriter's over-allotment option is
completely exercised.
At the closing of this offering, we will sell to the underwriter and its
designees, for an aggregate of $100, underwriter's warrants to purchase up to
213,184 common shares. The underwriter's warrants are exercisable at any time,
in whole or in part, during the four-year period commencing one year from the
date of this prospectus at an exercise price of US $9.90 per share, 165% of the
public offering price per share. The underwriter's warrants are only assignable
or transferable to the officers and partners of the underwriter and members of
the selling group for one year following the date of this prospectus. During
the exercise period, the holders of the underwriter's warrants will have the
opportunity to profit from a rise in the market price of the common shares,
which will dilute the interests of our shareholders. We expect that the
underwriter's warrants will be exercised when we would, in all likelihood be
able to obtain any needed capital on terms more favorable to us than those
provided in the underwriter's warrants. Any profit realized by the underwriter
on the sale of the underwriter's warrants or the underlying common shares may
be deemed additional underwriting compensation. The underwriter's warrants
contain a cashless exercise provision. We have agreed that, upon the request of
the holders of the majority of the underwriter's warrants, we will, at our own
expense, on one occasion during the exercise period register the underwriter's
warrants and the common shares underlying the underwriter's warrants under the
Securities Act. We have also agreed to include the underwriter's warrants and
all underlying common shares in any appropriate registration statement which is
filed by us under the Securities Act during the seven years following the date
of this prospectus.
We have agreed, for a period of three years from the date of this
prospectus, if so requested by the underwriter, to nominate and use our best
efforts to elect a designee of the underwriter as a director of E-Cruiter or,
at the underwriter's option, as a non-voting advisor to our board of directors.
Our officers, directors and current shareholders have agreed to vote their
shares in favor of the underwriter's designee. The underwriter has not yet
exercised its right to designate a person.
The holders of approximately 4,926,272 common shares have agreed not to
sell or dispose in another manner any of those securities in the public markets
for a period of twelve months form the date of this prospectus without the
underwriter's prior written consent. For the second year following the closing,
our officers, directors and principal shareholders have agreed that without the
underwriter's written consent they will not sell common shares during any
three-month period in excess of the amount they would be allowed to sell if
they were deemed an affiliate of ours and the shares were deemed restricted as
defined under Rule 144 of the Securities Act. This amount is the greater of:
(a) 1% of the then outstanding common shares; and (b) the average weekly
trading volume of the common shares during the four calendar weeks preceding
the sale.
We have agreed to indemnify the underwriter against civil liabilities,
including liabilities under the Securities Act.
The underwriter has informed us that it does not expect sales of the
securities offered to discretionary accounts to exceed 1% of the shares offered
by this prospectus.
Before this offering, there has been no public market for our common
shares. Accordingly, the initial public offering price of the common shares has
been determined by negotiation between us and the underwriter and may not
necessarily be related to our asset value, net worth or other established
criteria of value. Factors considered in determining this price include our
financial condition and prospects, an assessment of our management, market
prices of similar securities of comparable publicly-traded companies, financial
and operating information of companies engaged in activities similar to our
business and the general condition of the securities market.
62
<PAGE>
In connection with this offering, the underwriter may engage in passive
market making transactions in the shares on Nasdaq in accordance with Rule 103
of Regulation M promulgated under the Exchange Act.
In connection with this offering, the underwriter may engage in
transactions that stabilize, maintain or affect in another manner the price of
our common shares. These transactions may include stabilization transactions
permitted by Rule 104 of Regulation M, under which persons may bid for or
purchase shares to stabilize the market price. Specifically, the underwriter
may over-allot in connection with the offering, creating a short position in
our common shares for its own account. In addition, to cover over-allotments or
to stabilize the price of our common shares, the underwriter may bid for, and
purchase, common shares in the open market. The underwriter may also reclaim
selling concessions allowed to a dealer for distributing the common shares in
the offering, if the underwriter repurchases previously distributed common
shares in transactions to cover short positions, in stabilization transactions
or in another manner. Any of these activities may stabilize or maintain the
market price of our common shares above independent market levels. The
underwriter is not required to engage in these activities, and may end any of
these activities at any time.
LEGAL MATTERS
The validity of the common shares offered by this prospectus and other
matters of Canadian law relating to the offering will be passed upon by
Perley-Robertson, Hill & McDougall, Ottawa, Ontario, a general partnership.
Legal matters relating to the offering will be passed upon for E-Cruiter.com
Inc. by Weil, Gotshal & Manges LLP, New York, New York and for the underwriter
by Tenzer Greenblatt LLP, New York, New York, with respect to U.S. law. Weil,
Gotshal & Manges LLP and Tenzer Greenblatt LLP will rely upon the opinion of
Perley-Robertson, Hill & McDougall with respect to matters governed by Canadian
law.
Mr. Matthew Ebbs, a director of E-Cruiter, is a member of
Perley-Robertson, Hill & McDougall. Mr. Ebbs acquired 374,207 common shares
from Les Kirkland and his spouse in September 1999. Mr. Ebbs continues to hold
these shares.
EXPERTS
The consolidated financial statements as of May 31, 1999 and May 31, 1998
and for each of the three years in the period ending May 31, 1999 appearing in
this prospectus and registration statement have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent Chartered Accountants,
appearing elsewhere in this prospectus, given on the authority of
PricewaterhouseCoopers LLP as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form F-1 under the Securities Act with respect to the common
shares offered by this prospectus. This prospectus is a part of that
registration statement and does not contain all of the information included in
the registration statement. For further information with respect to us and our
common shares, you should refer to the registration statement and its exhibits.
Portions of the exhibits have been omitted as permitted by the rules and
regulations of the Securities and Exchange Commission. Statements contained in
this prospectus as to the content of any contract or other document referred to
in this prospectus are not necessarily complete. In each instance, we refer you
to the copy of the contracts or other documents filed as an exhibit to the
registration statement, and these statements are hereby qualified in their
entirety by reference to the contract or document.
The registration statement, including all exhibits attached to it, may be
inspected without charge at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. You may
request copies of these documents by writing to the Commission and paying a
duplicating charge. For further information on the operation of the Public
Reference Room, please call the Commission at 1-800-SEC-0330. In addition, the
registration statement and all exhibits attached to it may be obtained at the
web site maintained by the Commission at http://www.sec.gov.
Upon listing of our common shares on the Nasdaq SmallCap Market, we will
be subject to the information requirements of the U.S. Securities Exchange Act
of 1934, known as the Exchange Act, applicable
63
<PAGE>
to "foreign private issuers" having a class of securities registered under
Section 12(g) of the Exchange Act. Accordingly, we will be required to file
annual reports on Form 20-F and periodic reports on Form 6-K with the
Commission. Copies of these reports may be accessed in the same manner as is
indicated above for the registration statement and its exhibits.
We furnish our shareholders with annual reports containing consolidated
financial statements audited by an independent chartered accounting firm. We
also furnish quarterly reports for the first three quarters of each fiscal year
containing unaudited financial information. These reports are prepared in
accordance with Canadian generally accepted accounting principles and presented
in Canadian dollars. We will be required to file copies of these reports on
Form 6-K with the Commission. As a foreign private issuer, however, we will be
exempt from provisions of the Exchange Act regarding the furnishing and content
of proxy statements to shareholders and rules relating to short swing profits
reporting and liability.
64
<PAGE>
E-Cruiter.com Inc.
Consolidated Financial Statements
Years Ended May 31, 1997, 1998 and 1999
Contents
<TABLE>
<S> <C>
Report of Independent Auditors ........................................................... F-2
Consolidated Balance Sheets as of May 31, 1998 and May 31, 1999 .......................... F-3
Consolidated Statements of Loss for the Years Ended May 31, 1997, 1998 and 1999 .......... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended May 31,
1997, 1998 and 1999 ..................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1997, 1998 and 1999 .... F-6
Notes to Consolidated Financial Statements ............................................... F-7
</TABLE>
F-1
<PAGE>
The share capital reorganization described in note 2(a) to the financial
statements has not been consummated at November 3, 1999. When it has been
consummated, we will be in a position to furnish the following reports:
"Auditors' Report
To the Directors of E-Cruiter.com Inc.
We have audited the consolidated balance sheets of E-Cruiter.com Inc. as at May
31, 1999 and 1998 and the consolidated statements of loss, shareholders' equity
(deficit) and cash flows for the years ended May 31, 1999, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards 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 May 31, 1999 and
1998 and the results of its operations and its cash flows for the years ended
May 31, 1999, 1998 and 1997 in accordance with accounting principles generally
accepted in Canada.
Chartered Accountants
Ottawa, Canada
June 18, 1999, except for note 2(a) which is as of , 1999.
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described
in note 1 to the financial statements. Our report to the directors dated June
18, 1999, except for note 2(a) which is as of , 1999 is expressed in
accordance with Canadian reporting standards which do not permit a reference to
such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
Chartered Accountants
Ottawa, Canada
, 1999"
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Canada
November 3, 1999
F-2
<PAGE>
E-Cruiter.com Inc.
Consolidated Balance Sheets
As at May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1998 1999
--------------- ----------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (note 3) ................................... $ 194,239 $ 1,505,782
Accounts receivable, net of allowance for doubtful accounts of $20,000
(1998 -- $10,000) ................................................... 370,626 211,757
Prepaid expenses ..................................................... 15,310 101,700
Investment tax credits ............................................... 20,000 68,904
------------ -----------
600,175 1,888,143
Capital assets (note 4) .............................................. 100,651 288,067
------------ -----------
$ 700,826 $2,176,210
============ ===========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities
Trade accounts payable and accrued liabilities ....................... $ 269,609 $ 411,159
Accrued compensation ................................................. 35,641 65,650
Accrued debt issue costs ............................................. -- 330,000
Deferred revenue ..................................................... 361,938 323,469
Current portion of long-term obligations (note 5) .................... 100,173 84,173
Convertible promissory notes -- debt component (note 6) .............. -- 2,162,063
------------ -----------
767,361 3,376,514
Long-term obligations (note 5) ....................................... 66,455 40,000
------------ -----------
Total liabilities .................................................... 833,816 3,416,514
------------ -----------
Commitments (note 5)
Shareholders' equity (deficit)
Common shares -- issued and outstanding -- 3,857,479
(1998 -- 3,436,632) (note 2a) ....................................... 2,571,040 3,541,040
Convertible promissory notes -- equity component (note 6) ............ -- 135,096
Deficit .............................................................. (2,704,030) (4,916,440)
------------ ------------
(132,990) (1,240,304)
------------ -----------
$ 700,826 $ 2,176,210
============ ===========
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-3
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Loss
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1997 1998 1999
-------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue ................................................ $ 85,524 $ 870,003 $ 1,399,557
Cost of revenue ........................................ 57,167 386,391 848,769
---------- ------------ ------------
Gross profit ........................................... 28,357 483,612 550,788
---------- ------------ ------------
Expense
Selling ................................................ 125,785 652,118 818,601
Marketing .............................................. 258,256 817,291 612,796
General and administrative ............................. 243,304 350,014 725,713
Research and development ............................... 258,257 510,974 606,088
---------- ------------ ------------
885,602 2,330,397 2,763,198
---------- ------------ ------------
Net loss for the year .................................. $ (857,245) $ (1,846,785) $ (2,212,410)
========== ============ ============
Basic and fully diluted loss per common share .......... $ (0.53) $ (0.58) $ (0.57)
========== ============ ============
Weighted average number of common shares outstand-
ing during the year ................................... 1,620,669 3,191,297 3,854,579
========== ============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-4
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
Total
Number of Convertible Shareholders'
Common Common Promissory Accumulated Equity
Shares Shares Notes Deficit (Deficiency)
------------- ------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Issuance of shares ............ 2,628,561 $1,083,530 $ -- $ -- $ 1,083,530
Net loss for the year ......... -- -- -- (857,245) (857,245)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1997 . 2,628,561 1,083,530 -- (857,245) 226,285
Issuance of shares ............ 813,494 1,500,010 -- -- 1,500,010
Redemption of shares .......... (5,423) (12,500) -- -- (12,500)
Net loss for the year ......... -- -- -- (1,846,785) (1,846,785)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1998..... 3,436,632 2,571,040 -- (2,704,030) (132,990)
Issuance of shares ............ 433,863 1,000,000 -- -- 1,000,000
Redemption of shares .......... (13,016) (30,000) -- -- (30,000)
Issuance of convertible
promissory notes -- equity
component .................... -- -- 135,096 -- 135,096
Net loss for the year ......... -- -- -- (2,212,410) (2,212,410)
--------- ---------- -------- ------------ ------------
Balance as at May 31, 1999 . 3,857,479 $3,541,040 $135,096 $ (4,916,440) $ (1,240,304)
========= ========== ======== ============ ============
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-5
<PAGE>
E-Cruiter.com Inc.
Consolidated Statements of Cash Flows
For the years ended May 31,
(Canadian dollars)
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from (used in)
Operating activities
Net loss for the year ......................... $ (857,245) $ (1,846,785) $ (2,212,410)
Amortization of capital assets ................ 35,228 122,484 117,150
Non-cash interest on convertible promissory
notes ........................................ -- -- 104,238
Net change in operating component of
working capital (note 10) .................... 95,669 165,583 20,835
----------- ------------- -------------
(726,348) (1,558,718) (1,970,187)
----------- ------------- -------------
Investing activities
Purchase of capital assets .................... (60,127) (97,413) (105,588)
Advance to related company (note 7) ........... -- (106,083) --
Repayment of advance to related company ....... -- 106,083 --
----------- ------------- -------------
(60,127) (97,413) (105,588)
----------- ------------- -------------
Financing activities
Proceeds from share issuance .................. 1,083,530 1,500,010 1,000,000
Redemption of shares .......................... -- (12,500) (30,000)
Proceeds from issuance of convertible
promissory notes, net of issue costs ......... -- -- 2,522,921
Proceeds from small business loan ............. -- 100,000 --
Repayment of small business loan .............. -- -- (50,000)
Capital lease payments ........................ -- (34,195) (55,603)
----------- ------------- -------------
1,083,530 1,553,315 3,387,318
----------- ------------- -------------
Increase (decrease) in cash and cash
equivalents .................................. 297,055 (102,816) 1,311,543
Cash and cash equivalents -- Beginning
of year ...................................... -- 297,055 194,239
----------- ------------- -------------
Cash and cash equivalents -- End of year $ 297,055 $ 194,239 $ 1,505,782
=========== ============= =============
Supplementary non-cash information:
Purchase of capital assets under capital lease -- $ (100,822) $ (63,149)
Proceeds from capital leases .................. -- 100,822 63,149
Interest paid ................................. -- (17,332) (20,313)
</TABLE>
(The accompanying notes are an integral part of these financial statements.)
F-6
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements
(Canadian dollars)
1. Continuing operations
These financial statements have been prepared using generally accepted
accounting principles that are applicable to a going concern, which assumes
E-Cruiter.com Inc. (the "Company") will realize its assets and discharge its
liabilities in the normal course of business. As such, the financial statements
do not reflect adjustments in the carrying values of assets and liabilities,
the reported revenues and expenses, and the balance sheet classifications used,
that would be necessary if the going concern assumption were not appropriate,
and such adjustments could be material.
The Company incurred operating losses during the years ended May 31, 1999,
1998 and 1997 and, therefore, there is substantial doubt about the Company's
ability to continue. The Company needs to secure additional equity or debt
financing. Management is currently pursuing an initial public offering or
additional private placements of its shares to be completed within the next six
months, and is therefore of the opinion that the Company will be able to obtain
sufficient equity financing to meet its liabilities and commitments as they
become payable.
2. Significant accounting policies
a) Basis of presentation
These financial statements have been prepared by management in accordance
with generally accepted accounting principles in Canada ("Canadian GAAP") and
include the accounts of E-Cruiter.com Inc. and its wholly-owned subsidiary,
3451615 Canada Inc. These principles also conform in all material respects with
accounting principles generally accepted in the United States ("U.S. GAAP")
except as described in Note 14.
As at May 31, 1999, the share capital of the Company consisted of
authorized Class A, B and C common shares and Class A, B, C and D special
shares of which Class A common and Class D special shares were issued. All per
share amounts and number of common shares in these consolidated financial
statements, for all periods presented, have been restated to give retroactive
effect to the filing of Articles of Amendment to (i) create an unlimited number
of a single class of common shares; (ii) convert the outstanding Class A common
and Class D special shares into common shares on the basis of one Class A
common share and one Class D special share into .216932 of a common share;
(iii) cancel all authorized Class A, B, and C common shares and Class A, B, C,
and D special shares; and (iv) convert all of the options to purchase Class D
special shares into options to purchase the converted number of common shares
at converted exercise prices, which are to become effective in October 1999.
The holders of the common shares will be entitled to one vote at meetings of
shareholders for each common share held and to receive dividends as and when
declared by the Board of Directors.
b) Use of 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 dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
c) Cash equivalents
Cash equivalents are defined as highly liquid investments with terms to
maturity at acquisition of three months or less.
d) Investment tax credits
Investment tax credits, which are earned as a result of qualifying
research and development expenditures, are recognized when the expenditures are
made and their realization is reasonably assured and are applied to reduce the
related research and development capital costs and expenses in the year.
F-7
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
2. Significant accounting policies -- (Continued)
e) Capital assets
Capital assets are recorded at cost. Amortization is based on the
estimated useful life of the asset and is recorded as follows:
Furniture, equipment and leaseholds 20% declining balance
Office equipment 33% declining balance
Computers and software 60% declining balance
f) Income taxes
Income taxes are provided for using the liability method whereby deferred
tax assets and liabilities are recognized using current tax rates on the
difference between the financial statement carrying amounts and the respective
tax basis of assets and liabilities.
g) Financing issue costs
Issue costs of convertible debt instruments are allocated between the debt
and equity components of the instruments in the same ratio as the gross
proceeds. These costs are netted against the proceeds and the portion allocated
to the debt component is amortized against earnings over the term of the
instruments.
h) Capital stock
Capital stock is recorded as the net proceeds received on issuance after
deducting all share issue costs.
i) Revenue recognition
E-Cruiter Enterprise subscription contracts are recognized ratably over
the term of the contract. E-Cruiter Enterprise and E-Cruiter Express internet
posting services are recognized when the job requisition is posted. Other
client services are recognized as services are provided.
j) Research and development costs
The Company expenses all research costs as incurred. Development costs are
expensed in the year incurred unless a development project meets the criteria
under generally accepted accounting principles for deferral and amortization.
No amounts have been capitalized to date.
k) New accounting pronouncement
The Company has adopted the Canadian Institute of Chartered Accountants'
new recommendations on the presentation of the statement of cash flows. The
Company has restated prior years to conform to the new recommendations.
3. Cash equivalents
The Company's cash equivalents of $1,000,000 as at May 31, 1999 consist of
guaranteed investment certificates of a Canadian Chartered Bank. These cash
equivalents represent the Company's only significant concentration of credit
risk.
F-8
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
4. Capital assets
<TABLE>
<CAPTION>
1998 1999
----------- ----------------------------------------
Accumulated
Net Cost amortization Net
----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Furniture, equipment and leaseholds ......... $ 3,629 $ 25,632 $ 15,505 $ 10,127
Office equipment ............................ 23,100 58,858 32,595 26,263
Computers and software ...................... 73,922 484,945 233,268 251,677
-------- -------- -------- --------
$100,651 $569,435 $281,368 $288,067
======== ======== ======== ========
</TABLE>
As at May 31, 1998 accumulated amortization was $157,712. As at May 31,
1999, capital assets include assets under capital lease of $81,573 (1998 --
$57,501) net of accumulated amortization of $83,122 (1998 -- $44,045).
5. Long-term obligations and other commitments
In 1998, the Company entered into a $100,000 small business loan agreement
with a Canadian Chartered Bank to finance the purchase of certain capital
assets. The balance of the loan at May 31, 1999 was $50,000 (1998 -- $100,000).
An additional facility was arranged in April 1999 for $190,000, but was not
drawn as at May 31, 1999. Under both agreements, the principal is repaid over a
24-month period and interest is accrued at the rate of prime plus 3%. Assets
financed by the loans are pledged as collateral.
As at May 31, 1999 capital lease obligations totalled $74,173 including
the current portion of $34,173 which is due in 1999. The leases were for office
equipment, computers and software and bear interest at rates varying from 12.3%
to 27.0% per annum, and mature at varying times from June 2000 to June 2003.
The Company has also committed to operating leases for its office
facilities and vehicles. Future minimum payments for both operating and capital
leases are as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Operating leases .......... $255,000 $245,500 $141,000 $ --
Capital leases
Principal ................ 34,173 29,020 8,200 2,780
Interest ................. 11,658 5,261 907 200
-------- -------- -------- ------
Total payments ............ $300,831 $279,781 $150,107 $2,980
======== ======== ======== ======
</TABLE>
Rent expense for the year ended May 31, 1999 was $207,085 (1998 --
$134,858, 1997 -- $62,496).
F-9
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
6. Convertible promissory notes
The Company issued 12% convertible promissory notes (the "Notes") as
follows:
Debt Equity
Month issued Face Value Component Component
- ------------ -------------- ------------- ------------
January, 1999 ............. $ 300,000 $ 268,800 $ 31,200
March, 1999 ............... 400,000 359,498 40,502
April, 1999 ............... 200,000 184,319 15,681
May, 1999 ................. 1,700,000 1,627,209 72,791
---------- ---------- ---------
2,600,000 2,439,826 160,174
Less: Issue costs ......... (407,079) (382,001) (25,078)
---------- ---------- ---------
2,192,921 2,057,825 135,096
Accrued interest .......... -- 104,238 --
---------- ---------- ---------
$2,192,921 $2,162,063 $ 135,096
========== ========== =========
The Notes, which mature January 22, 2000, are convertible at any time at
the Note holders' option into 0.434 common shares for every dollar of the face
value plus accrued interest to the date of conversion without payment of
additional consideration, the equivalent of $2.30 per share. The Notes are
convertible at the Company's option immediately prior to a public offering of
the Company's common shares using the same conversion factor. The Company has
executed a general security agreement against all its assets as collateral for
the Notes. The Notes are being accounted for in accordance with their substance
and are presented in the financial statements in their component parts,
measured at their respective fair values at the time of issue. The debt
component has been calculated as the present value of the required principal
and interest payments discounted at 25%, approximating the interest rate that
would have been applicable to non-convertible debt at the time the Notes were
issued. Interest expense is determined on the debt component as the amount
necessary to increase the debt component to its face amount at maturity. The
difference between the debt component and the face value of the Notes has been
classified as equity.
7. Related party transactions
The Company was charged $190,227 for office space and administrative
services (1998 -- $161,771, 1997 -- $108,000) and $130,200 for research,
development and other consulting services (1998 -- $119,910, 1997 -- $136,000)
by companies controlled by shareholders of the Company. The Company was charged
$50,200 (1998 -- $47,520, 1997 -- $21,800) for advertising by a company
controlled by a director of the Company. These transactions are in the normal
course of operations and are measured at the amounts of consideration paid
which management believes approximates fair market value. As at May 31, 1998
and 1997 respectively, $23,218 and $49,359 was payable to these related
companies. During 1998 a related company was provided with a temporary advance
in the amount of $106,083. The full amount, with interest, was repaid in March
of 1998. As at May 31, 1999, no amount was payable to related parties.
F-10
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
8. Income taxes
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Combined Canadian federal and provincial income tax rate 44.6% 44.6% 44.6%
Income tax recovery based on combined Canadian federal
and provincial rate ................................... $ 382,000 $ 824,000 $ 948,000
Non-deductible amounts ................................. (49,000) (4,000) (5,000)
Valuation allowance .................................... (333,000) (820,000) (943,000)
---------- ---------- ----------
Provision for income taxes ............................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
As at May 31, 1999, the Company has unclaimed Scientific Research and
Experimental Development (SR&ED) expenditures of approximately $212,000 (1998
- -- $127,000, 1997 -- $43,000) and income tax loss carryforwards of
approximately $4,531,000 (1998 -- $2,470,000, 1997 -- $733,000). The SR&ED
expenditures can be carried forward indefinitely and applied to reduce income
taxes otherwise payable in future years. The income tax loss carryforwards will
expire beginning in the year 2004.
9. Share capital
a) Employee stock option plan
The Company has an employee and directors stock option plan (the "1997
Plan"). Under the terms of the 1997 Plan, the options to purchase common shares
generally vest ratably over a period of three years and expire five years from
the date of grant. The 1997 Plan provides that the number of options and the
option exercise price are to be fixed by the Board of Directors, but the
exercise price may not be lower than the fair value of the underlying common
shares on the date of grant. The Board of Directors has the right to accelerate
the vesting date for any options granted. In the event of a third party offer
to acquire control of the Company that is accepted by a majority of the
shareholders, any options that are not exercisable at that time, become fully
exercisable.
Weighted
Average
Number of Exercise
Options Price
----------- ---------
Granted ..................................... 39,048 $ 2.30
------
Balance outstanding -- May 31, 1997 ......... 39,048
Granted ..................................... 154,672 2.30
Cancelled ................................... (21,693) 2.30
-------
Balance outstanding -- May 31, 1998 ......... 172,027
Granted ..................................... 351,972 3.07
Cancelled ................................... (71,805) 2.30
-------
Balance outstanding -- May 31, 1999 ......... 452,194 2.77
=======
F-11
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
9. Share capital -- (Continued)
Stock options outstanding as at May 31, 1999 are set out below, of which
41,579 were exercisable immediately at a price of $2.30 per share and a further
65,080, also with an exercise price of $2.30 per share, become exercisable upon
the achievement of various performance objectives in the year ending May 31,
2000.
Number Weighted
Exercise price Outstanding Average Life
---------------- ------------- -------------
ESOP options ......... $ 2.30 418,027 4.11
$ 8.07 19,524 4.96
US$6.00 14,643 4.91
------- ----
452,194 4.29
=======
From May 31, 1999 to August 31, 1999, 86,140 options were granted under
the 1997 Plan with an exercise price of US $6.00 per share and 21,693 options
outstanding as at May 31, 1999 were cancelled. On September 15, 1999 the Board
of Directors approved the immediate vesting of 13,016 options held by a
director at May 31, 1999. (Unaudited)
Options granted under the 1997 Plan will remain outstanding; however, no
new options will be granted under that plan.
On September 15, 1999, the Board of Directors approved the 1999 Employee
Stock Option Plan (the "1999 Plan") pending shareholder approval. The 1999 Plan
is similar to the 1997 Plan but includes provisions for directors and employees
who reside in the United States. The 1999 Plan will replace the 1997 Plan. The
Board of Directors reserved 250,000 options to be granted under the 1999 Plan.
(Unaudited)
In addition, subsequent to May 31, 1999, 21,693 options were granted
outside the ESOP to the spouse of a director of the Company. These non-plan
options, which have an exercise price of $2.30 per share, vest immediately and
expire two years from the date of grant. (Unaudited)
b) Earnings per share
For all of the years presented, fully diluted loss per share equals basic
loss per share due to the anti-dilutive effect of employee stock options and
convertible promissory notes. The following outstanding instruments could
potentially dilute basic earnings per share in the future.
<TABLE>
<CAPTION>
Number Outstanding at May 31
-----------------------------------
1997 1998 1999
-------- --------- ------------
<S> <C> <C> <C>
Employee stock options ............................. 39,048 172,027 363,252
Convertible promissory notes ....................... -- -- 1,141,328
------ ------- ---------
Potential increase in number of shares from dilutive
instruments ....................................... 39,048 172,027 1,504,580
====== ======= =========
</TABLE>
10. Net change in operating components of working capital
<TABLE>
<CAPTION>
1997 1998 1999
------------- -------------- -------------
<S> <C> <C> <C>
Accounts receivable ..................................... $ (60,818) $ (309,808) $ 158,869
Prepaid expenses ........................................ (3,765) (11,545) (86,391)
Investment tax credits .................................. (20,000) -- (48,904)
Trade accounts payable and accrued liabilities .......... 137,449 136,160 141,550
Accrued compensation .................................... -- 31,641 30,009
Deferred revenue ........................................ 42,803 319,135 (38,469)
--------- ---------- ----------
95,669 165,583 156,664
Less: amounts included in accounts payable at year end
related to fixed asset purchases ....................... -- -- (135,829)
--------- ---------- ----------
$ 95,669 $ 165,583 $ 20,835
========= ========== ==========
</TABLE>
F-12
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
11. Financial instruments
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities and the convertible
promissory notes. It is management's opinion that the Company is not exposed to
significant interest, currency or concentrations of credit risks arising from
these financial instruments other than as disclosed in note 3. The fair values
of these financial instruments approximate their carrying values, unless
otherwise noted. The fair value of the convertible promissory notes is not
determinable at May 31, 1999 because the underlying common shares were not
publicly traded. On May 31, 1999, based on an estimated initial public offering
price of the Company's shares of US $6.00 per share, the fair value of the
converted promissory notes is calculated as $10,620,770 (unaudited).
12. Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar problems
may arise in some systems when using certain dates in 1999 to represent
something other than a date. The effects of the Year 2000 Issue may be
experienced before, on, or after January 1, 2000, and if not addressed, the
impact on operations and financial reporting may range from minor errors to
significant systems failure, which could affect the Company's ability to
conduct normal business operations. It is not possible to be certain that all
aspects of the Year 2000 Issue affecting the Company, including those related
to the efforts of customers, suppliers, or other third parties, will be fully
resolved.
13. Segmented information
In the opinion of management, the Company operates solely in the software
industry and all of its sales consist of web centric recruiting products and
related services. Accordingly, management has determined that it does not have
any separately reportable business segments. To date the Company's operations,
assets and substantially all of its sales have been in Canada.
14. United States accounting principles
The financial statements have been prepared in accordance with Canadian
GAAP. These principles differ, as they affect the Company, in the following
material respects from U.S. GAAP:
a) Statements of loss
<TABLE>
<CAPTION>
Year ended Year ended Year ended
May 31, 1997 May 31, 1998 May 31, 1999
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss in accordance with Canadian GAAP ................... $ (857,245) $ (1,846,785) $ (2,212,410)
Compensation expense adjustment for options issued
below fair value(1) ........................................ -- -- (125,947)
Expense adjustment for convertible promissory notes with
conversion price below the fair value of the shares(2) ..... -- -- (2,526,378)
---------- ------------ ------------
Net loss in accordance with U.S. GAAP ....................... $ (857,245) $ (1,846,785) $ (4,864,735)
========== ============ ============
Basic and diluted loss per common share -- U.S. GAAP ........ $ (0.53) $ (0.58) $ (1.26)
========== ============ ============
Weighted average number of common shares outstanding
during the year ............................................ 1,620,669 3,191,297 3,854,579
========== ============ ============
</TABLE>
F-13
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
14. United States accounting principles -- (Continued)
b) Balance sheets
<TABLE>
<CAPTION>
May 31, May 31,
1998 1999
--------------- ---------------
<S> <C> <C>
Total assets ........................................... $ 700,826 $ 2,176,210
============ ============
Convertible promissory notes -- debt(2) ................ $ -- $ 2,630,616
Other current liabilities .............................. 767,361 1,214,451
------------ ------------
767,361 3,845,067
Long-term obligations .................................. 66,455 40,000
------------ ------------
Total liabilities ...................................... 833,816 3,885,067
------------ ------------
Capital stock .......................................... 2,571,040 3,541,040
Additional paid-in-capital(1)(2) ....................... -- 2,318,868
Deficit(1)(2) .......................................... (2,704,030) (7,568,765)
------------ ------------
Shareholders' equity (deficit) ......................... (132,990) (1,708,857)
------------ ------------
Liabilities and shareholders' equity (deficit) ......... $ 700,826 $ 2,176,210
============ ============
</TABLE>
- ------------
(1) Under U.S. GAAP, the difference between the exercise price of options and
the fair value of the underlying shares, generally assumed to be the
estimated public offering price of US $6.00 per share, is accounted for as
compensation and is charged against earnings over the vesting period of
the options with a corresponding and equal amount recorded as
paid-in-capital.
(2) Under U.S. GAAP, the proceeds from convertible debt instruments that have
non-detachable conversion features where the fair value of the underlying
common shares exceeds the conversion price of the debt instrument
("beneficial conversion features") are allocated between the debt and the
equity components of the instruments. The value of the beneficial
conversion feature is measured by the excess of the fair value of the
underlying shares over the conversion price up to, but not exceeding, the
net proceeds received upon issuance of the convertible debt instruments.
The value ascribed to the beneficial conversion feature is recorded as
paid-in-capital. The discount resulting from the allocation of the
proceeds is recognized as interest expense over the minimum period from
the date of issuance to the date at which the debt holder can realize that
return.
The Company has allocated all of the proceeds of the convertible promissory
notes to paid-in-capital. The discount resulting from the allocation was
expensed upon issuance of the convertible promissory notes as they are
immediately convertible at the Note holders' option.
c) Share based compensation
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). Had compensation cost for options been determined
based on the Black-Scholes option pricing model at the grant date as prescribed
by SFAS No. 123, the Company would have reported a greater compensation expense
related to these options than recorded under APB 25, increasing the Company's
net loss as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
May 31, 1997 May 31, 1998 May 31, 1999
-------------- ---------------- ----------------
<S> <C> <C> <C>
Net loss under U.S. GAAP ............................... $ (857,245) $ (1,846,785) $ (4,864,735)
Estimated incremental share based compensation expense . -- (20,000) (45,288)
---------- ------------ ------------
Pro forma net loss ..................................... $ (857,245) $ (1,866,785) $ (4,910,023)
========== ============ ============
Pro forma basic loss per share ......................... $ (0.53) $ (0.58) $ (1.27)
========== ============ ============
</TABLE>
F-14
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
14. United States accounting principles -- (Continued)
The weighted average fair value of the options issued during the year
ended May 31, 1999, as calculated using the Black-Scholes option pricing model
was $5.35 (1998 -- $0.45, 1997 -- $0.45). Of the options issued during the year
ended May 31, 1999, 280,927 were issued with exercise prices below the fair
value at the date of grant. The weighted average fair value of these options
was $6.50 and the weighted average exercise price was $2.93. The remaining
71,045 options were issued with exercise prices equal to fair value. The
weighted average fair value of these options was $0.78 and the weighted average
exercise price was $3.65.
The fair value of each option granted during 1997 to 1999 is estimated on
the date of the grant using the minimum value method with the following
weighted average assumptions:
1997 1998 1999
-------- -------- --------
Expected option life, in years .......... 4.5 4.5 4.5
Risk free interest rate ................. 5.0% 5.0% 5.0%
Dividend yield .......................... nil nil nil
d) Revenue recognition
During the year ended May 31, 1999, the Company adopted Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" and SOP 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2" which provide guidance in
recognizing revenue from software transactions. SOP 97-2 conforms with Canadian
GAAP and the adoption of it did not have a material impact on the Company's
results for the year ended May 31, 1999. In December 1998, SOP 98-9
"Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain
Transactions" was released. The Company will adopt SOP 98-9 for its fiscal year
ending May 31, 2000 and does not expect it to have a material impact on its
revenue recognition.
e) Other recent accounting pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1") which provides
guidance for determining whether computer software is internal-use software and
on accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. The Company will adopt SOP 98-1 for its
fiscal year ending May 31, 2000 and does not expect it to have a material
impact on its financial statements.
15. Subsequent events (Unaudited)
a) Initial public offering
In September 1999, the Company filed a registration statement with the
United States Securities and Exchange Commission for a public offering by the
Company of 2,000,000 common shares at a price of US $6.00 per share (the
"Offering"). In connection with the Offering, the Company will provide to the
underwriter an underwriting discount and commission of US $.58 per share and
the Company will also pay a 3% non-accountable expense allowance to the
underwriter plus all other expenses of the Offering. At the time of closing,
for an aggregate of $100 the Company will issue warrants to the underwriter for
up to 213,184 common shares which are exercisable for a four year period
commencing one year after the date of the registration statement at US $9.90
per share. In addition, for the purposes of covering over-allotments, the
underwriter will have an option to purchase from the Company up to an
additional 319,776 common shares for a period of 45 days after the closing of
the Offering. Such over-allotment option shall be exercisable on the same terms
and conditions as the initially offered common shares.
F-15
<PAGE>
E-Cruiter.com Inc.
Notes to Consolidated Financial Statements -- (Continued)
(Canadian dollars)
15. Subsequent events (Unaudited) -- (Continued)
b) Pro-forma EPS assuming conversion of convertible promissory notes
Immediately prior to filing the registration statement, the Company plans
to convert the Notes into common shares of the Company. If the Notes had been
converted into common shares immediately upon issue, the weighted average
number of common shares outstanding for the year ended May 31, 1999 would have
been 3,960,964 and the number of shares outstanding at May 31, 1999 would have
been 4,985,524. In addition, the non-cash interest expense on the Notes of
$104,238 and $30,616 under Canadian GAAP and U.S. GAAP respectively would not
have been incurred, resulting in a pro-forma basic and fully diluted loss per
common share for the year ended May 31, 1999 as follows:
Canadian GAAP...............................................$(0.53)
U.S. GAAP...................................................$(1.22)
F-16
<PAGE>
[Inside Back Cover]
E-Cruiter Applicant Manager
E-Cruiter's Applicant Manager enables recruiters to track and manage all job
applicants through the recruiting process.
[GRAPHIC OMITTED: Image of E-Cruiter Enterprise 2.3 desktop showing various
open windows. The following text is incorporated into the graphics:
o E-Cruiter enables a more effective hiring process by allowing recruiters to
easily search, share, transfer, annotate, decline, e-mail and export
applicant files.
o All applications for a specific job opening flow, in real-time, directly to
the human resource professional's desktop in a standard format for review
and comment.
o Throughout the hiring process, E-Cruiter manages all communication between
job seekers, hiring managers and human resources. Communication with job
applicants via e-mail is significantly enhanced through resume
auto-acknowledgment, interview scheduling and automatically sending decline
messages to multiple applicants.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or any other person to
give any information or to represent anything not contained in this prospectus.
You must not rely on any unauthorized information. This prospectus does not
offer to sell or buy any shares in any jurisdiction where it is unlawful.
-----------------------------------
TABLE OF CONTENTS
Prospectus Summary ................................. 3
Risk Factors ....................................... 9
Cautionary Statement Regarding Forward-
Looking Statements .............................. 19
Use of Proceeds .................................... 20
Dilution ........................................... 22
Dividends .......................................... 23
Exchange Rates ..................................... 23
Capitalization ..................................... 24
Selected Financial Data ............................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 27
Business ........................................... 33
Management ......................................... 44
Principal and Selling Shareholders ................. 49
Related Party Transactions ......................... 51
Description of Common Shares ....................... 52
Material Income Tax Considerations ................. 55
Shares Eligible for Future Sale .................... 60
Underwriting ....................................... 61
Legal Matters ...................................... 63
Experts ............................................ 63
Additional Information ............................. 63
Index to Consolidated Financial Statements ......... F-1
-----------------------------------
Until _________ 1999, all dealers effecting transactions in the
registered securities, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
2,131,838
Common Shares
----------------------------------------
Prospectus
----------------------------------------
Whale Securities Co., L.P.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table lists the expenses that are payable by E-Cruiter.com
Inc. in connection with the offering described in the registration statement,
other than underwriting discounts and commissions. All amounts are estimates
except the SEC registration fee, the NASD and the Nasdaq listing fee.
SEC fee ................................................. US$4,089.29
NASD filing fee ......................................... 1,971.00
Nasdaq listing fee ...................................... 7,500.00
Blue sky fees and expenses .............................. 50,000.00
Printing and engraving expenses ......................... 125,000.00
Legal fees and expenses ................................. 255,000.00
Accounting fees and expenses ............................ 95,000.00
Transfer Agent fees ..................................... 3,500.00
Underwriter's non-accountable expense allowance ......... 360,000.00
Miscellaneous ........................................... 71,939.71
-----------
TOTAL ................................................ US$974,000.00
===========
Item 14. Indemnification of Directors and Officers
Limitation on Liability and Indemnification Matters
Under the Canada Business Corporations Act, except with respect to an
action by us or on behalf of us to procure a judgment in our favor, we have a
right to indemnify any of our officers or directors or any former officers or
directors, who act or have acted at our request as officers or directors
against any costs, charges or expenses for amounts paid by him to settle an
action in respect of any civil, criminal or administrative action or proceeding
to which he is made a party by reason of having been our director if:
(a) he has acted honestly and in good faith with a view toward our best
interests; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by monetary penalty, he had reasonable grounds for
believing his conduct was lawful.
We make the determination in (a) and (b) above.
Further, we may, with the approval of a court, indemnify a person who is a
director, officer or former director or officer with respect to an action by or
on behalf of us to procure a judgment in our favor to which he is made a party
by reason of having been our officer or director, against all costs, charges
and expenses reasonably incurred by him in connection with that action if:
(a) he has acted honestly and in good faith with a view toward our best
interests; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty he had reasonable grounds for
believing his conduct was lawful.
A director, officer or former director or officer of ours is also entitled
to indemnification from us with respect to all costs, charges and expenses
reasonably incurred by him in connection with the defense of any civil,
criminal or administrative action or proceeding to which he is a party by
reason of being or having been a director or officer of ours, if he:
(a) was substantially successful on the merits in his defense of the action
or proceeding;
(b) acted honestly and in good faith with a view toward our best interests;
and
(c) in the case of a criminal or administrative action or proceeding that
was enforced by a monetary penalty, had reasonable grounds for
believing that his conduct was lawful.
II-1
<PAGE>
In addition, our by-laws provide that no director or officer is liable for
the acts of any other director or officer or employee or for any loss or damage
to us unless it is caused by his own willful neglect or default. However, the
limitation against liability does not extend or grant any director or officer
protection against the breach of any law. The by-laws also provide for an
indemnity similar to the provisions contained in the Canada Business
Corporations Act and subject to the same limitations.
Our by-laws provide that, subject to the Canada Business Corporations Act,
we can purchase and maintain indemnity insurance for the benefit of our
directors and officers as may be determined from time to time by our directors.
We maintain a policy of insurance under which our directors and officers are
insured, subject to the limits of the policy, against certain losses arising
from claims made against them as officers and directors and by reason of any
acts or omissions covered under the policy, in their respective capacities as
directors or officers, including liability under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons in
relation to the above provisions, or permitted in any other circumstance, we
have been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities
Described below are all securities which E-Cruiter.com Inc. has issued
during the prior 3 years in transactions not involving public offerings. All
issuances have been made in reliance on Rule 903 of Regulation S promulgated
under the Securities Act of 1933, in offers or sales to non-U.S. persons which
occurred outside the United States within the meaning of Rule 901 of the
Securities Act. All amounts in this Item 15 are given in Canadian dollars.
(a) On August 1, 1996, we issued 6 million Class A Common Shares to John
Gerard Stanton, our president and Chief Executive Officer, and members
of his family, for aggregate consideration of $60,030.
(b) On December 1, 1996, we issued 4 million Class A Common Shares to Les
Kirkland, a former director, and members of his family, for aggregate
consideration of $40,010.
(c) In December 1996, we issued 557,000 Class D Special Shares to 29
individuals for aggregate consideration of $278,500.
(d) On February 28, 1997, we issued 60,000 Class D Special Shares to 6
individuals for aggregate consideration of $30,000.
(e) On March 10, 1997, we issued 944,444 Class D Special Shares to Paul
Ebbs for aggregate consideration of $425,000, and on May 13, 1997, we
issued an additional 555,556 Class D Special Shares to Paul Ebbs for
aggregate consideration of $250,000.
(f) On June 16, 1997, we issued 10,000 Class D Special Shares to an
individual for aggregate consideration of $5,000.
(g) On September 19, 1997, we exchanged 1,500,000 Class D Special Shares
held by Paul Ebbs into an equal number of Class A Common Shares, and
issued an additional 3,750,000 Class A Common Shares to him. We
received no additional consideration for the shares exchanged and
received aggregate consideration of $1.5 million for the additional
shares issued.
(h) On June 11, 1998, we issued 2 million Class A Common Shares to Paul
Champagne for aggregate consideration of $1 million.
(i) On September 13, 1999, we issued 30,000 Class D Special Shares to
SteppingStone Capital Corporation in consideration of consulting
services rendered to E-Cruiter.com Inc..
(j) Between January 22, 1999 and May 27, 1999, we issued $2.6 million
principal amount of 12% senior secured convertible promissory notes to
18 investors, including some of our officers and key
II-2
<PAGE>
employees. We received aggregate consideration of $2.6 million for
these notes. We paid SteppingStone Capital Corporation a success fee
for assisting us in structuring the notes. These notes bear interest at
12% per year and their principal and interest is convertible to shares
of our common stock at the rate of 2 shares per dollar.
No brokers or underwriters were included in any of the above issuances,
except in connection with the issuance of our 12% senior secured convertible
promissory notes where we engaged SteppingStone Capital Corporation as our
financial advisor to structure the notes and paid it a success fee upon
completion of the issuance.
The share certificates issued above have the following restrictive legend:
"There are restrictions on the right to transfer the shares represented by this
certificate."
The share certificates for the new class of common shares will not have
any restrictive legends.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of Underwriter's Warrant Agreement.*
3.1 Articles of Incorporation, as amended.
3.2 By-laws.*
4.1 Specimen common share certificate.
4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of Exhibit 3.1).
5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares.
10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard Stanton and
Les Kirkland, dated September 21, 1999.
10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July 22, 1996.
10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24, 1999.*
10.4 Lease Agreement between Drake Beam Morin (0ttawa) Inc. and Omers Realty Corporation, dated
November 16, 1993.
10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc., dated August
1, 1999.*
10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February 23, 1999.**
10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.*
10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan.
10.9 Sales and Marketing Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated
October 13, 1999.
10.10 Option Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October 13, 1999.
21.1 Subsidiaries of E-Cruiter.com Inc.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Perley-Robertson, Hill & McDougall (contained in the opinion filed as Exhibit 5.1).
23.3 Consent of Weil, Gotshal & Manges LLP.
24.1 Power of Attorney (included in signature page).*
</TABLE>
- ------------
* previously filed
** to be filed by amendment
II-3
<PAGE>
(b) Financial Statement Schedules
E-Cruiter.com Inc.
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Provision Balance at
Beginning for Doubtful End of
of Period Accounts Deductions Period
$ $ $ $
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
For the year ended May 31, 1997 Allowance for
doubtful accounts .......................... -- 10,000 -- 10,000
------ ------ ------ ------
For the year ended May 31, 1998 Allowance for
doubtful accounts .......................... 10,000 450 (450) 10,000
------ ------ ------- ------
For the year ended May 31, 1999 Allowance for
doubtful accounts .......................... 10,000 40,742 (30,742) 20,000
------ ------ ------- ------
</TABLE>
Item 17. Undertakings
1. E-Cruiter.com Inc. hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of E-Cruiter.com Inc. pursuant to the foregoing
provisions, or otherwise, E-Cruiter.com Inc. has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by E-Cruiter.com Inc. of expenses
incurred or paid by a director, officer or controlling person of
E-Cruiter.com Inc. in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, E-Cruiter.com Inc. will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3. E-Cruiter.com Inc. hereby undertakes that, for purposes of determining any
liability under the Securities Act, the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by E-Cruiter.com Inc.
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.
4. E-Cruiter.com Inc. hereby undertakes that, for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-1 and has duly caused this Amendment No. 1 to
the registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Ottawa, province of Ontario, Canada,
on the 3rd day of November, 1999.
E-Cruiter.com Inc.
By: /s/ John Gerard Stanton
--------------------------------
John Gerard Stanton
Chief Executive Officer and President
Pursuant to the requirement of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following officers
and directors of the registrant in the indicated capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------- ---------------------------------------- -----------------
<S> <C> <C>
/s/ John Gerard Stanton Chairman of the Board, Chief Executive November 3, 1999
-------------------------------- Officer and President
John Gerard Stanton
/s/ Jeffery E. Potts Chief Financial Officer and Principal November 3, 1999
-------------------------------- Accounting Officer
Jeffery E. Potts
* Director November 3, 1999
--------------------------------
Roderick M. Bryden
* Director November 3, 1999
--------------------------------
John McLennan
* Director November 3, 1999
--------------------------------
Matthew J. Ebbs
*By /s/ Jeffery E. Potts
--------------------------------
Jeffery E. Potts
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
Authorized Representative in the United States
E-Cruiter.Com USA Inc.
By: /s/ Jeffery E. Potts
----------------------------------
Name: Jeffery E. Potts
Title: Secretary
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.*
1.2 Form of Underwriter's Warrant Agreement.*
3.1 Articles of Incorporation, as amended.
3.2 By-laws.*
4.1 Specimen common share certificate.
4.2 Article 3 and Schedule "A" of the Articles of Incorporation, as amended (filed as part of
Exhibit 3.1).
5.1 Opinion of Perley-Robertson, Hill & McDougall as to the legality of the common shares.
10.1 Registration Rights Agreement among E-Cruiter.com Inc., Paul Champagne, John Gerard
Stanton and Les Kirkland, dated September 21, 1999.
10.2 Consulting Agreement between Daetus Consulting Inc. and E-Cruiter.com Inc., dated July
22, 1996.
10.3 Stock Option Agreement between Sandy Bryden and E-Cruiter.com Inc., dated June 24,
1999.*
10.4 Lease Agreement between Drake Beam Morin (Ottawa) Inc. and Omers Realty Corporation,
dated November 16, 1993.
10.5 Head Lease Assignment Agreement between 871484 Ontario Inc. and E-Cruiter.com Inc.,
dated August 1, 1999.*
10.6 Service Agreement between Positionwatch Limited and E-Cruiter.com Inc., dated February
23, 1999.**
10.7 E-Cruiter.com Inc. 1997 Key Employee Stock Option Plan.*
10.8 E-Cruiter.com Inc. 1999 Employee and Director Stock Option Plan.
10.9 Sales and Marketing Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc.,
dated October 13, 1999.
10.10 Option Agreement between WorkLife Solutions, Inc. and E-Cruiter.com Inc., dated October
13, 1999.
21.1 Subsidiaries of E-Cruiter.com Inc.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Perley-Robertson, Hill & McDougall (contained in the opinion filed as Exhibit
5.1).
23.3 Consent of Weil, Gotshal & Manges LLP.
24.1 Power of Attorney (included in signature page).*
</TABLE>
- ------------
* previously filed
** to be filed by amendment
<PAGE>
CANADA BUSINESS
CORPORATIONS ACT
FORM 7
RESTATED ARTICLES OF INCORPORATION
(SECTION 180)
- --------------------------------------------------------------------------------
1. - Name of corporation Corporation No.
E-CRUITER.COM INC. 326278-2
- --------------------------------------------------------------------------------
2. - The place in Canada where the registered office is to be situated
Regional Municipality of Ottawa-Carleton
- --------------------------------------------------------------------------------
3. - The classes and any maximum number of shares that the Corporation is
authorized to issue
an unlimited number of Common Shares which shall have attached thereto
the rights, restrictions, conditions and limitations set out in
Schedule "A" attached hereto.
- --------------------------------------------------------------------------------
4. - Restrictions, if any, on share transfers
None
- --------------------------------------------------------------------------------
5. - Number (or minimum and maximum number) of directors
Minimum 1, maximum 9.
- --------------------------------------------------------------------------------
6. - Restrictions, if any, on business the corporation may carry on
None
- --------------------------------------------------------------------------------
7. - Other provisions, if any
7.1 Without in any way restricting the powers of the Corporation,
the board of directors may from time to time and without
authorization of the shareholders:
7.1.1 borrow money on the credit of the Corporation;
7.1.2 issue, reissue, sell or pledge debt obligations of
the Corporation;
<PAGE>
2
7.1.3 give a guarantee on behalf of the Corporation to
secure performance of an obligation of any person;
and
7.1.4 mortgage, hypothecate, pledge or otherwise create a
security interest in all or any property of the
Corporation, owned or subsequently acquired, to
secure any obligation of the Corporation.
7.2 The board of directors may from time to time delegate any or
all of the foregoing powers to such officers or directors of
the Corporation to such extent and in such manner as the board
of directors may from time to time determine.
- --------------------------------------------------------------------------------
The foregoing restated articles of incorporation correctly set out, without
substantive change, the corresponding provisions of the articles of
incorporation as amended and supersede the original articles of incorporation.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Title
President
- --------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY Filed
<PAGE>
SCHEDULE "A"
The Common Shares of the Corporation shall have attached thereto the following
rights, restrictions, conditions and limitations:
1. Voting
The holders of the Common Shares shall be entitled to receive notice of
and to attend and shall be entitled to one (1) vote at any meeting of
the shareholders of the Corporation for each Common Share held, except
meetings at which only holders of a specified class of shares are
entitled to vote.
2. Dividends
The holders of the Common Shares shall be entitled to receive
non-cumulative dividends as and when the directors shall in their
discretion declare dividends on the Common Shares and pay the same. The
directors may declare and pay dividends on the Common Shares to the
exclusion of any other class of shares.
3. Dissolution
Subject to the rights of the holders of shares ranking prior to or on a
parity with the Common Shares, the holders of the Common Shares shall
be entitled to receive the remaining property of the Corporation in the
event of any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, or other distribution of assets of
the Corporation among its shareholders for the purpose of winding up
its affairs.
<PAGE>
No. INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT Shares
- --------------------------------------------------------------------------------
E-CRUITER.COM INC.
- --------------------------------------------------------------------------------
This is to Certify that
is the registered holder of shares of
E-CRUITER.COM INC.
The class or series of shares represented by this Certificate has rights,
privileges, restrictions or conditions attached thereto and the Corporation will
furnish to the holder, on demand and without charge, a full copy of the text of,
(i) the rights, privileges, restrictions and conditions attached to the said
shares and to each class authorized to be issued and to each series insofar
as the same have been fixed by the directors, and
(ii) the authority of the directors to fix the rights, privileges, restrictions
and conditions of subsequent series, if applicable.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be signed by
its duly authorized officers this day of , .
NO PAR VALUE
<PAGE>
================================================================================
CERTIFICATE
FOR
shares of
E-CRUITER.COM INC.
ISSUED TO
Date
================================================================================
FOR VALUE RECEIVED, the undersigned hereby assigns and transfers
unto_____________________________________________________________________
__________________________________________________________________ shares
represented by the within Certificate.
DATED ________________________
________________________________
In the presence of
________________________
NOTICE: the signature of this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement or any change whatever.
<PAGE>
PERLEY-ROBERTSON, HILL & McDOUGALL
Lawyers/Patent & Trade-Mark Agents
Avocats/Agents de brevets cr de marquas de commerce
November 3, 1999
E-Cruiter.com Inc.
360 Albert Street, Suite 1510
Ottawa, ON K1R 7X7
Dear Sirs:
We have acted as counsel to E-Cruiter.com Inc. (the "Company"), a corporation
organized under the laws of Canada, in connection with the preparation of a
registration statement on Form F-1, File No. 333-87537 (as the same may be
amended, the "Registration Statement") relating to the offer and sale of
2,131,838 shares (the "Shares") of common stock of the Company, par value $6.00
per share (the "Common Shares).
We have examined originals or copies (certified or otherwise identified to our
satisfaction) of the restated Articles of Incorporation filed with Industry
Canada following stockholder approval, a copy of which has been filed as an
exhibit to the Registration Statement, the By-laws of the Company, the
Registration Statement, all resolutions adopted by the Company's Board of
Directors (the "Board"), consents of the Board and other records and documents
that we have deemed necessary for the purpose of this opinion. We have also
examined such other documents, papers, statutes and authorities as we have
deemed necessary to form a basis for the opinion hereinafter expressed. We have
assumed the genuineness of all signatures and the conformity to original
documents of all copies submitted to us. As to various questions of fact
material to our opinion, we have relied on statements and certificates of
officers and representatives of the Company and others.
The opinion expressed herein assumes:
1. the conversion, prior to the time on which the Registration Statement
is declared effective, of all classes of shares of the Company into
one class of Common Shares on a reverse share split basis of 0.216932
to 1; and
90 rue Sparks Street, Ottawa, Ontario, Canada K1P 1E2
Tel.: (613) 238-2022, Fax: (613) 238-8775
1 800 268-8292, Internet: http://www.perlaw.ca
<PAGE>
PERLEY-ROBERTSON, HILL & McDOUGALL
2
2. the conversion, prior to the time on which the Registration Statement
is declared effective, of all outstanding convertible promissory notes
of the Company into Common Shares.
We give no opinion as to the application of the laws of any jurisdiction other
than the province of Ontario.
Based on the foregoing and subject to the assumptions and qualifications stated
herein, we are of the opinion that:
1. The Shares have been duly authorized by all necessary corporate action
of the Company and, when issued and paid for as provided in the
Registration Statement, will be validly issued, fully paid and
non-assessable.
The opinions expressed herein are provided solely for the benefit of the
addressee in connection with the Registration Statement described above. This
opinion letter may not be relied upon by or disclosed (other than as required by
applicable law) to anyone else or used for any other purpose, without our prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to any and all references to our firm in the
prospectus which is a part of the Registration Statement. In giving such consent
we do not thereby admit that we are within the category of persons whose consent
is required under section 7 of the United States Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
Yours very truly,
Perley-Robertson, Hill & McDougall
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of
September 16, 1999, by and among E-Cruiter.com Inc., a Canadian corporation (the
"Company"), Paul Champagne ("Champagne"), John Gerard Stanton ("Stanton") and
Les Kirkland ("Kirkland", and together with Champagne and Stanton, the
"Shareholders"), each of whom is a current shareholder of the Company.
RECITALS
A. The Company proposes to offer and sell 1,700,000 of its common
shares in an initial public offering (the "IPO") in the United States to be
underwritten by Whale Securities Co., L.P. For that purpose, the Company will
file a registration statement under the United States Securities Act of 1933
(the "Securities Act") with the United States Securities and Exchange Commission
(the "SEC").
B. Each of the Shareholders currently is entitled by contract to
piggyback registration rights in the event that the Company effects an IPO of
its equity securities. At the request of the Company, each of the Shareholders
has waived all his registration rights in connection with the IPO in
consideration for the Company's agreement to register common shares owned by him
pursuant to the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the parties agree as follows:
SECTION 1
Demand Registration Rights
1.1 Right to Demand. At any time after 12 months after the IPO,
Champagne and Stanton may each make a written request of the Company for
registration with the SEC under and in accordance with the provisions of the
Securities Act, of all or part of his Registrable Securities (a "Demand
Registration"); provided, however, that (i) the Company need not effect a Demand
Registration unless the Demand Registration includes at least 50% of the
Registrable Securities held by the demanding Shareholder on the date the request
is made and 3% of the issued and outstanding common shares of the Company, (ii)
the Company may, if its Board of Directors determines in the exercise of its
reasonable judgment that effecting such Demand Registration at such time would
have a material adverse effect on the Company, defer such Demand Registration
for a period not to exceed 90 days, and (iii) if the Company elects to defer any
Demand Registration pursuant to (ii) above, no Demand Registration will be
deemed to have occurred for purposes of this Agreement. The demanding
Shareholder's request will specify the aggregate number of Registrable
Securities requested to be registered and the intended methods of disposition of
such Registrable Securities.
1.2 Number of Demand Registrations. Champagne will be entitled to two
Demand Registrations. Stanton will be entitled to one Demand Registration. A
Demand Registration will not be counted as a Demand Registration under this
Agreement until the registration statement related to such Demand Registration
has been declared effective by the SEC and maintained continuously effective for
a period of at least six months or such shorter period when all Registrable
Securities included in the Demand Registration have been sold in accordance with
such Demand Registration. If the Company elects to issue and sell any equity
securities pursuant to any Registration Statement filed in connection with a
Demand Registration or if the number of Registrable Securities that the
demanding Shareholder is entitled to sell in a Demand Registration is reduced in
accordance with Section 1.3 below, then such registration will be deemed not to
be a Demand Registration solely for purposes of determining the number of Demand
Registrations to which the demanding Shareholder is entitled under this
Agreement.
<PAGE>
1.3 Priority on Demand Registrations. If the managing underwriter or
underwriters of the Demand Registration (or in the case of a Demand Registration
not being underwritten, in the opinion of the demanding Shareholder), advise the
Company in writing that in its/their/his reasonable opinion the number of
securities proposed to be sold in the Demand Registration is inconsistent with
that which can be sold in such offering without having a material effect on the
success of the offering (including, without limitation, an impact on the selling
price or the number of Registrable Securities that the demanding Shareholder may
sell), the Company will include in such registration only the number of
securities that, in the reasonable opinion of such underwriter or underwriters
(or the demanding Shareholder as the case may be) can be sold without having a
material adverse effect on the success of the offering as follows: (i) first,
the Registrable Securities requested to be included in such Demand Registration
by the demanding Shareholder(s), provided, however that if it shall be necessary
to reduce the number of Registrable Securities requested to be included in the
Demand Registration by demanding Shareholders, the Company will first reduce the
number of Registrable Securities included by Stanton and only after that number
is reduced to zero, reduce the number of Registrable Securities included by
Champagne; (ii) second, any securities being issued and sold by the Company; and
(iii) third, any securities held by other shareholders of the Company and being
registered pursuant to Piggyback Registration rights.
1.4 Selection of Underwriters. If the Demand Registration is an underwritten
offering, the Company, subject to the demanding Shareholder's consent (not to
unreasonably withheld) will: (i) select a managing underwriter or underwriters
to administer the offering; and (ii) determine the terms under which the
underwriting will take place.
SECTION 2
Piggyback Registration Rights
2.1 Right to Piggyback. Subject to Sections 2.2 and 2.3 whenever the
Company proposes to register any common shares with the SEC under the Securities
Act on its own behalf and/or on behalf of any of its security holders (the
"demanding security holders"), other than pursuant to a registration on Forms
S-4, F-4 or S-8, or any successor forms to those forms (a "Piggyback
Registration"), the Company (i) will give written notice to all Shareholders who
hold Registrable Securities at least 30 days prior to the anticipated filing
date, of its intention to effect such a registration, specifying the proposed
offering price, the number of securities proposed to be registered, the
distribution arrangements and such other information that at the time would be
appropriate to include in such notice, and (ii) will, subject to Section 2.3
below, include in such Piggyback Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 20 days after the date of the Company's notice. Except as otherwise may
be provided in this Agreement, Registrable Securities with respect to which such
request for registration has been received will be registered by the Company and
offered to the public in a Piggyback Registration on terms and conditions at
least as favorable as those applicable to the registration of the common shares
to be sold by the Company and/or the demanding security holders and any other
person selling under such Piggyback Registration.
2.2 Number of Piggyback Registrations. Each Shareholder will be
entitled to two Piggyback Registrations. A Piggyback Registration will not be
counted as a Piggyback Registration under this Agreement until the registration
statement related to such Piggyback Registration has been declared effective by
the SEC and maintained continuously effective for a period of at least six
months or such shorter period when all Registrable Securities included in the
Piggyback Registration have been sold in accordance with such Piggyback
Registration.
2.3 Priority on Piggyback Registrations. If the managing underwriter or
underwriters, if any, advise the selling Shareholders in writing that in its or
their reasonable opinion (or in the case of a Piggyback Registration not being
underwritten the demanding security holders, if any, or if there are no
demanding security holders, the Company, shall reasonably determine and notify
the selling Shareholders of such determination), that the number or kind of
securities proposed to be sold in such registration (including Registrable
Securities to be included pursuant to Section 2.1 above) is inconsistent with
that which can be sold in such registration without having a material effect on
the success of the offering (including, without limitation, an impact on the
selling price or the number of securities that any participant may sell), the
Company will include in such registration the number of securities, if any,
which, in the opinion of such underwriter or underwriters, or the demanding
security holders, or the Company, as the case may be, can be sold as follows:
(i) first, the securities the demanding security holders propose to sell, (ii)
second, the securities the Company proposes to sell, and (iii) third, the
Registrable Securities requested to be included in such registration by the
Shareholders and any other holder of securities of the Company entitled to
Piggyback Registration rights. To the extent that the privilege of including
Registrable Securities in any Piggyback Registration pursuant to clause (iii)
above must be allocated among the selling Shareholders and any other holder of
securities of the Company entitled to Piggyback Registration rights, the
allocation will be made pro rata based on the number of Registrable Securities
that each holder entitled to Piggyback Registration rights shall have requested
to include therein.
2.4 Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, the Company will: (i) select a managing underwriter or
underwriters to administer the offering, and (ii) determine the terms under
which such underwriting will take place.
SECTION 3
Registration Procedures
3.1 Registration Procedures. With respect to any Demand Registration or
Piggyback Registration (generically, a "Registration"), the Company will,
subject to Sections 1.3 and 2.3, as promptly as practicable:
3
<PAGE>
(a) prepare and file with the SEC, a registration statement or
registration statements (the "Registration Statement") relating to the
applicable Registration on any appropriate form under the Securities Act that is
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof; provided, however, that the
Company will include in any Registration Statement on a form other than Form S-1
all information that the selling Shareholders shall reasonably request and shall
include all financial statements required by the SEC to be filed therewith,
cooperate and assist in any filings required to be made with the National
Association of Securities Dealers, Inc. ("NASD"), and use its best efforts to
cause such Registration Statement to become effective; provided further, that
before filing a Registration Statement or prospectus related to the Registration
Statement (a "Prospectus") or any amendments to the Registration Statement or
any supplements to a Prospectus, the Company will furnish to the selling
Shareholders and the underwriters, if any, copies of all such documents proposed
to be filed, which documents will be subject to the reasonable review of such
selling Shareholders and underwriters and their respective counsel, and the
Company will not file any Registration Statement, or amendment to the
Registration Statement, or any Prospectus, or any supplement to a Prospectus to
which the holders of a majority of the Registrable Securities covered by such
Registration Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by the
Registration Statement have been sold; cause each Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof specified in
such Registration Statement or supplement to the Prospectus; the Company will
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling Shareholders not being able to sell such Registrable
Securities during that period unless such action is required under applicable
law, provided that the foregoing will not apply to actions taken by the Company
in good faith and for valid business reasons, including, without limitation, the
acquisition or divestiture of assets, so long as the Company promptly thereafter
complies with the requirements of Section 3.1(k) below, if applicable;
(c) notify the selling Shareholders and the managing underwriters, if
any, promptly, and (if requested by any such person or entity) confirm such
advice in writing: (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(B) of any request by the SEC for amendments or supplements to the Registration
Statement or the Prospectus or for additional information; (C) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (D) if at any
time the representations and warranties of the Company contemplated by Section
3.1(n) below cease to be true and correct; (E) of the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (F) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated by reference in the Registration
Statement or Prospectus untrue or which requires the making of any changes in
the Registration Statement, the Prospectus or any document incorporated by
reference in the Registration Statement or Prospectus in order to make the
statements therein not misleading;
4
<PAGE>
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid for the Registrable Securities by such underwriters and with
respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(f) furnish to each managing underwriter and, upon request, to each
selling Shareholder, without charge, one signed copy of the Registration
Statement and any amendment to the Registration Statement, including financial
statements and schedules, all documents incorporated by reference in the
Registration Statement and all exhibits (including those incorporated by
reference);
(g) deliver to each selling Shareholder and the underwriters, if any,
without charge, as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement to the Prospectus as such
Shareholder and underwriters may reasonably request; the Company consents to the
use of each Prospectus or any amendment or supplement to the Prospectus by each
of the selling Shareholders and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by such Prospectus or
any amendment or supplement to the Prospectus;
(h) prior to any public offering of Registrable Securities, register or
qualify or cooperate with the selling Shareholders, the underwriters, if any,
and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or "Blue Sky" laws of such jurisdictions as any selling Shareholder
or underwriter reasonably requests in writing, considering the amount of
Registrable Securities proposed to be sold in each such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement; provided, however, that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject;
5
<PAGE>
(i) cooperate with the selling Shareholders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not bearing any
restrictive legends and in such denominations and registered in such names as
the managing underwriters may request at least two business days prior to any
sale of Registrable Securities to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered by
the applicable Registration Statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable the
selling Shareholders or the underwriters, if any, to consummate the disposition
of the Registrable Securities;
(k) upon the occurrence of any event contemplated by Section 3.1(c)(F)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated by reference in
the Registration Statement or Prospectus or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Securities,
the Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements in the Prospectus
not misleading;
(l) cause all Registrable Securities covered by any Registration
Statement to be authorized for trading or listed, as appropriate, on the Nasdaq
Small Cap Market and/or any other automatic quotation system or securities
exchange on which the common shares are then authorized for trading or listed,
as appropriate;
(m) provide a CUSIP number for the Registrable Securities, not later
than the effective date of the applicable Registration Statement;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith as shall be reasonably
necessary to facilitate the disposition of the Registrable Securities, and in
connection therewith: (A) make such representations and warranties to the
selling Shareholders and the underwriters, if any, in form, substance and scope
as are customarily made by issuers to underwriters in primary underwritten
offerings; (B) obtain opinions of counsel to the Company and updates of those
opinions (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the managing underwriters, if any, and the holders of
a majority of the Registrable Securities being sold) addressed to each selling
Shareholder and the underwriters, if any, covering the matters customarily
covered in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by such Shareholders and underwriters; (C) obtain
"cold comfort" letters and updates of such letters from the Company's
independent certified public accountants addressed to the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in connection with
primary underwritten offerings; (D) if an underwriting agreement is entered
into, it shall set forth in full the indemnification provisions and procedures
set forth in Section 3.2 below with respect to all parties to be indemnified
pursuant to said Section; and (E) the Company shall deliver such documents and
certificates as may be requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with Section 3.1(c)(F) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The above will be done at each closing under such underwriting or
similar agreement or as and to the extent required under such agreement;
6
<PAGE>
(o) make available for inspection during normal business hours by a
representative of the holders of a majority of the Registrable Securities, any
underwriter participating in any disposition pursuant to such Registration, and
any attorney or accountant retained by the representative or underwriter, all
financial and other records, and pertinent corporate documents of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement; provided,
however, that any records, information or documents that are designated by the
Company in writing as confidential shall be kept confidential by such persons
unless disclosure of such records, information or documents is required by court
or administrative order or any regulatory body having jurisdiction (in which
case such persons will notify the Company in writing no less than 5 business
days in advance of making the disclosure);
(p) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC; and
(q) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus (after
initial filing of the Registration Statement), provide copies of such document
to counsel to the selling Shareholders and to the managing underwriters, if any,
make the Company's representatives available for discussion of such document and
make such changes in such document prior to its filing as counsel for such
selling Shareholders or underwriters may reasonably request.
3.2 Obligation of Selling Shareholders to Furnish Information. (a) The
Company may require each seller of Registrable Securities as to which any
Registration is being effected to furnish to the Company such information
regarding the proposed distribution of such securities as the Company may from
time to time reasonably request in writing.
(b) Each Shareholder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
3.1(c)(F), such Shareholder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
Shareholder's receipt of copies of the supplemented or amended Prospectus as
contemplated by Section 3.1(k), or until it is advised in writing (the "Advice")
by the Company that the use of the Prospectus may be resumed, and has received
copies of any additional or supplemental filings that are incorporated by
reference in the Prospectus, and, if so directed by the Company, such
Shareholder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Shareholder's possession, of the
Prospectus covering such Registrable Securities. In the event the Company shall
give any such notice, the six-month time period referred to in Sections 1.2 and
2.2 shall be extended by the number of days during the period from and including
the date of the giving of such notice to and including the date when each seller
of Registrable Securities covered by such Registration Statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 3.1(c)(F) or the Advice.
7
<PAGE>
3.3 Rule 144. The Company agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Securities Act
relating to any class of equity securities of the Company, it will file in a
timely manner all reports required to be filed by it pursuant to the Securities
Act and the Exchange Act and will take such further action as any Shareholder
may reasonably request in order that such Shareholder may effect sales of
Registrable Securities pursuant to Rule 144. At any reasonable time and upon
request of a Shareholder, the Company will furnish such Shareholder and others
with such information as may be necessary to enable the Shareholder to effect
sales of common shares pursuant to Rule 144 under the Securities Act and will
deliver to such Shareholder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, the Company may
deregister any class of its equity securities under Section 12 of the Exchange
Act or suspend its duty to file reports with respect to any class of its equity
securities under Section 12 of the Exchange Act or suspend its duty to file
reports with respect to any class of its securities pursuant to Section 15(d) of
the Exchange Act if it is then permitted to do so pursuant to the Exchange Act
and the rules and regulations thereunder.
3.4 Participation in Underwritten Registrations. No Shareholder may
participate in any underwritten registration hereunder unless such Shareholder
(i) agrees to sell his Registrable Securities on the basis provided in any
underwriting arrangements approved by the Company, and (ii) accurately completes
in a timely manner and executes all questionnaires, powers of attorney,
underwriting agreements and other documents customarily required under the terms
of such underwriting arrangements.
SECTION 4
Restrictions on Public Sale
4.1 Public Sale by Shareholders. To the extent not inconsistent with
applicable law, each Shareholder whose Registrable Securities are included in a
Registration Statement pursuant to this Agreement, if requested by the managing
underwriter or underwriters for such Registration, shall agree not to effect any
public sale or distribution of Registrable Securities, including a sale pursuant
to Rule 144 (or any similar provision then in force) under the Securities Act,
during the 15 business days prior to, and during the 90-day period (or such
shorter period as may be agreed to by such underwriter or underwriters)
following the effective date of a Registration Statement pursuant to such Demand
Registration or Piggyback Registration (except as part of such Demand or
Piggyback Registration).
4.2 Public Sale by the Company. If requested by the managing
underwriter or underwriters for any underwritten Registration, or by the holders
of a majority of the Registrable Securities being registered in a Demand
Registration that is not being underwritten, (i) the Company will not effect any
public sale or distribution of common shares (or securities convertible into or
exchangeable or exercisable for common shares) for its own account during the 15
business days prior to, and during the 90-day period following the effective
date of such Registration, and (ii) the Company will use its best efforts to
cause each other holder of common shares (or securities convertible into or
exchangeable for, or options to purchase, common shares) purchased from the
Company at any time after the date of this Agreement (other than in a registered
public offering) to agree not to effect any public sale or distribution of any
such securities during the period described in (i) above (except as part of such
Registration, if otherwise permitted).
8
<PAGE>
SECTION 5
Registration Expenses
5.1 Generally. Except as provided in Section 5.2 below, all expenses
incident to the Company's performance of or compliance with this Agreement will
be borne by the Company, including, without limitation, all registration and
filing fees, the fees and expenses of the counsel and accountants for the
Company (including the expenses of any "cold comfort" letters and special audits
required by or incident to the performance of such persons), all other costs and
expenses of the Company incident to the preparation, printing and filing under
the Securities Act of the Registration Statement (and all amendments and
supplements to the Registration Statement) and furnishing copies of the
Registration Statement and of the Prospectus included therein, the costs and
expenses incurred by the Company in connection with the qualification of the
Registrable Securities under the state securities or "Blue Sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel as may be required by the
rules and regulations of the NASD), the costs and expenses of authorizing the
Registrable Securities for trading on the Nasdaq Small Cap Market or of listing
them for trading on a national securities exchange and all other costs and
expenses incurred by the Company in connection with any Registration under this
Agreement.
5.2 Excluded Costs and Expenses, The Company shall not bear the costs
and expenses of any selling Shareholder for underwriters' commissions, discounts
and nonaccountable expense allowances, brokerage fees or transfer taxes, nor the
fees and expenses of any counsel, accountants or other representative retained
by any selling Shareholder.
SECTION 6
Indemnification
6.1 Indemnification by the Company. The Company agrees to indemnify, to
the full extent permitted by law, each Shareholder, against all losses, claims,
damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus, or any omission or alleged omission to state therein
a material fact necessary to make the statements therein (in the case of a
Prospectus or any preliminary Prospectus, in light of the circumstances under
which they were made) not misleading, except to the extent that such untrue
statement or omission is caused by any information with respect to such
Shareholder furnished in writing to the Company by such Shareholder or its
representative expressly for use therein. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers and directors
and each person who controls such persons (within the meaning of the Securities
Act) to the same extent as provided above with respect to Shareholders;
provided, however, that if pursuant to an underwritten public offering of
Registrable Securities, the Company and any underwriters enter into an
underwriting or purchase agreement relating to such offering that contains
provisions relating to indemnification and contribution between the Company and
such underwriters, such provisions shall be deemed to govern indemnification and
contribution as between the Company and such underwriters.
9
<PAGE>
6.2 Indemnification by Shareholders. In connection with any
Registration, each Shareholder participating in such Registration will furnish
to the Company in writing such information with respect to the Shareholder as
the Company reasonably requests for use in connection with any Registration
Statement, Prospectus or preliminary Prospectus, and agrees to indemnify, to the
full extent permitted by law, the Company, the directors and officers of the
Company signing the Registration Statement and each person who controls the
Company (within the meaning of the Securities Act and the Exchange Act) against
any losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact or any omission to state a material fact required
to be stated therein or necessary to make the statements in the Registration
Statement, Prospectus or preliminary Prospectus (in the case of the Prospectus
or any preliminary Prospectus, in light of the circumstances under which they
were made) not misleading, to the extent, and only to the extent, that such
untrue statement or omission is caused by any information with respect to the
Shareholder furnished in writing by the Shareholder or its representative
specifically for inclusion therein. In no event shall the liability of any
selling Shareholder hereunder be greater in amount than the dollar amount of the
proceeds received by such Shareholder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above with respect to information
with respect to such persons or entities so furnished in writing by such persons
or entities or their representatives specifically for inclusion in any
Registration Statement, Prospectus or preliminary Prospectus.
6.3 Conduct of Indemnification Proceedings. Any person or entity
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party after the receipt by the indemnified party of a written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
Section 6.1 or 6.2, as applicable, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest may exist
between such indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to the entry of any judgment or to enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
of a release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in any one jurisdiction for all parties indemnified by such indemnifying
party with respect to such claim unless a conflict of interest exists between
the indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of the
additional counsel or counsels.
10
<PAGE>
6.4 Contribution. If for any reason the indemnification provided for in
the preceding Section 6.1 or 6.2, as applicable, is unavailable to an
indemnified party as contemplated by such Section, then the indemnifying party,
in lieu of indemnification, shall contribute to the amount paid or payable by
the indemnified party as a result of such loss, claim, damage, liability or
expense in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations; provided, however, that no
selling Shareholder shall be required to contribute in an amount greater than
the difference between the net proceeds received by the Shareholder with respect
to the sale of Registrable Securities and all amounts already contributed by the
Shareholder with respect to such claims, including amounts paid for any legal or
other fees or expenses incurred by the Shareholder.
SECTION 7
Definitions
7.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings:
"Exchange Act" means the United States Securities Exchange Act of 1934.
"Permitted Transferee" with respect to any Shareholder means such
Shareholder's issue, spouse, or any trust, partnership or limited liability
company for the exclusive benefit of such Shareholder's issue or spouse.
"Registrable Securities" means: (i) the common shares of the Company
held by the Selling Shareholders on the date of this Agreement, which in the
case of Champagne is ___________ common shares, in the case of Stanton is
________ common shares and in the case of Kirkland is _____________ common
shares, and (ii) any common shares or other equity securities of the Company
issued or issuable in respect of the common shares referred to in clause (i)
upon any stock split, stock dividend, recapitalization, or similar event;
provided, however, that common shares or other securities will only be treated
as Registrable Securities if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(l) of the Securities Act so that all transfer restrictions and any
restrictive legends with respect to those transfer restrictions are removed upon
the consummation of such sale.
11
<PAGE>
7.2 Terms Defined in the Agreement. The following terms are defined in
the Agreement:
Term Section
---- -------
Advice 3.2
Agreement Preamble
Champagne Preamble
Company Preamble
Demand Registration 1.1
demanding security holders 2.1
IPO Recitals
Kirkland Preamble
NASD 3.1(a)
Piggyback Registration 2.1
Prospectus 3.1(a)
Registration 3.1
Registration Statement 3.1(a)
SEC Recitals
Securities Act Recitals
Stanton Preamble
SECTION 8
Miscellaneous
8.1 Assignment. (a) No transferee of common shares from a Shareholder
or a subsequent transferee, other than a Permitted Transferee shall be entitled
to the registration rights provided in this Agreement.
(b) Before a Permitted Transferee is entitled to the registration
rights provided in this Agreement, such Permitted Transferee shall execute a
letter agreement in form and substance reasonably satisfactory to the Company,
agreeing to be bound by the terms and conditions of this Agreement to the same
extent as the Transferor of the common shares so transferred was bound.
(c) Upon the transfer of Registrable Securities to a Permitted
Transferee, the registration rights of the Shareholder transferring the
Registrable Securities shall thereafter be exercised by action of holders of a
majority of the Registrable Securities of the transferring Shareholder's class.
8.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties to this Agreement, and
their Permitted Transferees, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
12
<PAGE>
8.3 Governing Law. This Agreement will be governed by and construed
under the laws of the State of New York in the United States of America without
giving effect to the conflicts of laws principles thereof.
8.4 Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original, but all of which together will constitute
one and the same instrument.
8.5 Notices. Any notice required or permitted by this Agreement will be
in writing and sent by prepaid registered or certified mail return receipt
requested, delivered by hand or by messenger, or delivered by Federal Express or
other reputable overnight delivery service, or by facsimile followed with a copy
by first class mail and addressed to the other party at the address shown below
or at such other address for which such party gives notice under this Agreement.
Such notice will be deemed to have been given when delivered if delivered
personally, if sent by mail, at the earlier of its receipt or three (3) business
days after deposit in the mail, if sent by Federal Express or another reputable
overnight delivery service two (2) business days after delivery to such service,
or, if by facsimile, upon confirmation that the transmission was sent
successfully.
(a) If to the Company:
E-Cruiter.com Inc.
1510-360 Albert Street
Ottawa, Ontario
Canada, KIR-7X7
Attention:______________
Telephone: 613-236-2263
Facsimile: 613-
(b) If to Champagne, to:
Paul Champagne
[ ]
[ ]
Canada
Telephone:
Facsimile:
(c) If to Stanton, to
John Gerard Stanton
[ ]
[ ]
Canada
Telephone:
Facsimile
13
<PAGE>
(d) If to Kirkland, to:
Les Kirkland
[ ]
[ ]
Canada
Telephone:
Facsimile:
8.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
8.7 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties to this Agreement. The
provisions of this Agreement, including the provisions of this sentence, may not
be amended, modified or supplemented, and waivers of or consents to departures
from the provisions of this Agreement may not be given unless approved in
writings by the Company and each Shareholder; provided, however, that no
Shareholder consent shall be required to amend this Agreement to include any
Permitted Transferee of a Shareholder. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any party, will be deemed to constitute a waiver by the party taking such
action. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as waiver of any preceding or
succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party's rights or privileges
hereunder or shall be deemed a waiver of such party's rights to exercise the
same at any subsequent time or times hereunder.
8.8 Termination. This Agreement shall terminate and cease to be of any
further force or effect upon the earlier to occur of: (i) the date on which all
Registrable Securities cease to be treated as Registrable Securities by reason
of the proviso contained in the definition of "Registrable Securities;" (ii) the
exercise by all Shareholders of the registration rights to which they are
entitled under this Agreement; and (iii) the Company's merger with and into
another corporation where, in connection with the merger, the common shares are
exchanged exclusively for cash and/or shares of capital stock or other
securities that are publicly traded on a national securities exchange or
authorized for trading on the NASDAQ National Market System.
8.9 Recapitalizations, Exchange, Etc. Affecting the Company's Common
Shares. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the common shares, to any and all shares of capital
stock of the Company that may be issued in respect of, in exchange for, or in
substitution of the common shares referred to in the definition of "Registrable
Securities" and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after the
date of this Agreement.
14
<PAGE>
8.10 Headings. The headings of the Sections of this Agreement are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
15
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.,
E-CRUITER.COM INC.,
By:
---------------------------------
Name:
Title:
THE SHAREHOLDERS:
-------------------------------------
Paul Champagne
-------------------------------------
John Gerard Stanton
-------------------------------------
Les Kirkland
16
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1 Demand Registration Rights.....................................................................1
1.1 Right to Demand....................................................................................1
1.2 Number of Demand Registrations.....................................................................1
1.3 Priority on Demand Registrations...................................................................2
1.4 Selection of Underwriters..........................................................................2
SECTION 2 Piggyback Registration Rights..................................................................2
2.1 Right to Piggyback.................................................................................2
2.2 Number of Piggyback Registrations..................................................................3
2.3 Priority on Piggyback Registrations................................................................3
2.4 Selection of Underwriters..........................................................................3
SECTION 3 Registration Procedures........................................................................3
3.1 Registration Procedures............................................................................3
3.2 Obligation of Selling Shareholders to Furnish Information..........................................7
3.3 Rule 144...........................................................................................7
3.4 Participation in Underwritten Registrations........................................................8
SECTION 4 Restrictions on Public Sale....................................................................8
4.1 Public Sale by Shareholders........................................................................8
4.2 Public Sale by the Company.........................................................................8
SECTION 5 Registration Expenses..........................................................................9
5.1 Generally..........................................................................................9
5.2 Excluded Costs and Expenses........................................................................9
SECTION 6 Indemnification................................................................................9
6.1 Indemnification by the Company.....................................................................9
6.2 Indemnification by Shareholders...................................................................10
6.3 Conduct of Indemnification Proceedings............................................................10
6.4 Contribution......................................................................................11
SECTION 7 Definitions...................................................................................11
7.1 Certain Definitions...............................................................................11
7.2 Terms Defined in the Agreement....................................................................12
SECTION 8 Miscellaneous.................................................................................12
8.1 Assignment........................................................................................12
8.2 Third Parties.....................................................................................12
8.3 Governing Law.....................................................................................12
8.4 Counterparts......................................................................................13
8.5 Notices...........................................................................................13
8.6 Severability......................................................................................14
8.7 Entire Agreement; Amendments and Waivers..........................................................14
8.8 Termination.......................................................................................14
8.9 Recapitalizations, Exchange, Etc. Affecting the Company's Common Shares...........................14
8.10 Headings..........................................................................................14
</TABLE>
<PAGE>
Registration Rights Agreement
by and among
E-Cruiter-Com Inc.,
Paul Champagne,
John Gerard Stanton and
Les Kirkland
dated as of September 16th, 1999
<PAGE>
THIS CONSULTING AGREEMENT is made as of the 22nd day of July, 1999.
B E T W E E N:
E-CRUITER.COM INC.,
a corporation incorporated under the laws of Canada
(hereinafter called "E-Cruiter")
-and-
DAETUS CONSULTING INC.,
a corporation incorporated under the laws of Ontario
(hereinafter called the "Consultant")
WHEREAS:
1. The Consultant is familiar with the business and operations of E-Cruiter
and E-Cruiter desires to retain and the Consultant desires to provide to
E-Cruiter professional services with respect to such business and operations
in accordance with the terms and conditions herein set forth.
NOW THEREFORE in consideration of the premises and other good and valuable
consideration (the receipt and sufficiency of which is hereby acknowledged by
each of the parties) and the covenants herein contained the parties hereto
covenant and agree as follows:
1
<PAGE>
1. DEFINITIONS
1.1 Unless the context otherwise specifies or requires, in this Agreement the
following terms shall have the meanings specified in this paragraph 1.1.
Certain other capitalized terms are defined elsewhere in this Agreement.
1.1.1 "Agreement", "hereto", "herein", "hereof", "hereunder" and similar
expressions refer to this Consulting Agreement and not any particular
paragraph or any particular portion of this agreement and includes all
schedules attached to this agreement;
1.1.2 "Engagement Letter" has the meaning ascribed thereto in paragraph
2.1 hereof;
1.1.3 "Proposal" has the meaning ascribed thereto in paragraph 2.1
hereof;
1.1.4 "Services" has the meaning ascribed thereto in paragraph 2.1
hereof;
1.1.5 "Term" has the meaning ascribed thereto in paragraph 3.1 hereof;
1.1.6 "Work Product" means everything that is produced by the Consultant
in the course of this Agreement, including, without limitation, notes,
reports, documentation, drawings, computer programs (source code, object
code and listings), customer lists, inventions, creations, works,
devices, work-in-progress and deliverables described in Schedule "A"
attached hereto.
2. SERVICES RETAINED
2.1 E-Cruiter retains and the Consultant agrees to provide the professional
services set forth in the letter dated July 22, 1999 from Les Kirkland to
2
<PAGE>
Gerry Stanton (the "Engagement Letter") and the proposal dated July 27, 1999
from the Consultant to E-Cruiter (the "Proposal"), both of which are attached
hereto as Schedule "A" and which form part of this Agreement (the Engagement
Letter and the Proposal are collectively hereinafter referred to as the
"Services").
3. TERM
3.1 The Consultant's engagement hereunder shall commence on the date hereof
and shall continue until February 9th, 2000 (the "Term") except as modified
by change requests. Thereafter, the Term may be renewed, on such terms and
conditions as E-Cruiter and the Consultant may agree.
4. PERSONNEL
4.1 The Consultant shall execute, on a best efforts basis, an agreement
similar to this CONSULTING AGREEMENT, with qualified personnel of its choice,
whom it shall have the right to replace at its discretion.
4.2 E-Cruiter may require the Consultant to immediately replace a person who,
in E-Cruiter's opinion, acting reasonably, does not perform in a satisfactory
manner. E-Cruiter acknowledges that it has met with Tim Goss and that any
change of this individual would delay the project schedule and the new
milestone dates would be renegotiated by E-Cruiter.com and the Consultant.
4.3 The parties agree that, during the term of this Agreement and for twelve
months thereafter, they will not solicit the services of any staff member or
consultant of the other party.
3
<PAGE>
5. PREMISES AND COMPUTERS
5.1 The Consultant shall be responsible for providing its own computers and
software applications for software development and testing. If E-Cruiter
requires the Consultant to employ computers other than IBM compatible
computers and/or an operating system other than Windows NT Workstation and/or
development software other than Microsoft Visual Basic, C++ , ATL and Access,
then E-Cruiter shall make computers and/or an operating system and/or
development software available to the Consultant.
5.2 The Consultant acknowledges that it is currently in possession of certain
property including computer equipment and a cellular phone owned by
E-Cruiter. The Consultant agrees to lease the computer equipment for $200.00
per month and pay for the monthly costs of using the cellular phone during
the Term of this Agreement and to return this property to E-Cruiter at the
end of this Agreement. While E-Cruiter may arrange Internet services for the
Consultant, the Consultant agrees to pay for usage of Internet connection
(ADSL). While E-Cruiter may arrange health benefit coverage for certain
employees or agents of the Consultant under E-Cruiter's benefits program with
ManuLife Financial, the Consultant agrees to pay for such coverage. E-Cruiter
has no obligation to the Consultant, its employees and agents for medical
benefits, disability insurance, life insurance or other such coverage.
6. CONSULTING FEE
6.1 E-Cruiter shall pay to the Consultant the fixed sum of Seventy-Eight
Thousand, Eight Hundred and Fifty Dollars ($78,850.00) plus goods and
services tax ("GST") for the services of the agents or employees of the
Consultant, other than Les Kirkland. Monthly milestone payments are due as
follows:
o July 31, 1999 $ 8,350.00
o August 31, 1999 $11,750.00
o September 30, 1999 $11,750.00
o October 31, 1999 $11,750.00
4
<PAGE>
o November 30, 1999 $11,750.00
o December 31, 1999 $11,750.00
o January 31, 2000 $11,750.00
6.2 E-Cruiter shall also pay to the Consultant the fixed sum of Seventy Five
Thousand Nine Hundred and Fifty Dollars ($75,950) plus GST for the services
of Les Kirkland. These payments will be made at the end each month starting
with July 1999 and ending with January 2000. The Consultant agrees to
deductions by E-Cruiter for cellular phone usage, computer rental, Internet
service provider fees (ADSL) and benefit premiums of the Consultant's
employees or agents.
6.3 E-Cruiter shall reimburse the Consultant for all reasonable and necessary
business expenses upon presentation to E-Cruiter of appropriate written
documentation and receipts therefor. The Consultant must receive prior
written approval from E-Cruiter for any single expense in excess of Two
Hundred and Fifty Dollars ($250.00).
7. DELIVERY OF SERVICES
7.1 Subject to paragraph 7.2 herein, the Consultant shall provide to
E-Cruiter the Services on the dates described in Schedule "A".
7.2 At the M3 milestone (as described in the Proposal), representing
presentation of the system design documents, the parties shall establish the
schedule for all subsequent deliverables in milestones. The Consultant shall
use best efforts to ensure that the dates as originally presented to
E-Cruiter remain unchanged. Any change in milestones or deliverables shall
not result in any additional cost to E-Cruiter, other than if such cost is as
a result of E-Cruiter requesting a functionality that was not specified in
Schedule "A" attached hereto.
5
<PAGE>
7.3 In the event that the Consultant has not met any one or all of the
major milestones, being M3, M8, and M14 (as described in the Proposal)
as of 8:00 a.m. on the sixth business day following the established
milestone date, E-Cruiter may charge the Consultant a one time late
penalty fee of Two Thousand Dollars ($2,000.00) for each of the three
major milestones missed by the Consultant. E-Cruiter may deduct such
penalty from amounts otherwise due to the Consultant.
7.4 If , by the eleventh business day following the milestone due date,
the deliverables remains undelivered, E-Cruiter has the right to
terminate this Agreement without any further obligations to the
Consultant. Upon such termination, E-Cruiter shall pay to the
Consultant any fees owing for the Services delivered up to and
including the milestone date, on the condition that all work in
progress is delivered to E-Cruiter.
8. INTELLECTUAL PROPERTY
8.1 All Work Product created by the Consultant under this Agreement is
"work for hire" and is the property of E-Cruiter. The Consultant
assigns to E-Cruiter all right, title and interest in and to the Work
Product. The Consultant expressly waives any claim to moral rights over
any Work Product created by the Consultant under this Agreement, and
the Consultant shall ensure that any agent or employee of the
Consultant shall have waived all moral rights over any Work Product
created under this Agreement.
8.2 The Consultant warrants that the provision of the Services and
materials called for hereunder shall not infringe any third party
"Intellectual Property Rights" (patents, trademarks, copyrights, trade
secrets) and agrees to fully defend and indemnify E-Cruiter, at the
Consultant's expense, against all claims relating to any Intellectual
Property Rights arising out of the Consultant's fault or negligence.
6
<PAGE>
9. WARRANTIES AND LIMITATION OF LIABILITY
9.1 The parties recognize that Consultant's exclusive warranty with regard to
the Services and materials provided under this Agreement is to provide the
Services and materials of professional quality conforming to generally
accepted practices in the field of information management and technology.
9.2 The Consultant warrants that the deliverables resulting from the Services
shall meet the contractual requirement so that the deliverables (as evidenced
during acceptance tests, as applicable) accurately and automatically process
date and date-related data including, but not limited to calculating,
comparing, and sequencing of such data from, into and between the twentieth
and twenty-first centuries, including leap year calculations when used in
accordance with the documentation provided by the Consultant and accepted by
E-Cruiter, provided that all hardware, software and firmware products used
with the deliverables properly exchange accurate date and date-related data
with them. To that end, the Consultant also warrants that date-related
processing will not, in any way, prevent hardware, software or firmware from
conforming to the requirement of the Agreement prior to, during, or after the
year 2000. E-Cruiter may, at no additional cost, require the Consultant prior
to the performance of the Services, to reasonably demonstrate compliance
and/or compliance techniques and test procedures it intends to follow in
order to comply with all of the obligations contained herein.
9.3 The warranties contained in paragraph 9.2 herein shall not apply where a
modification has been made to a deliverable provided under this Agreement by
a party other than the Consultant or a party approved in writing by either of
them.
9.4 In no event shall the Consultant be liable to E-Cruiter for indirect,
special, incidental or consequential damages (including, but not limited to,
damages for lost profits, lost sales, lost business opportunity, or injury to
7
<PAGE>
person or property), which exceed $75,950, arising out of any breach of this
Agreement or the use of the products and/or services provided under this
Agreement.
10. CONFIDENTIALITY
10.1 The Consultant shall require each of its agents and employees who work
under this Agreement to execute and deliver to E-Cruiter a non-disclosure
agreement, the form of which is attached hereto as Schedule "B"
11. NON-COMPETITION
11.1 The Consultant shall require each of its employees and agents who work
under this Agreement to execute and deliver to E-Cruiter a non-competition
agreement, the form of which is attached hereto as Schedule "C1 and C2".
12. TERMINATION
12.1 E-Cruiter shall have the right to terminate this Agreement at any time
without notice to the Consultant. Upon termination, E-Cruiter shall:
12.1.1 pay all amounts owing to the Consultant on the date of
termination;
12.1.2 pay the Consultant a termination penalty of Fifteen Thousand
Dollars ($15,000.00), provided that:
(1) the Consultant returns to E-Cruiter all work in progress; and
(2) the Consultant is not in default of any of its obligations
under this Agreement; and
12.1.3 pay to the Consultant the monthly fee of Ten Thousand Eight
Hundred and Fifty Dollars ($10,850.00), less monthly charges for
8
<PAGE>
computer lease, cellular phone, health benefits and internet access,
for each remaining month or part thereof, up to and including January
31st, 2000, provided that the Consultant provides services to
E-Cruiter, as agreed upon by the parties, between the date of
termination and January 31st, 2000.
13. STATUS OF PARTIES
13.1 The Consultant's relationship with E-Cruiter shall be that of an
independent contractor and not that of an employee or agent. Without
limiting the generality of the foregoing, the Consultant shall not be
entitled to participate in any pension plans and employee benefit plans of
E-Cruiter nor will the Consultant be entitled to receive any health, life,
disability or other insurance provided from time to time to the employees of
E-Cruiter. Further, as an independent contractor, the Consultant will be
responsible for remitting such amounts as may be required by municipal,
provincial or federal authorities, including, without limiting the
generality of the foregoing payments to Revenue Canada, the Employment
Insurance Commission, Workers Compensation and the Canada Pension Plan. In
the event that E-Cruiter is required to make any such remittances on behalf
of the Consultant, such payments shall be deducted from the fee at that time
owing to the Consultant by E-Cruiter. Before making such deductions,
E-Cruiter will use reasonable commercial efforts to ensure that the
Consultant is aware of and participates in any discussions with Revenue
Canada.
14. ARBITRATION
14.1 All questions, controversy or claims arising out of or relating to this
Agreement shall be settled by arbitration in accordance with the
Arbitrations Act, Ontario, as amended, by one (1) arbitrator (the
"Arbitrator") appointed by the parties.
14.2 The arbitration will take place in the City of Ottawa unless otherwise
agreed by the parties.
9
<PAGE>
14.3 The Arbitrator has the right to grant legal and equitable relief
including injunctive relief and the right to grant permanent and interim
injunctive relief. The Arbitrator shall not amend or otherwise alter the
terms and conditions of this Agreement. The Arbitrator shall render a
decision within 60 days after his or her appointment as Arbitrator.
14.4 Any claim arising out of or relating to the terms of this Agreement
shall be made in writing and shall be served upon the party against whom the
claim is made not more than twelve (12) months from the date of the alleged
breach and any such claim not made within such twelve (12) month period
shall be deemed to have been abandoned and shall be absolutely barred.
14.5 The final award of the Arbitrator shall be a condition precedent to an
action in any court, and such award shall be final and binding on the
parties with no appeal to any court. The parties hereby agree to carry out
any decision or order of the Arbitrator in good faith.
15. NOTICES
15.1 Any notice or other written communication required or permitted
hereunder shall be in writing and:
15.1.1 delivered personally to the party or, if the party is a
corporation, an officer of the party to whom it is directed;
15.1.2 sent by registered mail, postage prepaid, return receipt
requested (provided that such notice or other written communication
shall not be forwarded by mail if on the date of mailing there exists
10
<PAGE>
an actual or imminent postal service disruption in the city from which
such communication is to be mailed or in which the address of the
recipient is found); or
15.1.3 sent by confirmed facsimile.
15.2 All such notices shall be addressed to the party to whom it is directed
at the following addresses:
if to : E-Cruiter.com Inc.
by mail or personal delivery: 360 Albert Street, Suite 1510
Ottawa, ON K1R 7X7
Attention: Jeff Potts
by facsimile: (613) 236-1541
if to : Daetus Consulting Inc.
by mail or personal delivery: 80 John Street
Ottawa, ON K1M 1N4
Attention: Lester Kirkland
15.3 Any such notice or other written communication shall, if mailed as
aforesaid be effective five (5) days from the date of posting; if given by
facsimile, shall be effective on the first business day after the sending
thereof; and if given by personal delivery shall be effective on the day of
delivery.
11
<PAGE>
15.4 Either party may at any time change its address by giving notice of
such change of address to the other party in the manner specified in this
paragraph.
16. FURTHER ASSURANCES
The parties hereto shall do all further acts and things and execute all
further documents reasonably required in the circumstances to effect the
provisions and intent of this Agreement.
17. AMENDMENT OF AGREEMENT
This Agreement can only be altered, amended or annulled at any time by the
mutual consent in writing of the parties hereto. For greater certainty, all
changes in scope and milestone deliverables require the written consent of
both parties.
18. TIME OF ESSENCE
Time shall be of the essence hereof.
19. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein.
20. CURRENCY
All payments under and amounts of money referred to in this Agreement are
expressed in Canadian Dollars unless otherwise stated.
21. HEADINGS
The headings appearing throughout this Agreement are inserted for
convenience only and form no part of the Agreement.
12
<PAGE>
22. SEVERABILITY
The invalidity or unenforceability of any provision of this Agreement will
not affect the validity or enforceability of any other provision hereof and
any such invalid or unenforceable provision will be deemed to be severable.
23. ENTIRE AGREEMENT
23.1 This Agreement together with the schedules attached hereto constitutes
the entire agreement between the parties and supersedes all prior and
contemporaneous agreements, understandings and discussions, whether oral or
written, and there are no other warranties, agreements or representations
between the parties except as expressly set forth herein.
23.2 The following schedules are attached hereto and form an integral part
of this Agreement:
Schedules A - Letter dated July 22, 1999 to Gerry Stanton from Les Kirkland;
and Proposal dated July 27, 1999
B - Non-disclosure Agreement
C - Non-competition Agreement
24. WAIVERS
No amendment, waiver or termination of this Agreement will be binding unless
executed in writing by the parties to be bound hereby. No waiver of any
provision of this Agreement will be deemed or will constitute a waiver of
any other provision, nor will any such waiver constitute a continuing waiver
unless expressly provided.
13
<PAGE>
25. AGREEMENT BINDING
This Agreement shall enure to the benefit of and be binding upon the parties
hereto and their respective personal representative, executors,
administrators, successors and assigns.
26. COUNTERPARTS
26.1 This Agreement may be executed in several counterparts, each of which
together shall constitute one and the same instrument. Counterparts may be
executed either in original or faxed form and the parties may adopt
signatures receiving by a fax machine as original signatures of the parties;
provided, however, that either party providing its signature in such manner
shall promptly forward to the other party an original of the signed copy of
this Agreement which was so faxed.
SIGNED, SEALED AND DELIVERED this day of ,1999.
E-CRUITER.COM INC.
Per: ___________________________________
Title:
DAETUS CONSULTING INC.
Per: ___________________________________
Title:
14
<PAGE>
SCHEDULE "A"
The Engagement Letter
Daetus Consulting Inc.
80 John Street,
Ottawa, Ontario, K1M 1N4
Canada
Telephone: (613) 747-1719
Fax: (613) 747-1431
July 22, 1999
Gerry Stanton
President and CEO
E-Cruiter.com Inc.
Constitution Square,
360 Albert Street, Suite 1510
Ottawa, Ontario K1R 7X7
Subject: Slingshot Job Launcher Proposal
Dear Gerry,
It is with pleasure that I submit for your review and purchase approval the
following proposal
Here are some highlights of Slingshot's capabilities...
o The ability to rapidly add new job sites without programming.
o Automatic verification that each job posted is, in fact, actually posted.
o High capacity and robust - run-time code is written in C++.
o Support for job sites using FTP, HTTP, Email
o Newsgroup support
o Component based technology.
o Full reporting capabilities.
o E-cruiter 2.x and Helius compatible.
I am committed to having two job sites operational by the end of August 1999 and
a further eight sites by the end of the contract.
If you have any questions or concerns please do not hesitate to contact me.
Yours sincerely,
Les Kirkland
15
<PAGE>
Proposal for the Development of
Slingshot: Job Launcher Software
prepared for: E-Cruiter.com Inc.
prepared by: Daetus Consulting Inc.
date prepared: July 27, 1999
16
<PAGE>
UNDERSTANDING OF REQUIREMENTS
The core functionality of Slingshot consist of a set of job oriented commands,
including the ability to post a job, un-post a job and verify a job posting.
Additional tools will be provided for controlling and monitoring the system and
producing reports.
Slingshot commands can be directed to a single site or multiple sites. The
target site or sites for a job posting will be identified by the existing
E-Cruiter service code field.
When posting a job Slingshot will automatically convert the job data to a format
that is acceptable by the target site, this may also include some data
translation to accommodate site specific fields etc. For sites that permit URL
links, Slingshot will automatically add a hot-link back to the E-Cruiter job
application page to the posting. When this is not possible, Slingshot will
provide the job site with the appropriate E-Cruiter email address.
Each job posting will trigger an automatic verification. There are two stages to
the verification process: verifying the job transmission and verifying the
actual posting.
Job transmission verification takes place as Slingshot communicates with the
site. Detection of job transmission failures are immediate because failures of
this nature will be due to a site being down or an internet communications
problem. When a job transmission failure occurs additional attempts will be
scheduled for another time. An error will only be generated after a number of
transmission failures have occurred.
For the posting verification, Slingshot will re-contact the site to determine
the success or failure of the posting. The result of the verification can be
included in a report or cause a notification email to be generated. A
prerequisite for posting verification is that the site must provide an HTTP
based search capability.
Slingshot will provide an un-post job command. It is possible that some job
sites may not be able to support an un-post capability. Slingshot will provide a
mechanism for identifying site capabilities. A prerequisite for un-posting is
that the site must provide an HTTP based search capability and additionally a
means to delete a specified job.
There are thousands of job posting sites on the internet and new ones are
constantly being created. Slingshot will take advantage of the fact that most of
these sites employ one of four possible posting mechanisms: FTP, Email, HTTP or
Junglee.
Slingshot will define and implement a site gateway component as a means to
abstract the task of communicating with a job site. Initially, gateways will be
provided to support the FTP, Email, HTTP, Junglee and NNTP posting mechanisms as
well as posting verification and un-post operations.
The job site gateways will make possible the rapid addition of new sites by
non-programmers. Slingshot will provide this capability by delivering a Site
Configuration utility for FTP, Email, HTTP, Junglee and NNTP sites. In addition
to the site configuration utility, a sophisticated Site Assistant utility will
allow the user to teach Slingshot how to post jobs to a specific HTTP based site
to facilitate the creation of the initial site configuration file.
The Slingshot System Administrator will provide unrestricted access to all
Slingshot tables and some powerful high level functions for manipulating
Slingshot tables. Since the usual safeguards to insure data integrity will not
be present, this tool is intended for use by system administrators.
The User Control Panel will provide controlled access to the Slingshot tables
and data files. From the Control Panel, users will be able to create new job
sites, edit job site configurations, create and edit job site lists, maintain
userids and passwords for transparent site access, view the status of any job
posting, and other routine tasks.
17
<PAGE>
All Slingshot components will be created using Visual C++ 6.0 and ATL 3.0. Since
ATL defines all interfaces as Dual, by default, all Slingshot interfaces will be
available to Helius. Interaction with the Slingshot system will be handled by
tools developed in Visual Basic 6.0. Ultimately Helius will provide the primary
user interface to Slingshot.
18
<PAGE>
IMPLEMENTATION PLAN
The core Slingshot functionality will be complete by 15 October 1999. At this
point the system could be put into limited production with some assistance from
Daetus to add new sites and modify system parameters.
The completion date for the last Slingshot deliverable is 26 January 2000, then
after a 2 week transition period the final project approval would fall on 9
February 2000..
E-Cruiter.com has identified a need to post jobs to 2 job sites by 23 August
1999 and a further 8 sites to be delivered at a rate of approximately 1 per
week. Initially, E-Cruiter will continue to directly manage job postings to
PositionWatch and to CareerBridge.com. The only way to achieve results by the
specified dates is to develop an interim, shortcut solution in parallel with
Slingshot.
In addition to the five standard site gateways (FTP, HTTP, NNTP, Email and
Junglee), Slingshot will support a custom gateway to facilitate the
implementation of the interim solution.
Slingshot will ignore any task created for a job site that uses a custom
gateway. These tasks would be handled by a separate application. The interim
solution will be the implementation of a system to process tasks using custom
gateways.
The interim solution will use the same tables and system files as the production
Slingshot system and will obey all rules for accessing those tables, allowing
the two systems to co-exist peacefully. As the real site gateways are made
available, sites can be converted from custom gateways.
The interim solution is intended to meet E-Cruiter's short term goals only. It
will not support any of the Slingshot features for reporting, administration,
verification or a facility for adding new job sites. The interim solution will
support only a limited number of job sites and each one will be hard coded.
Support for the interim solution will be discontinued as soon as the Slingshot
system is complete.
Note: The life of the interim solution could be extended indefinitely to provide
an option for posting to sites that do not support any of the standard site
gateway protocols (FTP, HTTP, NNTP, Email or Junglee).
Some components from Slingshot may be used to speed the development of the
interim solution. Slingshot components will be released to the team developing
the interim solution as they become available as long as such cross-project code
sharing does not impact the scheduled delivery of Slingshot.
The same 10 job sites identified for the interim solution will be used to test
Slingshot during development and will be fully ported to Slingshot as part of
the final implementation at E-Cruiter. Once this task has been completed,
support for the interim solution can be discontinued.
Initially, placebo components will be developed for all of the site gateways and
for the verification engine. These components will implement all of the required
interfaces, methods and properties of the target component but will provide only
minimal functionality (if any). This will allow testing of the Slingshot user
interfaces and infrastructure to begin before all of the more complicated
gateway code is fully functional.
Once the final deliverable has been accepted, Slingshot will be put into full
production at E-Cruiter.com. A resource from Daetus will be on-site for a
transition period of 2 weeks to assist with setup and installation and provide
any necessary system maintenance.
19
<PAGE>
After the transition period has ended, the warranty period (90 days) will begin.
E-Cruiter.com will receive unlimited phone/email during this period. Any bugs
found and reported during this period will be fixed at no additional cost. Site
visits to correct problems will be made as required or requested.
20
<PAGE>
PROJECT MANAGEMENT
The responsibilities of Daetus are clearly defined by the list of deliverables
and milestones, but in order for the project to be successful E-Cruiter must
agree to meet certain responsibilities as well.
E-Cruiter Responsibilities
To appoint an individual (or individuals) to act as the project authority. The
project authority must be empowered to make decisions that may affect the
project scope, cost and schedule.
To provide acceptance (sign-off) of project deliverables within the timelines
described in the milestones and deliverables schedule.
To provide acceptance or to reject any change request to the scope of the
project.
To make knowledgeable resource(s) available for consultation for the duration of
the project.
Change Requests
Although the cost and scope of the project have been "fixed", it would be unwise
to believe that every contingency has been considered.
The Change Request Form exists to allow the scope of work to be changed to meet
unforseen requirements or merely to add or remove functionality. All change
requests are assigned a unique number and become a permanent part of the project
history.
A change request may be submitted by Daetus or by E-Cruiter. When created, the
change request must be assigned a priority of High, Medium or Low. The creator
of the change request will set the priority intially but the Project Authority
can adjust the priority of any change request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Priority Meaning
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
High High priority changes are those changes that must be implemented because they are considered imperative to the
success of the project.
- -------------------------------------------------------------------------------------------------------------------------------
Medium Medium priority changes are "nice to have" features that will be implemented if they can be completed without
seriously affecting the project delivery (at the discretion of the Project Authority).
- -------------------------------------------------------------------------------------------------------------------------------
Low Low priority changes are "wish list" features that will be logged but not implemented until the core project
has been completed.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In response to a change request, Daetus will propose a solution and perform an
impact analysis. The impact analysis will determine whether the change will
affect the schedule and/or the project cost. Once this information is available
the Project Authority will decide whether the request will be approved or
rejected.
If the change request is approved, the Milestones and Deliverables schedule and
the project cost will be updated as per the impact analysis.
Problem Reports
The Problem Report Form is a formal method anyone involved with Slingshot can
use to report bugs in the software. All problem reports are assigned a unique
number and become a permanent part of the project history.
21
<PAGE>
Once a problem has been reported a solution will be proposed and an impact
analysis performed to determine whether fixing the problem will affect the
schedule.
A problem report may be submitted by Daetus or by E-Cruiter. When created, the
problem request must be assigned a severity of High, Medium or Low. The creator
of the problem report will set the severity intially but the Project Authority
can adjust the severity of any problem report.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Severity Meaning
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
High Problem renders software unusable, untestable, or unstable and must be resolved immediately.
- ---------------------------------------------------------------------------------------------------------------------------------
Medium Problem is obvious but does not seriously affect the operation of the software.
- ---------------------------------------------------------------------------------------------------------------------------------
Low Minor annoyance, fix as time permits.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All problems that are reported and verified as problems will be fixed. High
severity problems will be fixed immediately, medium and low severity problems
will be fixed during the transition period at the end of the project or as time
permits (at the discrection of Daetus).
Quality Assurance
All tests described in the System Test Plan will be carried out by a qualified
test engineer, working directly with the development team.
No deliverable will be presented for approval until it has passed the quality
assurance test(s) as specified in the Test Plan. This may require more than one
test cycle as high severity bugs are found and fixed.
A deliverable may be presented for approval with outstanding low or medium
severity bugs (see the previous section on Problem Reports).
E-Cruiter may decide to raise the severity of any unresolved problem report and
reject the associated deliverable until the problem is resolved.
All unresolved problem reports and a report of the test results will be
presented with each deliverable (or group of deliverables).
22
<PAGE>
DESCRIPTION OF MILESTONES
M1 Meeting to present project proposal: This purpose of this meeting is to
present the final draft of the Slingshot proposal and address any outstanding
questions or concerns.
M2 Approval of D1 required: The project proposal must be approved. before any
design/development work begins.
M3 Meeting to present system design documents: The actual design documents will
be delivered to E-Cruiter in advance of this meeting (as they become available)
to avoid creating a review bottle-neck.. The purpose of this meeting will be to
present the documents and address any immediate questions or concerns.
M4 Approval of D2..D5 required: After M3, E-Cruiter has 5 days to review and ask
for changes to the design then the system design documents must be approved for
development to begin. Note: the designs can still be changed via a change
request in the future if necessary.
M5 Status Meeting: It will not be possible to demonstrate the system at this
point but the status meeting will be held to provide updates on the progress of
the interim solution and Slingshot development.
M6 Site Information Required: E-Cruiter: E-Cruiter must provide information for
the 10 target job sites. It is expected that E-Cruiter will have already
established accounts with these sites and can provide the site technical contact
as well as any required userids and passwords to facilitate testing. At least
one site of each type (FTP, HTTP, NNTP, Email, and Junglee) must be provided.
M7 Demo and delivery of D6..D14: Daetus will deliver D6..D15 and install the
system at E-Cruiter on a stand-alone test machine in order to provide a brief
system demo.
M8 Approval of D6..D14 required: After M6, E-Cruiter has 5 days to review and
approve the deliverables, D6..D14, in order for development to continue.
M9 Meeting to present gateway and verification components: All of the site
gateway and verification engines, D15..D22, will be presented at this meeting
along with the results of the QA tests for these components.
M10 Approval of D15.. D22 required: After M8, E-Cruiter has 5 days to review and
approve the deliverables, D15..D22, in order for development to continue.
At this point, the system could be put into limited production if necessary.
Some extra effort would be required to set up sites and install the software
because none of the UI components will be ready.
M11 Meeting to present Slingshot UI applications: The Slingshot UI applications,
D23..D27 will be presented at this meeting along with the results of the QA
tests.
M12 Approval of D23..D27 required: After M10, E-Cruiter has 5 days to review and
approve the deliverables, D23..D27, in order for development to continue.
M13 Report specifications required from E-Cruiter: E-Cruiter must deliver the
specifications and layouts for the 4 system rpeorts so development of the
reports can begin.
M14 Meeting to present reports, source, doc and demo working job sites: The
final set of deliverables D28, D29 and D30 will be provided in this meeting and
a demonstration will be provided of the fully functional system.
23
<PAGE>
M15 Transition period begins: A resource from Daetus will be on-site for a
period of 2 weeks. During this time the resource will install the software in
the E-Cruiter production environment, train E-Cruiter staff in the use of the
system, answer any questions about the software and provide any necessary system
maintenance.
M16 Approval of D28..D30 required: After the transition period has ended,
approval of the final set of deliverables D28..D30 is required before the final
project approval can be given.
M17 Final project approval required: Once the Final Project Approval Form has
been signed the warranty period can begin.
M18 Warranty Period Begins: The warranty period will be 90 days. During the
warranty period any bugs found and reported will be fixed at no cost. Site
visits to correct problems will be made as required or requested.
24
<PAGE>
DESCRIPTION OF DELIVERABLES
D1 Project Proposal: Acceptance of this proposal and all the terms and
conditions stated herein is required before development can begin. Changes to
the project can be made in the future by presenting a completed change request
form signed by the project authority.
D2 Tables and Files: This deliverable will consist of the SQL tables and system
files themselves as well as a document describing each in detail. Initially the
SQL tables will be developed in Access 97. Ultimately the SQL tables will be
imported into SQL server.
D3 Functional Specification: This will serve as the design document for all of
the Slingshot programs that contain interactive elements. The functional
specification will consist of screen snapshots and detailed descriptions of all
user interface elements. This document will be used to produce the QA Test Plan.
D4 System Architecture: This document will describe all of the Slingshot
components, the interfaces they implement and their relationships.
D5 Test Plan: This document will consist of a set of manual test cases to be
performed to ensure the product performs as described in the functional
specification and that the system is robust and reliable.
D6 Job Creator: This is an application that allows users to create jobs for
submission directly, bypassing the inbound Email and Helius gateways. This will
be used primarily to facilitate testing but also to get the interim solution off
to a fast start.
D7 Inbound Email Gateway Component: This component retrieves job posting emails
from a specified POP server and populates the Slingshot job database and task
list databases.
D8 Inbound Helius Gateway Component: This component retrieves job posting date
from Helius and populates the Slingshot job database and task list databases.
D9 Task Manager Component: This component is responsible for scheduling and
carrying out posting, un-posting and verification tasks, loading the appropriate
gateways to carry out site operations and dealing with gateway responses.
D10 Placebo Site Gateway Component: This component provides a minimal
implementation of the Site Gateway interfaces. All methods and properties
required by the Site Gateway design will be present but not fully implemented.
D11 Placebo Verification Engine Component: This component that provides a
minimal implementation of the Verification Engine interfaces. All methods and
properties required by the Verification Engine design will be present but not
fully implemented.
D12 System Startup and Control: This deliverable consists of the System Monitor
application and necessary startup code to load the inbound gateway, task manager
and system monitor component.
D13 Initial System Test (QA): This will be the first test of all of the system
components. Although the gateways and verification engines will not be
functional it will allow the infrastructure to be tested to make sure the
components are loaded properly, that tasks are scheduled properly and that the
system monitor works. A report containing the results of the testing as well as
problem reports for any unfixed bugs will be provided.
D14 First System Demonstration: This demo is based on D13, the system testing.
The purpose of the demo is not to show a fully functional system but to show
that all of the components work properly. Part of this deliverable will be the
creation of an installation procedure.
25
<PAGE>
D15 FTP Site Gateway Component: This component implements the site gateway
interface for sites that support posting through FTP.
D16 Email Site Gateway Component: This component implements the site gateway
interface for sites that support posting through Email.
D17 Junglee Site Gateway Component: This component implements the site gateway
interface for sites that support posting using the Junglee method.
D18 NNTP Site Gateway Component: This component implements the site gateway
interface for Newgroup posting.
D19 HTTP Site Gateway Component: This component implements the site gateway
interface for posting using HTTP.
D20 HTTP Verification Engine Component: This component is a full implementation
of the HTTP verification engine and will replace the placebo component for
verifying postings for all posting methods (except NNTP).
D21 NNTP Verification Engine Component: This component is a full implementation
of the NNTP verification engine and will replace the placebo component for
verifying NNTP postings.
D22 Gateway and Verification Testing: This phase of testing focuses on the site
gateways for FTP, Email, Junglee, NNTP and HTTP and the verification engines.
Gateway testing will be done using one site for each posting method, chosen from
the 10 target sites identified by E-Cruiter. If not all posting methods are
represented, alternate testing sites will be chosen. Tests will be performed to
ensure that verification is working properly and that the engines are not
reporting false positives or failures for successful postings. A report
containing the results of the testing as well as problem reports for any unfixed
bugs will be provided.
D23 Site Assistant: This application will allow users to teach Slingshot how to
post jobs to new job sites. The Site Assistant will require some user input
during the posting process but will be as automated as possible.
D24 Slingshot Administrator: This application provides privileged access to all
Slingshot tables. See the functional specification for details.
D25 Site Configuration Tool: This application allows users to create and modify
site configuration files. See the functional specification for details.
D26 User Control Panel: This application provides system users with their
primary interface to Slingshot. The control panel application allows users to
carry out the day to day tasks of posting jobs, setting up new job sites, etc.
See the functional specification for details.
D27 User Interface Testing (QA): This final phase of testing focuses on the user
interface components of Slingshot, which necessarily also covers the underlying
components and infrastructure. A report containing the results of the testing as
well as problem reports for any unfixed bugs will be provided.
D28 Reports: Four summary or status reports. The specific details of these
reports must be provided by the project authority.
D29 Create 10 Job Sites: Set up the 10 job sites identified for the interim
solution and get them working with Slingshot. Once this has been done and
tested, support for the interim solution can be discontinued.
26
<PAGE>
D30 Source and Documentation: The final deliverable will consist of the complete
source code for the project, all the documentation and the results of QA tests
on user interface components.
27
<PAGE>
MILESTONES/DELIVERABLES SCHEDULE
<TABLE>
<CAPTION>
Milestone/ Target Revised
Deliverable Description Date Date
<S> <C> <C> <C>
D1 Project Proposal
M1 Meeting to present project proposal 12 Jul 99
M2 Approval of D1 required 21 Jul 99
D2 Tables and Files
D3 Functional Specification
D4 System Architecture
D5 Test Plan 27 Aug 99
M3 Meeting to present system design documents 17 Aug 99 23 Aug 99
M4 Approval of D2..D5 required 24 Aug 99 30 Aug 99
D6 Job Creator
D7 Inbound Email Gateway
D8 Inbound Helius Gateway
D9 Task Manager Component
M5 Status Meeting 17 Sep 99
D10 Placebo Site Gateway Component
D11 Placebo Verification Engine Component
D12 System Startup and Control
D13 Initial System Test (QA)
D14 First System Demonstration
M6 Site Information Required 8 Oct 99
M7 Demo and delivery of D6..D14 8 Oct 99
M8 Approval of D6..D14 required 15 Oct 99
D15 FTP Site Gateway Component
D16 Email Site Gateway Component
D17 Junglee Site Gateway Component
D18 NNTP Site Gateway Component
D19 HTTP Site Gateway Component
D20 HTTP Verification Engine Component
D21 NNTP Verification Engine Component
D22 Gateway and Verification Testing (QA)
M9 Meeting to present gateway and verification components 1 Dec 99
M10 Approval of D15.. D22 required 8 Dec 99
D23 Site Assistant
D24 Slingshot Administrator
D25 Site Configuration Tool
D26 User Control Panel
D27 User Interface Testing (QA)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
M11 Meeting to present Slingshot UI applications 12 Jan 00
M12 Approval of D23..D27 required 19 Jan 00
M13 Report specifications required from E-Cruiter
D28 Reports
D29 Create 10 Job Sites
D30 Source and Documentation
M14 Meeting to present reports, source, doc and demo working job sites 26 Jan 00
M15 Transition period begins 27 Jan 00
M16 Approval of D28..D30 required 9 Feb 00
M17 Final project approval required 9 Feb 00
M18 Warranty period begins 9 Feb 00
</TABLE>
29
<PAGE>
SCHEDULE "B"
NON-DISCLOSURE AGREEMENT
TO: E-CRUITER.COM INC
I acknowledge that in the course of the duties of Daetus Consulting
Inc. with E-Cruiter.com Inc that I will have access to and be entrusted with
confidential information and trade secrets relating to the business of
E-Cruiter.com Inc. The disclosure of any of which confidential information and
trade secrets to competitors, customers or to the general public, would be
highly detrimental to the best interests of E-Cruiter.com Inc. Accordingly, in
consideration of the appointment of Daetus Consulting Inc. to provide consulting
services for E-Cruiter.com Inc and for other good and valuable consideration,
the receipt and sufficiency of which is acknowledged, I hereby agree that I will
not at any time, either during the time Daetus Consulting Inc. is retained by
E-Cruiter.com Inc or thereafter disclose any of such confidential information
and trade secrets to any person nor use the same for any other purpose other
than for E-Cruiter.com Inc.
Without limiting the generality of the foregoing, I hereby covenant and
agree that I will not at any time either during the time Daetus Consulting Inc.
is retained by E-Cruiter.com Inc or thereafter: i) divulge to any person, firm
or corporation or make use of the name of any client of Ecruiter.com Inc. ; (ii)
divulge to any person, firm or corporation or make use of any information
received or generated by us during the course of our work with regard to the
affairs of either of you including, without limitation, any information
concerning your methods of business operation; or (iii) use any program
materials developed by E-Cruiter.com Inc, except as in my capacity of providing
services for E-Cruiter.com Inc.
I acknowledge that upon request of E-Cruiter.com Inc I will return all
proprietary information of the company and all copies thereof in my possession
or control. I will also furnish proof that additional materials kept by me have
been destroyed to the satisfaction of E-Cruiter.com Inc.
I acknowledge that the information given to me by E-Cruiter.com Inc is
the sole property of E-Cruiter.com Inc and that I am holding such information in
trust for the benefit of E-Cruiter.com Inc. It is also acknowledged that
information gathered and reports generated for E-Cruiter.com Inc is sole
property of E-Cruiter.com Inc and is to be considered confidential information.
I acknowledge that all confidential information will be stored under
strict control and in a secure environment.
DATED the day of 1999.
SIGNED, SEALED AND DELIVERED ) ____________________________
in the presence of )
)
30
<PAGE>
SCHEDULE "C1"
NON-COMPETITION AGREEMENT (LES KIRKLAND AND THE CONSULTANT)
TO: E-CRUITER.COM INC. ("E-Cruiter")
I (we) acknowledge that during the term of the consulting agreement dated as of
July 22, 1999 between E-Cruiter and Daetus Consulting Inc. and for a period of
twelve (12) months thereafter, I (we) will not compete, directly or indirectly,
either alone or in conjunction with any individual, firm, corporation or any
other entity, whether as principal, agent, shareholder, employee or in any other
capacity whatsoever, with the then current business of E-Cruiter in any
territory where E-Cruiter presently or in the future carries on business. The
business of E-Cruiter may include, but is not limited to, placing job
advertisements on the Internet, employment recruiting workflow, resume database
searching and data extraction, candidate screening, candidate assessment and
other human resources products or services.
I (we) agree that all of the restrictions contained herein are reasonable and
valid and properly required for the adequate protection of E-Cruiter's business.
I (we) agree that the remedy at law for any breach or threatened breach by me
(it) of the provisions hereof may be inadequate and that in the event of a
breach or threatened breach, E-Cruiter shall, in addition to and not in
limitation of any other rights, remedies or damages available to E-Cruiter at
law or in equity, be entitled to make an application to the appropriate court
granting E-Cruiter temporary and/or permanent injunctive relief against me(it).
I(we) acknowledge that I(we) have read and understood this Non-competition
Agreement and acknowledge that I(we) have had the opportunity to obtain legal
advice regarding this Non-competition Agreement.
31
<PAGE>
IN WITNESS WHEREOF this Non-competition Agreement has been executed this day of
1999.
SIGNED, SEALED AND DELIVERED
LESTER KIRKLAND
____________________________ ____________________________________
Witness
DAETUS CONSULTING INC.
Per:________________________________
Title:
32
<PAGE>
SCHEDULE "C2"
NON-COMPETITION AGREEMENT (AGENTS AND EMPLOYEES OF THE CONSULTANT)
TO: E-CRUITER.COM INC. ("E-Cruiter")
I acknowledge that during the term of the consulting agreement dated as of July
22, 1999 between E-Cruiter and Daetus Consulting Inc (the "Consulting
Agreement") and for a period of twelve (12) months thereafter, I will not
provide the same or similar services, as those provided to E-Cruiter pursuant to
the terms of the Consulting Agreement, either alone or in conjunction with any
individual, firm, corporation or any other entity, whether as principal, agent,
shareholder, employee or in any other capacity whatsoever, to any business that
competes, directly or indirectly, with E-Cruiter in any territory where
E-Cruiter presently or in the future carries on business. The business of
E-Cruiter may include, but is not limited to, placing job advertisements on the
Internet, employment recruiting workflow, resume database searching and data
extraction, candidate screening, candidate assessment and other human resources
products or services.
I agree that all of the restrictions contained herein are reasonable and valid
and properly required for the adequate protection of E-Cruiter's business.
I agree that the remedy at law for any breach or threatened breach by me of the
provisions hereof may be inadequate and that in the event of a breach or
threatened breach, E-Cruiter shall, in addition to and not in limitation of any
other rights, remedies or damages available to E-Cruiter at law or in equity, be
entitled to make an application to the appropriate court granting E-Cruiter
temporary and/or permanent injunctive relief against me.
33
<PAGE>
I acknowledge that I have read and understood this Non-competition Agreement and
acknowledge that I have had the opportunity to obtain legal advice regarding
this Non-competition Agreement.
IN WITNESS WHEREOF this Non-competition Agreement has been executed this day of
1999.
SIGNED, SEALED AND DELIVERED
______________________________ _________________________________
Witness Name:
34
<PAGE>
NOVEMBER 16, 1993
NOVEMBER 25, 1993
NOVEMBER 29, 1993
DECEMBER 7,1993
JANUARY 4,1994
MAY 2, 1994
OMERS REALTY CORPORATION
LANDLORD
- and -
DRAKE, BEAM, MORIN (OTTAWA) INC.
TENANT
LEASE
Part of 15th Floor
360 Albert Street
Constitution Square, Phase I
Ottawa, Ontario
Osler, Hoskin & Harcourt
146960 File No. 8822725
<PAGE>
ARTICLE 1 DEFINITIONS .................................................. 1
1.1 Definitions: ...................................................... 1
ARTICLE 2 GENERAL COVENANTS ............................................ 5
2.1 Tenant's Covenants: ............................................... 5
2.2 Landlord's Covenants: ............................................. 5
ARTICLE 3 DEMISE AND TERM .............................................. 5
3.1 Demise of Premises: ............................................... 5
3.2 License Over Certain Common Facilities: ........................... 5
3.3 Term: ............................................................. 5
3.4 Overholding: ...................................................... 6
3.5 Leasehold Improvements: ........................................... 6
ARTICLE 4 RENT ......................................................... 6
4.1 Basic Rent: ....................................................... 6
4.2 Additional Rent: .................................................. 7
4.3 Payment of Additional Rent: ....................................... 7
4.4 Adjustment of Additional Rent: .................................... 7
4.5 Apportionment of Rent: ............................................ 8
4.6 No Right of Set-off: .............................................. 8
4.7 Additional Rent Deemed Rent: ...................................... 8
4.8 Interest on Arrears: .............................................. 8
4.9 Net Lease to Landlord: ............................................ 8
ARTICLE 5 TAXES ........................................................ 8
5.1 Landlord's Taxes: ................................................. 8
5.2 Tenant's Taxes and Sales Taxes: ................................... 9
5.3 Tenant's Contribution to Taxes: ................................... 9
5.4 Payments: ......................................................... 9
ARTICLE 6 SERVICES, COMMON FACILITIES .................................. 9
6.1 Tenant's Contribution to Operating Costs: ......................... 9
6.2 Operation of Regular HVAC System: ................................. 10
6.3 Additional HVAC: .................................................. 10
6.4 Electricity and Other Utilities: .................................. 10
6.5 Operation of Common Facilities: ................................... 11
6.6 Janitorial Services: .............................................. 11
6.7 Security Services: ................................................ 11
6.8 Interruption in Services: ......................................... 12
6.9 Energy Conservation: .............................................. 12
6.10 Pest Control by Tenant: ........................................... 12
ARTICLE 7 USE AND OCCUPANCY OF PREMISES ................................ 12
7.1 Use of Premises: .................................................. 12
7.2 Waste and Nuisance: ............................................... 12
7.3 No Overloading of Premises or Common Use Equipment: ............... 13
7.4 Insurance Cancellation or Increase: ............................... 13
7.5 Observance of Law by Tenant: ...................................... 13
7.6 Rules and Regulations: ............................................ 13
7.7 Signs: ............................................................ 14
7.8 Name of Development/Project: ...................................... 14
ARTICLE 8 ALTERATIONS .................................................. 14
8.1 Alterations by Tenant: ............................................ 14
8.2 Air-Balancing: .................................................... 15
8.3 No Financing by Tenant of Leasehold Improvements: ................. 15
8.4 Liens: ............................................................ 15
8.5 Alterations by Landlord: .......................................... 15
ARTICLE 9 REPAIRS ...................................................... 16
9.1 Landlord's Repairs: ............................................... 16
9.2 Tenant's Repairs: ................................................. 16
9.3 Entry by Landlord to View State of Repair: ........................ 16
9.4 Notice of Defects: ................................................ 16
9.5 Termination or Abatement after Damage: ............................ 16
9.6 No claim by Tenant: ............................................... 18
9.7 Tenant to Leave Premises in Good Repair: .......................... 18
9.8 No Hazardous Substances: .......................................... 18
<PAGE>
ARTICLE 10 INSURANCE AND LIABILITY ...................................... 18
10.1 Landlord's Insurance: ............................................. 18
10.2 Tenant's Insurance: ............................................... 19
10.3 Form of Tenant's Insurance: ....................................... 19
10.4 Release of Landlord by Tenant: .................................... 20
10.5 Indemnity of Landlord by Tenant: .................................. 20
ARTICLE 11 ASSIGNMENTS, ETC. BY TENANT AND TRANSFERS ETC. BY LANDLORD ... 20
11.1 Assignments, Subleases, Charges by Tenant: ........................ 20
11.2 Landlord's Rights of Cancellation: ................................ 22
11.3 Continuing Obligations of Tenant: ................................. 22
11.4 Dealings by Landlord: ............................................. 22
11.5 Subordination and Attornment: ..................................... 22
ARTICLE 12 ESTOPPEL CERTIFICATES, REGISTRATION .......................... 23
12.1 Estoppel Certificates: ............................................ 23
ARTICLE 13 UNAVOIDABLE DELAYS ........................................... 23
13.1 Unavoidable Delays: ................................................ 23
ARTICLE 14 LANDLORD'S ACCESS TO PREMISES ................................ 24
14.1 Inspection and Repair: ............................................ 24
14.2 Right to Exhibit Premises: ........................................ 24
ARTICLE 15 DEFAULT ...................................................... 24
15.1 Events of Default: ................................................ 24
15.2 Remedies by Landlord: ............................................. 25
15.3 Additional Self-help Remedy of Landlord: .......................... 26
15.4 Legal Costs: ...................................................... 26
15.5 Remedies Cumulative: .............................................. 26
15.6 Non-Waiver: ....................................................... 26
ARTICLE 16 GENERAL PROVISIONS ........................................... 26
16.1 Entire Agreement: ................................................. 26
16.2 Schedules: ........................................................ 27
16.3 Planning Act: ..................................................... 27
16.4 Survival of Obligations: .......................................... 27
16.5 Severability of Illegal Provisions: ............................... 27
16.6 Governing Law: .................................................... 27
16.7 No Partnership: ................................................... 27
16.8 Number, Gender, Joint and Several Liability: ...................... 27
16.9 Captions: ......................................................... 27
16.10 Time of Essence: .................................................. 27
16.11 Landlord's Agent: ................................................. 28
16.12 Successors and Assigns: ........................................... 28
16.13 Accounting Principles: ............................................ 28
16.14 Other Leases in Building: ......................................... 28
16.15 Notices and Consents, etc.: ....................................... 28
16.16 No Consent During Default: ........................................ 29
16.17 Further Assurances: ............................................... 29
16.18 Tenant's Notice to Vacate: ........................................ 29
16.19 Landlord's Right to Relocate: ..................................... 29
16.20 Other Construction and Shared Common Facilities: .................. 30
ARTICLE 17 ADDITIONAL PROVISIONS ........................................ 31
17.1 Leasehold Allowance ............................................... 31
17.2 License for Parking: .............................................. 31
17.3 Tenant's First Right to Lease Extra Space: ........................ 32
LANDLORD ................................................................... 33
SCHDULES ................................................................... 34
SCHEDULE A Legal Description of Lands and Project ....................... 34
Part 1 - Development ....................................................... 34
360 Albert Street, Ottawa, being Phase I of Constitution Square ......... 34
SCHEDULE B Definition Of Operating Costs ................................ 35
SCHEDULE C RULES AND REGULATIONS ........................................ 38
SCHEDULE D ................................................................. 41
<PAGE>
THIS LEASE entered into this 16th day of November, 1993
IN PURSUANCE of the Short Forms of Leases Act of Ontario
BETWEEN:
OMERS REALTY CORPORATION
(hereinafter called the "Landlord")
THE PARTY OF THE FIRST PART
- - and -
DRAKE, BEAM, MORIN (OTTAWA) INC.
(hereinafter called the ATenant@)
THE PARTY OF THE SECOND PART
In consideration of the premises and the mutual covenants, agreements and
conditions herein contained, it is hereby covenanted, agreed and declared
between the parties as follows:
ARTICLE 1 DEFINITIONS
1.1 Definitions:
The terms defined herein shall have, for all purposes of this Lease and all
instruments supplemental hereto, the following meanings unless the context
expressly or by necessary implication otherwise requires:
"Additional Rent" means all sums of money, other than Basic Rent, which are
required to be paid by the Tenant pursuant to any provision of this Lease.
"Additional Service" means any service identified as such in this Lease or which
is requested by the Tenant in addition to those supplied by the Landlord as part
of the normal Development service and which the Landlord is prepared to supply
at an additional cost to the Tenant.
"Additional Service Cost" means the additional amount identified as such in this
Lease or payable by the Tenant to the Landlord for any Additional Service.
"Basic Rent" means the rent payable by the Tenant pursuant to Asection 4.1.
"Building" means the building and all other fixed improvements situate at any
time on the Lands, all of which are municipally known as 360 Albert Street,
Ottawa, Ontario.
"Building Common Facilities" means those Common Facilities serving only the
Development.
<PAGE>
"Building Standard" means the building standard established by the Landlord
including matters of design, construction, signage and/or installation to be
observed by the tenants in the Building, including the Tenant, in connection
with Leasehold Improvements, tenant fixtures, signage and chattels, as amended
from time to time by the Landlord, acting reasonably.
"Building Proportionate Share" means a fraction, the numerator of which is the
Total Rentable Area in the Building and the denominator of which is the Total
Rentable Area in that part or those parts of the Project which share a Shared
Common Facility, or such other fraction as the Landlord in its sole discretion
acting reasonably determines is appropriate.
"Business Day" means any day which is not a Saturday, Sunday or a statutory
holiday.
"Business Hours" means the period from 7:00 a.m. to 6:00 p.m. on any Business
Day (subject to change by the Landlord).
"Capital Tax" means any tax or taxes payable under the Corporations Tax Act
(Ontario) or under any existing or proposed federal legislation based upon or
computed by reference to the paid-up capital or place of business of the
Landlord and/or the owners of the Development as determined for the purposes of
such tax or based upon or computed by reference to the taxable capital employed
in Canada, or any similar tax levied, imposed or assessed in the future in lieu
thereof or in addition thereto by any municipal, legislative or parliamentary
authority.
"Common Facilities" means those areas and facilities of the Project or any part
thereof which from time to time serve the Project or any part thereof including,
without limitation, the landscaped areas, sidewalks, public entrance doors,
halls, management offices, public lobbies, lavatories, stairways, passageways,
elevators, service ramps and common loading and receiving facilities, the
Parking Garage and the Common Use Equipment, and which are designated from time
to time by the Landlord for the common use and enjoyment of tenants, including
the Tenant, and their agents, invitees, servants, employees and licensees, or
for use by the public, but excluding rentable premises and other portions of the
Project which are from time to time designated by the Landlord for private use
by one or a limited group of tenants.
"Common Use Equipment" means all mechanical, plumbing, electrical, life safety,
vertical transportation and HVAC equipment, pipes, ducts, wiring, machinery and
equipment and other integral services, utility connections and the like
providing services to the Project or any part thereof.
"Development" means the Lands and the Building.
"Insured Damage" means that part of any damage occurring to the Development,
including the Premises, of which the entire cost of repair (except as to any
deductible amount provided for in the applicable policy or policies of
insurance) is actually recovered by the Landlord under a policy or policies of
insurance from time to time effected by the Landlord pursuant hereto.
"Lands" means the lands described in Part I of Schedule A attached hereto, as
the boundaries thereof may be varied from time to time by additions functionally
integrated therewith or by deletions for road widening or other public purposes.
"Landlord's Taxes" means the aggregate of:
(a) Taxes; and
(b) Other Taxes.
-2-
<PAGE>
"Lease" means this Lease including any Schedules, as amended from time to time
pursuant hereto.
"Leasehold Improvements" means all items generally considered as leasehold
improvements, including, without limitation, all fixtures, equipment,
improvements, installations, alterations and additions from time to time made,
erected or installed by or on behalf of the Tenant, or any previous occupant of
the Premises, in the Premises and by or on behalf of other tenants in other
premises in the Building, including all partitions, however affixed and whether
or not movable, and all wall-to-wall carpeting; but excluding trade fixtures,
furniture, unattached or free standing partitions and equipment not of the
nature of fixtures.
"Operating Costs" means operating costs as defined in Schedule B attached
hereto.
"Other Taxes" means all taxes, rates, duties, levies, fees charges and
assessments whatsoever, imposed, assessed, levied or charged now or in the
future by any municipal, regional, provincial, federal, parliamentary or other
government body, corporate authority, agency or commission against the Project
and/or the Landlord and/or the owners of the Project in connection therewith
(including without limitation, business or similar taxes or licence fees in
respect of the business of the Landlord which pertains to the management,
operation and maintenance of the Project) but excluding (unless specifically
referred to above):
(a) such of the foregoing amounts as have been included in Taxes;
(b) income or profit taxes upon the income of the Landlord to the extent
such taxes are not levied in substitution or in lieu of any of the
foregoing;
(c) business or similar taxes or licence fees in respect of any business
carried on by tenants and occupants (including the Tenant) of the
Development; and
(d) Capital Tax (which is included in Operating Costs).
"Parking Garage" means those portions of the Project which are designated from
time to time by the Landlord for parking purposes including, without limitation,
parking spaces and the vehicular ramps and other entrances and exits thereto and
all services, facilities and systems contained exclusively within and serving
such parking facilities, as the same may from time to time be altered, expanded
or reconstructed.
<PAGE>
"Premises" means the premises demised to the Tenant under this Lease consisting
of those portions of the 15th floor of the Building: (a) shown cross-hatched on
Schedule D attached hereto, the Gross Rentable Area of which is deemed by the
Landlord and the Tenant to be 3,730.64 square feet (the "Initial Premises") and
(b) shown hatched on the said Schedule D (the "Additional Premises"), the Gross
Rentable Area of which is deemed by the Landlord and the Tenant to be 4,004
square feet.
"Present Value" means the value determined by using an annual discount rate
equal to the annual rate of interest, in effect as of such date of default,
announced by the Canadian Imperial Bank of Commerce as its prime rate, being the
reference rate used by it to determine interest for loans in Canadian dollars to
Canadian customers, less 3%.
"Project" means the lands more particularly described in Part II of Schedule A
attached hereto together with all buildings and all other fixed improvements
situate at any time thereon.
"Rate of Interest" means the annual rate of interest announced from time to time
by the Canadian Imperial Bank of Commerce as the reference rate of interest then
in effect for loans to customers of varying degrees of credit-worthiness plus
5%, adjusted from time to time to reflect changes in such rate.
"Rent" means Basic Rent and Additional Rent.
-3-
<PAGE>
"Rentable Area", "Gross Rentable Area" and "Net Rentable Area" mean the number
of square feet of floor area determined in accordance with the Landlord's
standard of floor measurement.
"Sales Taxes" means all business transfer, multi-stage sales, sales, use,
consumption, value-added or other similar taxes imposed by the Government of
Canada or any provincial or local government upon the Landlord, or the Tenant or
in respect of this Lease, or the payments made by the Tenant hereunder or the
goods and services provided by the Landlord hereunder including, without
limitation, the rental of the Premises and the provision of administrative
services to the Tenant hereunder.
"Shared Common Facilities" means those Common Facilities serving the Development
and also another part or parts of the Project.
"Taxes" means all taxes, rates, duties, levies, fees, charges, sewer levies,
local improvement rates, and assessments whatsoever, imposed, assessed, levied
or charged now or in the future by any school, municipal, regional, provincial,
federal, parliamentary or other governmental body, corporate authority, agency
or commission (including, without limitation, school boards and utility
commissions), against the Development and/or the Landlord in connection
therewith, but excluding (unless specifically referred to above):
(a) income or profit taxes upon the income of the Landlord to the extent
such taxes are not levied in substitution or in lieu of any of the
foregoing;
(b) business or similar taxes or licence fees in respect of the business
of the Landlord which pertains to the management, operation and
maintenance of the Development (which are included in Other Taxes);
(c) business or similar taxes or licence fees in respect of any business
carried on by tenants and occupants (including the Tenant) of the
Development; and
(d) Capital Tax (which is included in Operating Costs).
"Tenant's Proportionate Share" means a fraction having as its numerator the
Gross Rentable Area of the Premises and as its denominator the Total Rentable
Area of the Building.
"Tenant's Taxes" means the aggregate of:
(a) all taxes which are attributable to the personal property,
furnishings, fixtures and Leasehold Improvements installed in the
Premises; and
(b) all taxes imposed upon the Tenant which are attributable to the
business, income or occupancy of the Tenant or any other occupant of the
Premises and to the use of any of the Common Facilities by the Tenant or
other occupant of the Premises.
"Term" means the term of this Lease as specified in section 3.3.
"Total Rentable Area of the Building" means the aggregate of all Gross Rentable
Area (including the Premises) of the Building excluding the Parking Garage and
all storage areas outside any premises.
"Total Rentable Area of the Project" means the aggregate of all Gross Rentable
Area (including the Premises) in the Project excluding the Parking Garage and
all storage areas outside any premises.
"Work" has the meaning ascribed thereto in section 8.1.
-4-
<PAGE>
ARTICLE 2 GENERAL COVENANTS
2.1 Tenant's Covenants:
The Tenant covenants with the Landlord:
(a) to pay Rent; and
(b) to observe and perform all the covenants and obligations of the
Tenant here in.
2.2 Landlord's Covenants:
The Landlord covenants with the Tenant:
(a) for quiet enjoyment; and
(b) to observe and perform all the covenants and obligations of the
Landlord herein.
ARTICLE 3 DEMISE AND TERM
3.1 Demise of Premises:
The Landlord hereby demises and leases unto the Tenant, and the Tenant hereby
leases from the Landlord, the Premises for the Term and subject to the
provisions of this Lease.
3.2 License Over Certain Common Facilities:
The Landlord hereby grants to the Tenant, its agents, employees, invitees and
other persons transacting business with it, in common with all others entitled
thereto, a license to have the use of certain of the Common Facilities as
designated from time to time by the Landlord, including without limitation the
entrances to the Building, the elevators, stairways, corridors, foyers, lobbies
and lavatories; provided, however, that such use shall be subject to all other
provisions contained in this Lease and to the Landlord's rules and regulations
referred to in section 7.6.
3.3 Term:
TO HAVE AND TO HOLD:
(a) the Initial Premises for a term of eight (8) years (the "Initial
Premises Term") commencing on the 1st day of February, 1994 (the
"Initial Commencement Date") provided that if the Tenant has not
completed its fit-up by the 1st day of January, 1994, the Tenant can
delay the Initial commencement Date by up to thirty (30) days, and,
(b) the Additional Premises for a term of four (4) years (the
"Additional Premises Term") commencing on the 1st day of January, 1998
(the "Additional Commencement Date")
and ending in both instances on the 31st day of December, 2001.
The Initial Term and the Additional Term collectively shall be the "Term".
The Initial Commencement Date and the Additional Date shall collectively be the
"Commencement Date".
-5-
<PAGE>
3.4 Overholding:
If the Tenant occupies any part of the Premises after the expiration or sooner
termination of the Term without the written agreement of the Landlord, the
Tenant shall be deemed to be only a monthly tenant at a monthly basic rent
payable in advance and equal to three times the monthly Basic Rent payable
immediately prior to the overholding plus additional rent equivalent to
Additional Rent hereunder and otherwise on the same terms as herein contained,
except for any rights of the Tenant contained in Article 18, if any; and such
tenancy may be terminated by the Tenant on not less than 20 Business Days=
notice to the Landlord and may be terminated by the Landlord on not less than
one Business Day=s notice to the Tenant. Nothing herein shall limit the
liability of the Tenant in damages or otherwise.
3.5 Leasehold Improvements:
(a) Subject to subsections (b) and (c), upon the determination of this
Lease, all Leasehold Improvements in the Premises, including all fixed
partitions (including floor to ceiling partitions which, although
demountable, involve attachment to any floor, ceiling or permanent wall
such that they cannot be removed without damage to the Premises but
excluding the Tenant's movable partitions such as free-standing
partitions or partial height partitions which can be removed without
damage to the Premises and which shall be deemed to be removable trade
fixtures) shall remain upon and be surrendered with the Premises as a
part thereof without disturbance, molestation or injury, and the same
and any trade fixtures not removed by the Tenant are the property of the
Landlord absolutely, free of any liens or encumbrances and without
payment therefor to the Tenant.
(b) The Landlord may, by notice to the Tenant prior to or promptly after
the determination of this Lease, require the removal forthwith, at the
expense of the Tenant, of any or all of the Tenant's trade fixtures and
Leasehold Improvements and the repair forthwith of any damage to the
Premises or the Development caused by such removal, such work to be done
forthwith by or at the direction of the Landlord and at the expense of
the Tenant. If such notice is given prior to the determination of this
Lease, such removal and repair shall be completed by such determination.
(c) Notwithstanding anything herein contained, provided the Tenant has
paid the Rent hereby reserved and performed and observed all the
covenants and conditions herein contained, the Tenant shall have, at the
determination of this Lease, the right to remove its trade fixtures,
provided that the Tenant repairs by the determination of this Lease, at
its own expense, any damage to the Premises or the Development caused by
such removal, such work to be done by or at the direction of the
Landlord and at the expense of the Tenant.
ARTICLE 4 RENT
4.1 Basic Rent:
The Tenant shall pay to the Landlord, yearly and every year during the Term,
without any set-off, compensation or deduction whatsoever, a Basic Rent in
Canadian dollars as follows:
(a) from the 1st day February of 1994 to the 30th day of April, 1994
zero dollars, and
-6-
<PAGE>
(b) from the 1st day of May 1994 to the 31st day of December, 1997
$52,228.96 annually payable in advance in equal consecutive monthly
instalments of $4,352.41 on the first day of each and every month during
such period, and
(c) from the 1st day of January, 1998 to the 31st day of December, 2001
$139,223.52 annually payable in advance in equal consecutive monthly
instalments of $11,601.96 on the first day of each and every month
during such period.
Basic Rent has been calculated on the basis that the rental rate for the Initial
Premises is $14.00 per annum during the first four (4) years of the Term (except
for the period January 1st, 1994 to March 30, 1994) and for the Premises is
$18.00 per annum during the balance of the Term per square foot of Gross
Rentable Area in the Premises. If there are changes to the Gross Rentable Area
of the Premises, Basic Rent shall be adjusted accordingly.
4.2 Additional Rent:
The Tenant shall pay to the Landlord, during the Term, when due, as Additional
Rent and without duplication:
(a) that portion of Taxes payable by the Tenant pursuant to section 5.3;
(b) the Tenant's Proportionate Share of Operating Costs pursuant to
section 6.1;
(c) all Additional Service Costs payable by the Tenant; and
(d) all other amounts payable by the Tenant pursuant to this Lease.
4.3 Payment of Additional Rent:
The Additional Rent specified in subsections 4.2(a), (b) and (c) shall be paid
and adjusted with reference to a fiscal period of 12 calendar months, which
shall be the 12 month period ending on December 31st in each year during the
Term unless the Landlord, by notice to the Tenant, shall from time to time have
selected a fiscal period which ends on a different date (but which shall be a 12
month period except where a shorter broken fiscal period occurs at the
commencement or end of the Term or is necessary to accommodate a change in the
fiscal period made during the Term). From time to time throughout the Term, the
Landlord shall give notice to the Tenant of the Landlord's estimate of such
Additional Rent to be paid by the Tenant during the next ensuing fiscal period.
Each estimate shall be reasonable. Such Additional Rent payable by the Tenant
shall be paid in monthly instalments in advance at the same time as payment of
Basic Rent is due hereunder and shall be based on the Landlord's estimate as
aforesaid. From time to time the Landlord may re-estimate, on a reasonable
basis, the amount of such Additional Rent for any fiscal period in which case
the Landlord shall give notice to the Tenant of such re-estimate and fix new
monthly instalments for the remaining balance of such fiscal period so that,
after giving credit for the instalments paid by the Tenant on the basis of the
previous estimate or estimates, all the Additional Rent as estimated or
re-estimated will have been paid during such fiscal period.
All Additional Service Costs shall be paid by the Tenant within five days after
receipt by it from time to time of invoices from the Landlord specifying the
amounts thereof.
-7-
<PAGE>
4.4 Adjustment of Additional Rent:
After the end of each fiscal period referred to in section 4.3, the Landlord
shall deliver to the Tenant a statement of the Landlord as to the actual
Additional Rent payable to the Landlord pursuant to subsections 4.2(a), (b) and
(c) in respect of such fiscal period and a calculation of the amount by which
such Additional Rent payable by the Tenant varies from the aggregate instalments
paid by the Tenant on account of such Additional Rent for such fiscal period.
Within 30 days after the receipt of such statement, either the Tenant shall pay
to the Landlord any amount by which the amount found payable by the Tenant with
respect to such fiscal period exceeds the aggregate of the monthly payments made
by it on account thereof or the Landlord shall pay to the Tenant any amount by
which the amount found payable as aforesaid is less than the aggregate of such
monthly payments.
The Tenant shall have the right, exercisable by notice to the Landlord given
within 30 days after receipt of any statement of such Additional Rent submitted
by the Landlord as aforesaid, to verify the accuracy of any amount shown on any
statement by requiring the Landlord to give to the Tenant appropriate
explanations related to such statement.
In the event of any dispute by the Tenant as to the amount of such Additional
Rent payable, a letter of the Landlord's auditors shall be conclusive.
4.5 Apportionment of Rent:
Rent shall be considered as accruing from day to day hereunder. If it is
necessary to calculate Rent for a period of less than one year or less than one
calendar month, an appropriate apportionment and adjustment on a pro rata daily
basis shall be made. Where the calculation of Additional Rent cannot be made
until after the expiration or earlier termination of this Lease, the obligation
of the Tenant to pay such Additional Rent shall survive the expiration or
earlier termination hereof, and such amount shall be paid by the Tenant to the
Landlord forthwith upon demand. If the Term commences on any day other than the
first day of the month, Rent for such fraction of a month shall be adjusted, as
aforesaid, and paid by the Tenant on the commencement date of the Term.
4.6 No Right of Set-off:
The Tenant expressly waives the benefits of section 35 of the Landlord and
Tenant Act R.S.0 1980, Chapter 232 and any amendments thereto and any present or
future enactment of the Province of Ontario permitting the Tenant to claim a
set-off against Rent for any cause whatsoever.
4.7 Additional Rent Deemed Rent:
All Additional Rent shall be deemed to be rent and the Landlord shall have all
rights against the Tenant for default in payment of Additional Rent as for
default in the payment of Basic Rent.
4.8 Interest on Arrears:
If the Tenant fails to pay Rent when due, the Tenant shall pay interest on the
unpaid amount at the Rate of Interest from the date due until the date paid,
without prejudice to and in addition to any other remedy available to the
Landlord under this Lease or at law.
-8-
<PAGE>
4.9 Net Lease to Landlord:
This Lease and the Rent payable hereunder shall be absolutely net to the
Landlord, except as expressly provided herein. Any obligation which is not
stated to be that of the Landlord shall be deemed to be that of the Tenant.
ARTICLE 5 TAXES
5.1 Landlord's Taxes:
The Landlord shall pay when due to the taxing authority or authorities having
jurisdiction all Landlord's Taxes.
5.2 Tenant's Taxes and Sales Taxes:
(a) The Tenant shall pay when due, to the taxing authority or
authorities having jurisdiction, all Tenant's Taxes.
(b) The Tenant shall pay to the Landlord when due all Sales Taxes
imposed on the Landlord or the Tenant with respect to Rent payable by
the Tenant hereunder or in respect of the rental of space under this
Lease.
5.3 Tenant's Contribution to Taxes:
(a) The Tenant shall, in respect of each calendar year included in whole
or in part within the Term, pay to the Landlord an amount to cover the
Taxes that are fairly attributable to the Premises for such calendar
year, such amount to be determined by the Landlord acting reasonably. If
there are separate assessments (or, in lieu thereof, calculations made
by authorities having jurisdiction from which separate assessments may,
in the Landlord's opinion, be readily determined) for the Premises for
tax purposes, the Landlord shall use same for purposes of determining
the amount payable by the Tenant pursuant to this subsection (a). The
Tenant shall provide the Landlord with a copy of any separate notices of
assessment for the Premises which the Tenant has received. If there are
no such separate assessments or calculations, the Tenant shall pay the
Tenant's Proportionate Share of all taxes attributable to the
development provided that if the Landlord acting reasonably determines
that another method of calculating the Tenant's contribution to Taxes is
appropriate, such other method shall be used.
(b) The Tenant shall, in respect of each calendar year included in whole
or in part within the Term, pay to the Landlord the amount by which
Taxes are increased above the Taxes which would have otherwise been
payable as a result of the Premises or the Tenant or any other occupant
of the Premises being taxed or assessed in support of separate schools.
(c) Payment by the Tenant of all amounts on account of Taxes shall be
governed by sections 4.3 and 4.4.
-9-
<PAGE>
5.4 Payments:
(a) The Landlord may postpone any payment payable by it pursuant to
section 5.1, and the Tenant may postpone any payment payable by it
directly to a taxing authority (but not to the Landlord) pursuant to
this Article in each case to the extent permitted by law and if
prosecuting in good faith any appeal against the imp sition thereof, but
provided that in the case of a postponement by the Tenant which involves
any risk of the Development or any part thereof or the Landlord becoming
liable to assessment, prosecution, fine or other liability, the Tenant
shall have given security in a form and of an amount satisfactory to the
Landlord in respect of such liability and such undertakings as the
Landlord may reasonably require to ensure payment thereof.
(b) Whenever requested by the Landlord, the Tenant shall deliver to the
Landlord receipts for payment of all amounts owing by the Tenant
pursuant to section 5.2 and furnish such other information in connection
therewith as the Landlord may reasonably require.
ARTICLE 6 SERVICES, COMMON FACILITIES
6.1 Tenant's Contribution to Operating Costs:
(a) The Tenant shall, throughout the Term, pay to the Landlord the
Tenant's Proportionate Share of Operating Costs.
(b) Payment by the Tenant of all amounts on account of the Tenant's
Proportionate Share of Operating Costs shall be governed by sections 4.3
and 4.4.
6.2 Operation of Regular HVAC System:
The Landlord shall operate the heating, ventilating and air-conditioning
equipment and systems serving the Premises so as to provide conditions of
adequate comfort in the Premises during Business Hours except during the making
of repairs, inspections, overhauling or replacement.
If such equipment or systems are damaged or destroyed, or, in the opinion of the
Landlord, require repair, inspection, overhauling or replacements the Landlord
shall carry out such work with all reasonable diligence. The Landlord shall not
be responsible for any loss, damages or costs arising from the failure of such
equipment or systems to perform their function. In addition, the Landlord shall
not be responsible for the failure of such equipment and systems to perform
their function if the number of persons in the Premises at any one time exceeds
a reasonable number or if the electrical load from lights and power in the
Premises is excessive or if such failure results from any arrangement of
partitioning in the Premises or change or alteration thereto or if the window
covering on exterior windows is not kept fully closed while the windows are
exposed to direct sunlight or if any use of mechanical or electrical equipment
installed in the Premises generates heat in excess of amounts specified in the
Building Standard, all as determined by the Landlord acting reasonably. The
Landlord shall not be liable for direct, indirect or consequential damage or
damages for personal discomfort or illness of the Tenant or its employees,
invitees or other persons transacting business with it by reason of the
operation or non-operation of such systems and equipment. In no event shall Rent
abate during any non-operation.
-10-
<PAGE>
6.3 Additional HVAC:
The Tenant may, upon two days' prior notice to the Landlord, request the
Landlord to provide any service mentioned in section 6.2 to the Premises or any
portion or portions thereof during such non Business Hours as the Tenant
specifies. The Landlord may provide such service and charge the Tenant, as an
Additional Service Cost, the reasonable hourly rate for each hour or part
thereof that such service is provided, such hourly rate to be determined by the
Landlord and to comprise all additional costs incurred in providing such
service.
6.4 Electricity and Other Utilities:
(a) The Landlord shall furnish to the Premises electricity for lighting
and for office equipment capable of operating from the circuits
available and standard to the Building. The Landlord shall also replace,
maintain and repair as and when required all electric light bulbs,
fluorescent tubes and ballasts initially supplied in the Premises and
provide the necessary maintenance and repair of fluorescent and other
Building Standard lighting fixtures located in the Premises.
(b) The Tenant shall pay all charges for excess electricity and other
excess utilities provided to the Premises. The charges for excess
electricity and other excess utilities used in the Premises shall be
determined by the Landlord or its agent using a reasonable method of
calculation which has been communicated to the Tenant.
(c) At the option of the Landlord, the Landlord shall have the right to
install, at the Tenant's sole expense, separate meters as specified by
the Landlord for measuring consumption of energy in the Premises.
6.5 Operation of Common Facilities:
Except as otherwise provided in this Article, the Landlord shall operate,
maintain, clean, light, heat, ventilate and air-condition and supervise and
regulate the Building Common Facilities and the Shared Common Facilities as a
reasonably prudent owner would do having regard to the type and age of the
Development.
All Building Common Facilities and Shared Common Facilities shall be subject at
all times to the exclusive control and management of the Landlord. The Landlord
shall be entitled to operate and police the same, to change the area and
location thereof, to employ all personnel and to make all rules and regulations
necessary for the proper operation and maintenance thereof, and to do such other
acts with respect thereto as the Landlord, acting reasonably, shall determine to
be advisable; provided, however, that the Tenant, unless deprived by reasons
beyond the Landlord's control, shall have the use of such of the Building Common
Facilities as are reasonably necessary for the use of the Premises.
-11-
<PAGE>
6.6 Janitorial Services:
(a) The Landlord shall provide to the Premises normal office cleaning
services of a standard (both as to extent and frequency) as a reasonably
prudent owner would do having regard to the type and age of the
Development, the cost of which is to form a part of Operating Costs.
Such services shall include, but not be limited to, causing periodically
as may be appropriate or necessary in keeping with such standard the
floors of the Premises to be swept, the interior surface of the exterior
windows of the Premises to be cleaned, the desks, tables, other
furniture and venetian blinds, if any, in the Premises to be dusted and
any broadloom in the Premises to be vacuumed. Cleaning in the Premises
in addition to the foregoing standard (such as, for example, the washing
of carpets and the dry-cleaning of drapes) shall be the responsibility
of the Tenant, although the Landlord shall have the right to elect to
provide such additional cleaning at the Tenant's expense, as provided in
subsection (c).
(b) The Tenant acknowledges that the Landlord will be relieved from its
cleaning obligation as provided in subsection (a) in respect of any part
of the Premises to which access is not granted to the person or persons
retained to perform such work.
(c) If the Tenant desires any janitor or cleaning services for the
Premises in addition to those contemplated by subsection (a) and if the
Landlord from time to time elects, acting reasonably, to provide
exclusively (either directly or through agents or contractors designated
by it) such additional services or if the Landlord supervises the moving
of furniture or equipment of the Tenant or the making of deliveries to
or from the Premises, such additional services referred to in this
subsection shall be treated as Additional Services and all reasonable
Additional Service Costs shall be paid by the Tenant to the Landlord
forthwith after demand.
(d) The Tenant acknowledges that the Landlord shall not be responsible
for any omission or act of commission on the part of the person or
persons employed or retained to perform the cleaning services referred
to in this section or for any loss thereby sustained by the Tenant, the
Tenant's employees, agents, invitees or others.
<PAGE>
6.7 Security Services:
(a) The Landlord may provide security services for the Building so as to
use best efforts to ensure that access to the Building during other than
Business Hours shall be restricted to those persons entitled to be
allowed entry to the Building, provided they comply with the
requirements established by the Landlord.
(b) The Tenant acknowledges that the Landlord shall not be responsible
for any omission or act of commission on the part of any person employed
or retained to provide security service pursuant to this section or for
any loss thereby sustained by the Tenant, the Tenant's employees,
agents, invitees or others.
6.8 Interruption in Services:
The Landlord has the right to stop the use of any facilities and the supply of
any services when necessary by reason of accident or during the making of
repairs, replacements, alterations or improvements, in the judgment of the
Landlord necessary or desirable to be made, until the repairs, replacements,
alterations or improvements have been completed to the satisfaction of the
Landlord provided that all reasonable steps shall be taken to minimize any
interference with the Tenant's use and enjoyment of the Premises, both as to the
extent and duration of such interference. The Landlord shall have no
responsibility or liability for failure to operate any facilities or supply any
services when the use of the facility is stopped as aforesaid or when the
Landlord is prevented from using the facility or supplying the service by
strike, or by orders or regulations of any governmental authority or agency or
by failure of the electric current, gas, steam or water supply necessary to the
operation of any facility or by the failure to obtain such a supply or by any
other cause beyond the Landlord's reasonable control.
-12-
<PAGE>
6.9 Energy Conservation:
The Tenant shall comply with any measures the Landlord or any governmental
authority may from time to time introduce to conserve or to reduce consumption
of energy or to reduce or control other Operating Costs or pay as Additional
Rent the cost, to be estimated by the Landlord acting reasonably, of the
additional energy consumed by reason of such non-compliance. The Tenant shall
also convert to whatever system or units of measurement of energy consumption in
the Premises that the Landlord may from time to time adopt.
6.10 Pest Control by Tenant:
The Tenant agrees to institute and carry out and maintain, at its own expense,
such pest control measures in the Premises as the Landlord reasonably requires.
Upon notice from the Landlord, such pest control measures in the Premises shall
be carried out by the Landlord at the Tenant's expense.
ARTICLE 7 USE AND OCCUPANCY OF PREMISES
7.1 Use of Premises:
The Tenant shall use the Premises solely for the business office purpose being
carried on at the commencement of the Term, namely: * (*General Business Office)
Tenant shall not use or permit the Premises to be used for any other purpose.
Without limiting the generality of the foregoing, the Tenant shall not use or
permit the Premises to be used such that the number of persons entering the
Premises is likely to exceed that of ordinary business offices.
7.2 Waste and Nuisance:
The Tenant shall not carry on any business or do or suffer any act or thing
which may constitute or result in a nuisance to the Landlord or to other tenants
of the Development, or do or suffer any waste or damage to the Premises or the
Development.
7.3 No Overloading of Premises or Common Use Equipment:
The Tenant shall not permit or allow any overloading of the floors of the
Premises or the bringing into any part of the Premises of any articles or
fixtures that by reason of their weight or size might damage or endanger the
structure of the Premises or the Building. The Tenant shall not permit or allow
anything that might result in any overloading of or damage to any of the Common
Use Equipment.
-13-
<PAGE>
7.4 Insurance Cancellation or Increase:
The Tenant shall not do or omit to do or permit to be done or omitted to be done
in the Premises anything which would cause any policy of insurance on the
Project or the Development to be subject to cancellation or non-renewal or which
would cause an increase in the cost of any insurance which the Landlord is
obligated by this Lease to maintain. Upon any default by the Tenant which would
result in cancellation or non-renewal or an increased cost which the Tenant does
not pay, the Landlord may, at its option, terminate this Lease on 10 days=
notice to the Tenant. Without limiting the foregoing, the Tenant shall pay to
the Landlord, forthwith upon demand, the amount of any such increase in cost.
If any insurance policy is cancelled or threatened by the insurer to be
cancelled or the coverage thereunder is altered in any way because of the use or
occupation of the Premises by the Tenant or by any person for whom the Tenant is
in law responsible, and if the Tenant fails to remedy the condition giving rise
to the cancellation, threatened cancellation or alteration in coverage within 48
hours (or such lesser period as the Landlord acting reasonably may determine,
having regard to the urgency of the situation) after notice to ~he Tenant of
such cancellation or proposed cancellation or alteration, the Landlord may, (but
shall not be obligated to), without further notice or any liability to the
Tenant or any other occupant of the Premises, enter the Premises arid attempt to
remedy such condition or obtain or attempt to obtain insurance coverage in
replacement of the coverage cancelled, threatened to be cancelled or altered in
coverage; and the Tenant shall pay to the Landlord, forthwith upon demand, the
costs associated therewith.
7.5 Observance of Law by Tenant:
The Tenant shall, at its expense, promptly comply with and conform to the
requirements of every applicable statute, law, by-law, regulation, ordinance and
order at any time or from time to time in force during the Term affecting the
Tenant's use of the Premises or any part thereof and/or the business carried on
therein and/or the Leasehold Improvements, trade fixtures, furniture, machinery,
equipment and other facilities located in the Premises and/or any other part of
the Development affected by the Tenant's actions in the Premises.
7.6 Rules and Regulations:
The Tenant shall observe and perform, and shall cause its employees, agents,
invitees and others over whom the Tenant can reasonably be expected to exercise
control to observe and perform the Rules and Regulations attached hereto as
Schedule C and such other rules and regulations or amendments as may be made
from time to time by the Landlord acting reasonably and of which notice has been
given by the Landlord to the Tenant.
The Tenant acknowledges that the Rules and Regulations, as from time to time
amended or replaced, are not necessarily of uniform application but may be
waived in whole or in part in respect of other tenants without affecting their
enforceability with respect to the Tenant and the Premises, and may be waived in
whole or in part with respect to the Premises without waiving them as to future
application to the Premises, and the imposition of such Rules and Regulations
shall not create or imply any obligation of the Landlord to enforce them.
-14-
<PAGE>
In any conflict between a provision of this Lease and any of the Rules and
Regulations, the provision of this Lease shall govern.
7.7 Signs:
The Tenant shall not erect any sign or advertising material or inscribe anything
upon any part of the exterior of the Building, or upon the exterior or interior
surfaces of any exterior window or door to the Premises or upon the exterior of
any demising walls, or upon any Common Facilities of the Building, except the
usual tenant identification on the directory board as designated by the Landlord
and except for a sign on the door leading to the Premises which sign shall be
consented to by the Landlord, acting reasonably and all of which are in
accordance with the Building Standard. All such signage shall be installed by
the Landlord at the Tenant's expenses.
7.8 Name of Development/Project:
The Tenant shall, in referring to the Development or the Project, use only the
name AConstitution Square@ or such other name as is designated from time to time
by the Landlord and of which notice has been given by the Landlord to the
Tenant.
ARTICLE 8 ALTERATIONS
8.1 Alterations by Tenant:
(a) The Tenant shall not, without the prior consent of the Landlord,
make, erect, alter or install any Leasehold Improvements or other
alterations or installations to the Premises (the AWork@).
(b) If the Tenant wishes to have any Work done in the Premises, the
Tenant shall apply for the Landlord's consent and furnish such plans,
specifications and designs as shall be necessary to fully describe the
Work. The Landlord's consent thereto shall not be unreasonably withheld
or delayed; provided that, without limitation, any refusal to grant
consent based on grounds that such Work is not in compliance with the
Building Standard or that the Tenant has not posted security with the
Landlord shall be conclusively deemed not to be an unreasonable
withholding of consent.
(c) Subject to the Landlord's consent having been obtained and the
Landlord's reasonable requirements (including the posting of reasonable
security, if requested) being met, the Landlord recognizes the right of
the Tenant to install such interior partitions and other Leasehold
Improvements as are necessary or appropriate to its use and occupancy of
the Premises.
(d) Any Work shall, if the Landlord so elects, be performed by the
Landlord or by contractors who have been designated by the Landlord and
who have contracted directly with the Tenant and agreed to carry out
such Work in a good and workmanlike manner and at a cost to the Tenant
equal to the Landlord's or contractor=s cost plus 10% for supervision
and 10% for profit. In the absence of any such election by the Landlord,
such Work may be performed by contractors retained by the Tenant
pursuant to written contracts which have been approved by the Landlord
(such approval not to be unreasonably withheld) and are subject to all
reasonable conditions which the Landlord imposes. In either event, the
Landlord shall have the right to inspect such Work and require any Work
not being properly done to be corrected, and to approve on a reasonable
basis (which may include considerations involving trade union
affiliations or the lack of them and work jurisdiction, where in the
opinion of the Landlord there is a risk of labour disputes which might
adversely affect the Landlord) the contractors, tradesmen or the
Tenant's own employees (as the case may be) employed by the Tenant in
connection therewith.
-15-
<PAGE>
(e) The Tenant shall pay to the Landlord, within 10 days after the
receipt of the Landlord's invoice, the Landlord's reasonable
out-of-pocket costs incurred in examining and approving the Tenant's
plans, specifications and designs and in inspecting the Work and any
additional expenses actually incurred by the Landlord in connection with
such Work together with a coordination and supervision fee equal to 10%
of the total cost to the Tenant of such Work.
(f) On each anniversary of the first day of the Term, the Tenant shall
provide to the Landlord a complete set of up-to-date drawings of the
Premises including without limitation all electrical, mechanical and
architectural drawings.
8.2 Air-Balancing:
The Tenant agrees that it will, at the commencement of the Term and periodically
throughout the Term including, without limitation, whenever any alterations are
made to the Premises, balance the air movement in the Premises at the Tenant's
expense and for this purpose use the air-balancer designated by the Landlord.
8.3 No Financing by Tenant of Leasehold Improvements:
The Tenant shall not create any lien, mortgage, charge, conditional sale
agreement or other encumbrance in respect of its Leasehold Improvements or,
without the consent of the Landlord, with respect to its trade fixtures; nor
shall the Tenant take any action as a consequence of which any such prohibited
lien, mortgage, charge, conditional sale agreement or other encumbrance would
attach to the Premises or to the Development.
8.4 Liens:
(a) In connection with the making, erection, installation or alteration
of Leasehold Improvements and trade fixtures and all other work or
installations or alterations made by or for the Tenant in the Premises,
the Tenant shall comply with every applicable statute, law, by-law,
regulation, ordinance and order affecting the same and affecting the
Development as a result of the actions of the Tenant including, without
limitation, the Construction Lien Act of Ontario, and any other statutes
from time to time applicable thereto (including any provision requiring
or enabling the retention by way of holdback of portions of any sums
payable) and, except as to any such holdback, shall promptly pay all
accounts relating thereto.
(b) Whenever any construction or other lien for work, labour, services
or materials supplied to or for the Tenant or for the cost of which the
Tenant may be in any way liable or claims therefor shall arise or be
filed or any prohibited mortgage, charge, conditional sale agreement or
other encumbrance shall attach, the Tenant shall within five days after
receipt of notice thereof procure and register the discharge thereof,
including any certificate of action registered in respect of any lien,
by payment or in such other manner as may be required or permitted by
law, and failing which the Landlord may make any payments required to
procure and register the discharge of any such liens or encumbrances,
including any certificate of action registered in respect of any lien,
and shall be entitled to be reimbursed by the Tenant as provided in
section 15.3, and its right to reimbursement shall not be affected or
impaired if the Tenant shall then or subsequently establish or claim
that any lien or encumbrance so discharged was without merit or
excessive or subject to any abatement, set-off or defence.
-16-
<PAGE>
(c) The Landlord and the Tenant agree that any Work done in the Premises
during the Term by or on behalf of the Tenant shall not be done and
shall be deemed not to have been done at the request of the Landlord. If
any contractor with respect to any Work gives notice to the Landlord
pursuant to section 19 of the Construction Lien Act of Ontario, the
Landlord shall have the right to refuse to assume responsibility.
8.5 Alterations by Landlord:
The Landlord may from time to time at its own expense make alterations to the
Project or any part thereof including the Premises and alterations to or
relocations of the Common Facilities provided that:
(a) the Premises shall not be altered or interfered with in any material
way;
(b) access and services to or benefiting the Premises shall not be
reduced or interrupted (except to the extent which is temporary,
reasonable and unavoidable during the making of repairs or renovations);
and
(c) any alteration shall be such that a reasonably prudent owner of the
Project would make having regard to the type and age of the Project.
ARTICLE 9 REPAIRS
9.1 Landlord's Repairs:
Subject to section 9.5 and except as provided in section 9.2, the Landlord shall
repair and maintain and may, if it so chooses, replace:
(a) the Building including all the external and structural parts of the
Building but excluding any parts thereof which comprise the whole or a
part of the Premises or premises leased to others;
(b) Insured Damage; and
(c) the Common Facilities;
all reasonable dispatch and in a good and workmanlike manner, and so as to keep
the same in good condition and repair.
9.2 Tenant's Repairs:
Subject to section 9.5, the Tenant shall, at its expense and throughout the
Term, keep the Premises and the Leasehold Improvements and trade fixtures
therein and all electrical and telephone outlets and conduits and all mechanical
and electrical equipment within the Premises in good condition and repair,
Insured Damage and repairs which the Landlord is otherwise obliged to repair
only excepted. The Tenant shall also reimburse the Landlord for the cost of
making good any damage to the Development caused by the Tenant. All repairs by
the Tenant shall be subject to section 8.1.
-17-
<PAGE>
9.3 Entry by Landlord to View State of Repair:
The Landlord shall be entitled to enter and view the state of repair of the
Premises. The Tenant will repair, according to notice, as specified in section
9.2.
9.4 Notice of Defects:
The Tenant shall give to the Landlord prompt notice of any defect in the
plumbing or utility systems and equipment or any damage to the Premises or any
part thereof howsoever caused; provided that nothing herein shall be construed
so as to require repairs to be made by the Landlord except as expressly provided
in this Lease.
9.5 Termination or Abatement after Damage:
(a) If and whenever the Premises are destroyed or damaged by any cause
to the extent that, in the Landlord's reasonable opinion to be given in
writing to the Tenant within 60 days after the occurrence of such damage
or destruction, they are unable to be repaired or rebuilt within 180
days after such destruction or damage, then either the Landlord or the
Tenant may terminate this Lease by notice to the other, to be given
within 30 days after the giving of the Landlord's written opinion above
referred to, and the Tenant shall immediately thereupon surrender the
Premises and this Lease to the Landlord and Rent shall be apportioned to
the date of such destruction or damage (subject to the payment of Rent
from the date of such destruction or damage to the date of surrender in
the same proportion that the part of the occupiable area of the Premises
fit for occupancy by the Tenant until such surrender is to the total
occupiable area of the Premises).
(b) If and whenever all or any portion of the Building is destroyed or
damaged by reason of any cause (whether or not such portion includes all
or any part of the Premises) to such extent that:
(i) in the Landlord's reasonable opinion to be given to the
Tenant in writing within 60 days after the occurrence of such
damage or destruction, it is unable to be repaired or rebuilt
within 180 days after such destruction or damage; or
(ii) the estimated cost (as estimated by the Landlord) of
repairing or rebuilding the Building exceeds the proceeds of
insurance available to the Landlord for such purpose (or
which would have been available if the Landlord had insured
in compliance with section 10.1);
the Landlord may terminate this Lease upon not less than 30 days' prior written
notice to the Tenant, given within 60 days after the happening of such
destruction or damage, and the Tenant shall immediately thereupon surrender the
Premises and this Lease to the Landlord; and
(iii) if and to the extent that such destruction or damage has
rendered the Premises in whole or in part unfit for occupancy
by the Tenant, Rent shall abate from the date of such
destruction or damage to the date of surrender in the same
proportion that the part of the occupiable area of the
Premises unfit for occupancy is to the total occupiable area
of the Premises; and
(iv) otherwise Rent shall be apportioned to the date of surrender.
-18-
<PAGE>
(c) If and whenever the Premises are destroyed or damaged by reason of
any cause and this Lease shall not have been terminated, the Landlord
shall, with all reasonable diligence, make the repairs specified in
section 9.1 and the Tenant shall, with all reasonable diligence and in
compliance with section 8.1, make all repairs to the Premises specified
in section 9.2 and complete the Premises for occupancy for the purpose
described in section 7.1 and in compliance with subsection 7.5(b). If as
a result of any destruction or damage to the Premises which the Landlord
is obligated to repair pursuant to section 9.1, and which is not the
fault of the Tenant or those for whom it is in law responsible and which
does not consist of merely a temporary interruption of or interference
with any utility, service or access, the Premises are rendered in whole
or in part unfit for occupancy by the Tenant, then during the period
commencing on the occurrence of such destruction or damage and ending
upon the earlier of:
(i) the date when both the repairs to the Premises which the
Landlord is obligated to make as aforesaid are completed
sufficiently to enable the Tenant to commence its repairs,
and the Tenant has been allowed a reasonable period of time
which is sufficient for the completion by it of the repairs
it is obligated to make as aforesaid with due diligence; and
(ii) the date upon which no insurance proceeds are available to
the Landlord under its loss of rental income insurance
coverage in respect of the Premises (other than by reason of
the Landlord not carrying the insurance as set out in section
10.1);
Rent shall from time to time abate in the same proportion that the part of the
occupiable area of the Premises from time to time rendered unfit for such
occupancy by reason of such destruction or damage is to the total occupiable
area of the Premises.
9.6 No claim by Tenant:
Except in respect of abatement of Rent as provided for in this Article, no claim
for compensation or damages, direct or indirect shall be made by the Tenant by
reason of the loss of use, inconvenience or otherwise arising from the necessity
of repairing any portion of the Development however the necessity may arise so
long as any such repair to be carried out by the Landlord is carried out with
reasonable diligence.
9.7 Tenant to Leave Premises in Good Repair:
The Tenant shall leave the Premises and (subject to section 3.5) the Leasehold
Improvements, at the expiration or other termination of the Term, in the
condition and repair required of the Tenant under section 9.2.
9.8 No Hazardous Substances:
The Tenant agrees not to install or use in the Premises any hazardous substances
including, without limitation, asbestos, PCBs or propane.
-19-
<PAGE>
ARTICLE 10 INSURANCE AND LIABILITY
10.1 Landlord's Insurance:
Subject to its general availability, the Landlord shall effect and maintain
during the Term:
(a) "all risks" property insurance which shall insure the Development
(other than any Leasehold Improvements) on a full replacement cost basis
against loss or damage by perils now or hereafter from time to time
embraced by or defined in a standard all risks insurance policy;
(b) boiler and machinery insurance on objects defined in a standard
comprehensive boiler and machinery policy against accidents as defined
therein;
(c) loss of rental income insurance in an amount sufficient to replace
all Basic Rent and Additional Rent payable under the provisions of this
Lease for an indemnity period determined by the Landlord;
(d) comprehensive general liability insurance covering claims for
personal injury and property damage arising out of all operations in
connection with the management and administration of the Development;
and
(e) such other coverage, or increases in the amount of coverage, as the
Landlord may consider necessary.
For greater certainty, the Tenant acknowledges that the Landlord is not
obligated to insure Leasehold Improvements in the Premises. The insurance to be
maintained by the Landlord shall be that which would be carried by reasonably
prudent owners of properties similar to the Development, all as from time to
time determined by insurance advisers selected by the Landlord, and whose
opinion shall be conclusive. In the alternative, the Landlord shall have the
option of self-insuring.
Notwithstanding the above, the Tenant acknowledges that the Tenant shall remain
responsible for its negligence and the negligence of all persons for whom it is
at law responsible and that no insurable interest is conferred upon the Tenant
under any of the Landlord's insurance policies and that the Tenant shall have no
right to recover any proceeds thereunder or claim any right or title to such
proceeds.
<PAGE>
10.2 Tenant's Insurance:
The Tenant shall, at its own expense, take out and keep in force during the Term
and such other times as the Tenant is in occupation or possession of the
Premises or any part thereof:
(a) comprehensive insurance of the type commonly called general public
liability, which shall include coverage for personal injury, broad
blanket contractual liability, employer's liability, owner's protective
liability, all risks Tenant's legal liability, non-owned automobile
liability, bodily injury, death and property damage, all on an
occurrence basis with respect to the business carried on in the Premises
and the Tenant's use and occupancy of the Premises and its use of the
Common Facilities or of any other part of the Building, with coverage
for any one occurrence or claim of not less than $5,000,000 or such
other amount as the Landlord may from time to time reasonably require
upon not less than 30 days' notice at any time during the Term, which
insurance shall contain a severability of interest clause and a
cross-liability clause;
(b) "all-risks" property insurance covering the Leasehold Improvements
and other items excluded from the definition of Leasehold Improvements,
trade fixtures, and the furniture and equipment in the Premises on a
full replacement basis, with an agreed amount co-insurance clause and
by-law endorsement and which insurance shall provide that any proceeds
recoverable with respect to Leasehold Improvements shall be payable to
the Landlord (but the Landlord agrees to make available such proceeds
toward the repair or replacement of the insured property if this Lease
is not terminated pursuant to any other provisions hereof); and
-20-
<PAGE>
(c) insurance against such other perils and in such amounts as the
Landlord or any mortgagee of the Landlord or the Tenant may from time to
time reasonably require upon not less than 60 days' notice, such
requirement to be made on the basis that the required insurance is
customary at the time in the City of Ottawa for tenants of buildings
similar to the Building.
10.3 Form of Tenant's Insurance:
All insurance required to be maintained by the Tenant hereunder shall be on
terms and with insurers to which the Landlord has no reasonable objection. Each
policy shall (a) contain a waiver by the insurer of any rights of subrogation or
indemnity or any other claim to which the insurer might otherwise be entitled
against the Landlord or the directors, officers, agents or employees of the
Landlord, (b) name the Landlord and its directors, officers, agents and
employees as additional insureds, (c) be primary, noncontributory with and not
excess of any insurance available to the Landlord and (d) contain an undertaking
by the insurer that no material change adverse to the Landlord or the Tenant
will be made and the policy will not lapse or be cancelled or not be renewed,
except after not less than 30 days' prior written notice by registered mail to
the Landlord of the intended change, lapse, cancellation or non-renewal. The
Tenant shall furnish to the Landlord certified copies of the policies of
insurance from time to time effected by the Tenant -and its renewal or
continuation in force, together with evidence as to the method of determination
of full replacement cost of the Tenant's Leasehold Improvements and other items
excluded from the definition of Leasehold Improvements, trade fixtures,
furniture and equipment. If the Landlord reasonably concludes that the full
replacement cost has been underestimated, the Tenant shall forthwith arrange for
any consequent increase in coverage required under section 10.2. If the Tenant
fails to take out, renew or keep in force such insurance, or if the policies
submitted to the Landlord pursuant to the preceding sentence are unacceptable to
the Landlord (or no such policies are submitted within a reasonable period after
request therefor by the Landlord), then the Landlord may give to the Tenant
notice requiring compliance with this section and specifying the respects in
which the Tenant is not then in compliance with this section. If the Tenant does
not, within 72 hours (or such lesser period as the Landlord may reasonably
require having regard to the urgency of the situation), provide appropriate
evidence of compliance with this section, the Landlord may (but shall not be
obligated to) obtain some or all of the additional coverage or other insurance
which the Tenant shall have failed to obtain, without prejudice to any other
rights of the Landlord under this Lease or otherwise, and the Tenant shall pay
all premiums and other costs incurred by the Landlord forthwith upon demand.
10.4 Release of Landlord by Tenant:
The Tenant agrees that neither the Landlord nor its directors, officers, agents,
employees or any others for whom the Landlord is at law responsible shall be
liable to any extent for any personal injury or death of, or loss or damage to
any property belonging to the Tenant or its employees, invitees or licensees or
any other person in, on or about the Development unless resulting from the
actual gross negligence of the Landlord (but only to the extent of such actual
gross negligence). Notwithstanding the foregoing, in no event shall the Landlord
or its directors, officers, agents, employees or any others for whom the
Landlord is at law responsible be liable for (and the Tenant hereby releases the
Landlord and its directors, officers, agents, employees and any others for whom
the Landlord is at law responsible from):
(a) any damage which is caused by steam, water, rain or snow which may
leak into, issue or flow from any part of the Development or from the
pipes or plumbing works, including the sprinkler system, thereof, or
from any other place or quarter, or for any damage caused by or
attributable to the condition or arrangement of any electric or other
wiring or of sprinkler heads, or for any damage caused by anything done
or omitted by any other tenant;
-21-
<PAGE>
(b) any act or omission (including theft, malfeasance or negligence) on
the part of any. agent, contractor or person from time to time employed
by it to perform janitorial services, security services, supervision or
any other work in or about the Premises or the Development;
(c) loss or damage, however caused, to money, securities, negotiable
instruments, papers or other valuables of the Tenant; or
(d) loss or damage for which the Tenant does or is required to carry
insurance.
10.5 Indemnity of Landlord by Tenant:
The Tenant shall indemnify and save harmless the Landlord and its directors,
officers, agents and employees against and from any and all expenses, costs,
damages, suits, actions or liabilities arising or growing out of any default by
the Tenant hereunder, and from all claims and demands of every kind and nature
made by any person or persons to or against the Landlord and/or its directors,
officers, agents and employees, for all and every manner of costs, damages or
expenses incurred by or injury or damage to such person or persons or his, her
or their property, which claims or demands may arise howsoever out of the use
and occupation of the Premises by the Tenant or any subtenant or occupant
authorized by the Tenant or by any assignee or sublessee thereof or any of the
above-mentioned or his, her or their servants, agents, assistants, employees,
invitees or other persons entering into the Building to go to the Premises or
any part thereof, and from all costs, counsel fees, expenses and liabilities
incurred in or about any such claim or any action or proceeding brought thereon.
ARTICLE 11 ASSIGNMENTS, ETC. BY TENANT AND TRANSFERS ETC. BY LANDLORD
11.1 Assignments, Subleases, Charges by Tenant:
(a) The Tenant shall not assign this Lease or sublet all or any part of
the Premises or in any way charge, encumber or pledge this Lease or its
interest therein without the consent of the Landlord which shall not be
unreasonably withheld. Without limiting the foregoing, it shall
institute reasonable grounds for any withholding of consent by the
Landlord that, in the Landlord's opinion, (i) the proposed assignee or
subtenant does not have a satisfactory financial condition having regard
to the obligations which it will assume as assignee or subtenant, or
(ii) the proposed assignee or subtenant is a tenant or subtenant of
other space in the Project or (iii) the proposed assignee or subtenant
does not have an established good reputation in the business community,
or (iv) the proposed assignee or subtenant is a Consulate, Embassy,
Trade Commission or other representative of a foreign government, or (v)
where the Premises are intended to be used as medical, dental,
government or quasi government offices, or (vi) it is reasonably
anticipated by the Landlord that the number of persons visiting the
Premises will substantially increase as a result of the proposed
assignment or subletting, or (vii) it is intended or likely that it will
use any part of the Premises for purposes which are not permitted by
this Lease or which are not acceptable to the Landlord, acting
reasonably, or which are not compatible with the other businesses or
activities which are being carried on in the Development or which
contravene any restriction on use in the Building or (viii) where the
return to the Tenant on any proposed assignment or subletting is greater
than the amounts payable by the Tenant hereunder and the Tenant has not
agreed to pay such excess to the Landlord. The Landlord shall be
entitled to withhold consent to assign or sublet arbitrarily where it
exercises its right to termination pursuant to section 11.2.
-22-
<PAGE>
(b) Without limitation, the Tenant shall be deemed to have assigned or
sublet in any case where it permits the Premises or any portion thereof
to be occupied by a person or persons other than the Tenant, its
employees and others engaged in carrying on the business of the Tenant,
whether pursuant to assignment, subletting, license or other right, and
shall also include any case where any of the foregoing occurs by
operation of law and, so often as same shall occur, the Tenant shall
give notice to the Landlord and the provisions of this section and
section 11.2 shall apply, mutatis mutandis.
(c) If the Tenant (or any permitted assignee thereof) is a corporation,
then the Tenant shall be deemed to have assigned or sublet in any case
where such number of shares of such corporation or of any parent or
affiliate of such corporation are issued or transferred, whether by
operation of law or otherwise, so as to result in a change in the
effective control of such corporation then, and so often as such a
change of control shall occur, the Tenant shall give notice to the
Landlord and the provisions of this section and section 11.2 shall
apply, mutatis mutandis.
(d) The Landlord shall also have the right of approval prior to any
marketing of space by the Tenant, including prior approval of all
advertising. Without limitation, such marketing shall not state or refer
rental rates.
(e) If the Landlords consent is given, the Tenant shall assign or
sublet, as the case may be, but only upon the terms set out in the offer
submitted to the Landlord pursuant to section 11.2 and not otherwise.
Such assignment or subletting shall occur within 90 days after the
Tenant's request for consent and only upon any assignee or subtenant
entering into an agreement directly with the Landlord and in a form
satisfactory to the Landlord acting reasonably to perform, observe and
keep each and every covenant, proviso, condition and agreement in this
Lease on the part of the Tenant to be performed, observed and kept,
including payment of Rent.
(f) The Tenant shall have the right to assign or sublet to a corporation
affiliated (as that term is defined in the Ontario Business Corporations
Act) with the Tenant without the consent of the Landlord (and the
provisions of subsection 11.2(b) shall not apply), provided that the
Tenant has first given notice to the Landlord and further provided that
the Tenant and its affiliate have first entered into an agreement
directly with the Landlord in a form satisfactory to the Landlord acting
reasonably, whereby the affiliate agrees to perform, observe and keep
each and every covenant, proviso, condition and agreement in this Lease
on the part of the Tenant to be performed, observed and kept, including
payment of Rent and whereby the Tenant and the affiliate agree to remain
affiliated to one another, a breach of which agreement would constitute
a breach of this Lease.
(g) All reasonable costs of the Landlord incurred with respect to this
section shall be paid by the Tenant forthwith after demand.
<PAGE>
11.2 Landlord's Rights of Cancellation:
(a) The Tenant shall not assign this Lease or sublet the whole or any
part of the Premises unless:
(i) it shall have received or procured a bona fide written offer
therefor to take an assignment or sublease which is not
inconsistent with, and the acceptance of which would not
breach, any provisions of this Lease if this section is
complied with and which the Tenant has determined to accept
subject to this section being complied with, and
(ii) it shall have requested and obtained the consent in writing
of the Landlord thereto.
Any request for such consent shall be in writing and accompanied by a true copy
of such offer, and the Tenant shall furnish to the Landlord all information
available to the Tenant or any additional information requested by the Landlord,
as to the responsibility, reputation, financial standing and business of the
proposed assignee or sublessee.
(b) Within 15 days after the receipt by the Landlord of such request for
consent and of all information which the Landlord shall have requested
hereunder (and if no such information has been requested, within 15 days
after receipt of such request for consent), the Landlord shall have the
-23-
<PAGE>
right upon notice to the Tenant, if the request is to assign this Lease
or sublet the whole of the Premises, to terminate this Lease or, if the
request is to sublet a part of the Premises only, to delete from the
Lease such part of the Premises as are requested to be sublet, in each
case as of a date of the proposed assigning or subletting, as the case
may be. In such event, the Tenant shall surrender the whole or part, as
the case may be, of the Premises in accordance with such notice and Rent
shall be apportioned and paid to the date of surrender and, if a part
only of the Premises is surrendered, Rent shall thereafter be
recalculated. If the Landlord shall not exercise the foregoing right of
termination or deletion, then the provisions of section 11.1 shall
apply.
11.3 Continuing Obligations of Tenant:
(a) No assignment or subletting shall release or relieve the Tenant from
any of its obligations hereunder.
(b) No consent by the Landlord to any assignment or subletting shall be
construed to mean that the Landlord has consented or will consent to any
further assignment or subletting which shall remain subject to the
provisions of this Article.
11.4 Dealings by Landlord:
The Landlord may sell, transfer, charge, encumber or otherwise deal with the
Project or any portion thereof or any interest of the Landlord therein, in every
case without the consent of the Tenant, and without restriction. To the extent
that any purchaser or transferee from the Landlord has become bound by the
covenants and obligations of the Landlord under this Lease, the Landlord shall,
without further written agreement, be freed and relieved of liability with
respect to such covenants and obligations.
11.5 Subordination and Attornment:
The Tenant acknowledges that this Lease is, at the option of any mortgagee or
chargee, subject and subordinate to any and all ground leases, mortgages or
charges (including deeds of trust and mortgage securing bonds, all indentures
supplemental thereto or any other instruments of financing, refinancing or
collateral financing) which may now or hereafter affect the Project, or any part
thereof, and to all renewals, modifications, consolidations, replacements and
extensions thereof. The Tenant agrees to execute promptly any certificate or
instrument in confirmation of such subordination and will, if requested, attorn
to such mortgagee or chargee and the Tenant hereby constitutes the Landlord its
agent and attorney for the purpose of executing any such certificate or
instrument.
ARTICLE 12 ESTOPPEL CERTIFICATES, REGISTRATION
12.1 Estoppel Certificates:
Each of the Landlord and the Tenant agrees that it will at any time and from
time to time upon not less than ten days' notice, execute and deliver to the
other (and, if required, to any prospective purchaser or mortgagee of the
-24-
<PAGE>
Development) a certificate in writing as to the status at that time of this
Lease, including as to whether this Lease is unmodified and in full force and
effect (or, if modified, stating the modification and that the same is in full
force and effect as modified), the amount of the Rent then being paid hereunder,
the dates on which the same, by instalments or otherwise, and other charges
hereunder, have been paid, whether or not there is any existing default on the
part of the other of which it has notice, and any other matters pertaining to
this Lease as to which the other shall request a statement.
If any such certificate requested by the Landlord is not returned to the
Landlord within ten days after its request therefor, the Landlord shall have the
right and is hereby appointed by the Tenant as its agent and attorney to prepare
and execute such certificate.
12.2 Registration on Title:
The Tenant shall not register this Lease in full on the title to the Development
or the Project. If the Tenant wishes to register a notice of this Lease or, if
required, a short form thereof, on title to the Development, the Tenant may do
so provided that the Landlord has first approved such notice and the Tenant has
reimbursed the Landlord for the Landlord's costs (including legal costs) of
same.
In the event of any conflict between the terms of this Lease and the terms of
such notice or short form, the terms of this Lease shall prevail.
The Tenant agrees that it will, at its sole expense, discharge and withdraw from
title any such registration within 30 days after the expiration or sooner
termination of this Lease. If such registration is not discharged and withdrawn
during the aforesaid time, the Landlord shall have the right and is hereby
appointed by the Tenant as its agent and attorney to prepare, execute and
register such documentation as is required to discharge and withdraw any such
registration.
ARTICLE 13 UNAVOIDABLE DELAYS
13.1 Unavoidable Delays:
Whenever and to the extent that either the Landlord or the Tenant is unable to
fulfill, or is delayed or restricted in the fulfillment of, any obligation
hereunder in respect of the supply or provision of any service or utility or the
doing of any work or the making of any repairs, by reason of being unable to
obtain the material, goods, equipment, service, utility or labour required to
enable it to fulfill such obligation, or by reason of any statute, law, by-law
or order-in-council or any regulation or order passed or made pursuant thereto,
or by reason of the order or direction of any legislative, administrative or
judicial body, controller or board, or any governmental department or any
governmental officer or other authority having jurisdiction, or by reason of its
inability to procure any licence or permit required therefor, or by reason of
not being able to obtain any permission or authority required therefor, or by
reason of any strikes, lockouts, slow-downs or other combined action of workmen,
or shortages of material, or any other cause beyond its control, other than any
insolvency, lack of funds or other financial cause of delay, the Landlord or the
Tenant, as the case may be, shall be relieved from the fulfillment of such
obligation so long as such cause continues provided always that (except as may
be expressly provided in this Lease) the Tenant shall not be entitled to any
compensation for any inconvenience, or nuisance or discomfort thereby
occasioned, or to cancel or terminate this Lease or to any abatement of Rent.
-25-
<PAGE>
ARTICLE 14 LANDLORD'S ACCESS TO PREMISES
14.1 Inspection and Repair:
The Landlord and its authorized agents and employees shall have the right, at
any time and from time to time, to enter the Premises for the purpose of
inspection, providing janitor service, maintenance, making repairs, alterations
or improvements to the Premises or the Project or to have access to utilities
and services, and the Tenant shall provide free and unhampered access for such
purpose and shall not be entitled to compensation for any inconvenience,
nuisance or discomfort caused thereby. The Landlord in exercising its rights
hereunder shall proceed to the extent reasonably possible so as to minimize
interference with the Tenants use and enjoyment of the Premises.
14.2 Right to Exhibit Premises:
The Landlord and its authorized agents and employees shall have the right to
exhibit the Premises to prospective tenants at all reasonable hours during the
last 18 months of the Term. The Landlord and its authorized agents and employees
shall also have the right to enter upon the Premises at all reasonable hours
during the Term for the purpose of exhibiting the Development to any prospective
purchaser or mortgagee thereof.
ARTICLE 15 DEFAULT
15.1 Events of Default:
Each of the following shall be an event of default of the Tenant:
(a) whenever the Tenant defaults in the payment of any Rent and such
default continues for two Business Days after notice to the Tenant; or
(b) whenever the Tenant defaults in the performance of any of its other
obligations hereunder and such default can be remedied by the Tenant but
is not remedied within a period next after notice and which period shall
be:
(i) if the default could reasonably be remedied within 30 days
after notice and provided the Tenant has commenced to remedy
such failure within 10 days after notice and proceeds
thereafter diligently and continuously to remedy it, 30 days;
and
(ii) if the default could not reasonably be remedied within 30
days after notice and provided the Tenant has commenced to
remedy such failure not later than ten days after notice and
proceeds thereafter diligently and continuously to remedy it,
that number of days after notice which would reasonably
suffice for the remedying of such default if the Tenant had
commenced to remedy such default within ten days after notice
and proceeded thereafter diligently and continuously to
remedy it; and
(iii) in any case where the Tenant does not commence to remedy such
default within ten days after notice, ten days; or
<PAGE>
(c) whenever the Tenant defaults in the performance of any of its other
obligations hereunder and such default cannot be remedied by the Tenant;
or
(d) if the Tenant is adjudicated to be insolvent or makes an assignment
for the benefit of creditors or in bankruptcy, or is declared bankrupt,
or takes the benefit of any legislation that may be in force for
bankrupt or insolvent debtors or if any proceedings are taken by or
against the Tenant under any winding-up legislation, and such
adjudication, assignment, declaration or proceedings are not set aside
-26-
<PAGE>
or revoked within 60 days after the making or taking of the same, or if
the Tenant makes any sale of its assets under the Bulk Sales Act of
Ontario, except to a successor in conjunction with a permitted
assignment of this Lease; or
(e) if the Premises or a substantial part thereof are abandoned or
become vacant or not used or occupied while capable of use and
occupancy, and remain so for a period of 15 days (which does not include
temporary vacancy or non-use for a longer period when necessary to
accommodate the carrying out of renovations in the Premises or a change
in use of the Premises), or if the Premises are used by any other person
or persons other than the Tenant or for any other purpose than that for
which the same were let, in each case without the prior written consent
of the Landlord.
15.2 Remedies by Landlord:
Upon any event of default of the Tenant, in addition to any remedy which the
Landlord may have by this Lease or at law or in equity, the Landlord may, at its
option:
(a) provide, by notice to the Tenant, that the current month=s Rent and
Rent for the next ensuing three months shall thereupon become
immediately due and payable; and/or
(b) terminate this Lease and re-enter and take possession of the
Premises; and/or
(c) enter the Premises as agent of the Tenant, either by force or
otherwise, without being liable for any prosecution therefor, and
without being deemed to have terminated this Lease, and relet the
Premises or any part thereof as the agent of the Tenant, and receive the
rent therefor to be applied on account of the Rent; and/or
(d) exercise its right of distress and the Tenant hereby waives any
present or future limitation on the Landlord's right of distress; and/or
(e) terminate this Lease and re-enter and take possession of the
Premises and provide, by notice to the Tenant, for an immediate payment
by the Tenant of an amount equal to the Present Value, as of the date of
an event of default by the Tenant, of Rent due under this Lease from
such date to the last day of the Term of this Lease. If any part of such
Rent cannot be absolutely determined as of such date, the Landlord shall
estimate same on a reasonable basis. After receipt by the Landlord of
such payment and after the Landlord relets the Premises, the Landlord
shall remit to the Tenant, as and when rent is received therefor, an
amount equal to (i) the lesser of (1) the amount received by the
Landlord for any period and (2) the amount that would have been payable
by the Tenant under this Lease for the same period, less (ii) 10% of
such sum in (i) as an administration fee to the Landlord; and/or
(f) without terminating this Lease, demand immediate payment from the
Tenant of an amount equal to the Present Value, as of the date of an
event of default by the Tenant, of Rent due under this Lease from such
date to the last day of the Term of the Lease. If any part of such Rent
cannot be absolutely determined, as of such date, the Landlord shall
estimate same on a reasonable basis. Upon payment of such amount by the
Tenant to the Landlord, the Tenant shall be entitled to occupancy of the
Premises for the remainder of the Term in accordance with this Lease;
and/or
(g) suspend the supply to the Premises of any benefit, service, utility
or Additional Service furnished by the Landlord until the default is
cured.
-27-
<PAGE>
15.3 Additional Self-help Remedy of Landlord:
In addition to all other remedies the Landlord may have by this Lease, at law or
in equity, if the Tenant does not perform any of its obligations hereunder, the
Landlord, may at its option, perform any of such obligations, after five days=
notice to the Tenant or in the event of an emergency without notice, and in such
event the cost of performing any of such obligations plus an administrative
charge of 15% of such cost shall be payable by the Tenant to the Landlord
forthwith on demand together with interest at the Rate of Interest from the date
of the performance of any of such obligations by the Landlord to the date of
payment by the Tenant.
15.4 Legal Costs:
The Tenant hereby agrees to pay to the Landlord, within 5 days after demand, all
legal fees, on a solicitor and his own client basis, incurred by the Landlord
for the enforcement of any rights of the Landlord under this Lease or in the
enforcement of any of the provisions of this Lease or in the obtaining of
possession of the Premises or for the collection of any monies from the Tenant
or for any advice with respect to any other matter related to this Lease.
15.5 Remedies Cumulative:
The Landlord may from time to time resort to any or all of the rights and
remedies available to it in the event of any default hereunder by the Tenant,
either by any provision of this Lease, or by statute, or at law or in equity,
all of which rights and remedies are intended to be cumulative and not
alternative, and the express provisions hereunder as to certain rights and
remedies are not to be interpreted as excluding any other or additional rights
and remedies available to the Landlord at law or in equity.
15.6 Non-Waiver:
Any condoning, excusing or overlooking by either the Landlord or the Tenant of
any default by the other at any time or times in respect of any obligation of
the other herein shall not operate as a waiver of the non-defaulting party=s
rights hereunder in respect of such default or so as to defeat or affect in any
way the rights of the non-defaulting party in respect of any such continuing or
subsequent default by the defaulting party. No waiver shall be implied by
anything done or omitted by a party. Any waiver of a particular default shall
not operate as a waiver of any subsequent or continuing default.
ARTICLE 16 GENERAL PROVISIONS
16.1 Entire Agreement:
This Lease contains all of the terms and conditions of the agreement between the
Landlord and the Tenant relating to the matters herein provided and supersedes
all previous agreements or representations of any kind, written or spoken, made
by anyone in reference thereto.
There shall be no amendment hereto unless in writing and signed by the party to
be bound.
-28-
<PAGE>
16.2 Schedules:
The Schedules to this Lease form a part of this Lease.
16.3 Planning Act:
This Lease is subject to compliance, if necessary, with the Planning Act of
Ontario.
16.4 Survival of Obligations:
Any obligation of a party which is unfulfilled on the termination of this Lease
shall survive until fulfilled.
16.5 Severability of Illegal Provisions:
If any provision of this Lease which has no direct financial impact is or
becomes illegal or unenforceable, it shall during such period that it is illegal
or unenforceable be considered separate and severable from the remaining
provisions of this Lease which shall remain in force and be binding as though
the said provision had never been included.
16.6 Governing Law:
This Lease shall be governed by the laws applicable in the Province of Ontario.
16.7 No Partnership:
Nothing contained herein shall be deemed to create any relationship between the
parties hereto other than the relationship of landlord and tenant.
16.8 Number, Gender, Joint and Several Liability:
The word "Tenant", the word "assignee" and the word "sublessee" and personal
pronouns relating thereto and used in conjunction therewith shall be read and
construed as "Tenant" or "Tenants", "assignee" or "assignees" and "sublessee" or
"sublessees" respectively and "his", "her", "it", "its" and "their" as the
number and gender of the party or parties referred to in each case require and
the number of the verb agreeing therewith shall be considered as agreeing with
the said word or pronoun so substtuted. If at any time there is more than one
Tenant together or in succession, they shall be jointly and severally liable for
all of the obligations of the Tenant hereunder.
-29-
<PAGE>
16.9 Captions:
The captions for Articles and sections of this Lease are for convenience only
and are not to be considered a part of this Lease and do not in any way limit or
amplify the terms and provisions of this Lease.
16.10 Time of Essence:
Time shall be of the essence of this Lease.
16.11 Landlord's Agent:
The Landlord may perform any of its obligations or exercise any of its rights
hereunder through such agent as it may from time to time determine by notice to
the Tenant and the Tenant shall, as from time to time directed by the Landlord,
pay to any such agent any moneys payable hereunder to the Landlord.
16.12 Successors and Assigns:
Except as otherwise specifically provided, the covenants, terms and conditions
contained in this Lease shall apply to and bind and enure to the benefit of the
parties hereto and their respective successors and assigns.
16.13 Accounting Principles:
All calculations referred to herein shall be made in accordance with generally
accepted accounting principles and practices applicable to the real estate
development industry and applied on a consistent basis.
16.14 Other Leases in Building:
If the Tenant leases any other space in the Building pursuant to any other lease
or leases, the following provisions shall apply:
(a) any default under this Lease shall constitute a default under each
of such other lease or leases and any default under each of such other
lease or leases shall constitute a default under this Lease enabling the
Landlord to exercise any of its remedies hereunder or thereunder; and
-30-
<PAGE>
(b) any right of renewal under one lease may only be exercised in
conjunction with any similar right of renewal in any other lease.
16.15 Notices and Consents, etc.:
Except as otherwise specifically provided herein, any notice or consent
(including any invoice, statement or request or other communication) herein
required or permitted to be given by either party to the other shall be in
writing and shall be delivered or sent by registered mail (except during a
postal disruption or threatened postal disruption) or telegram or other
electronic communication or other means of prepaid recorded communication to the
applicable address set forth below:
(a) in the case of the Landlord, to:
c/o Canderel Management Services Ltd.
Constitution Square
Suite 200
350 Albert Street
Ottawa, Ontario
K1R 1A4
Attn: Vice-President fax: (613) 594-0112 with a copy to:
Canderel Management Services Ltd.
2000 Rue Peel
Suite 900
Montreal, Quebec
H3A 2W5
Attn: President
fax: (514) 284-1054
(b) in the case of the Tenant, to the Premises.
fax: (613) ____________________
Any notice delivered shall be deemed to have been validly and effectively given
on the day of such delivery provided same is a Business Day. Any notice sent by
registered mail shall be deemed to have been validly and effectively given on
the third Business Day following the date of mailing. Any notice sent by
telegram or other electronic communication or other means of prepaid recorded
communication shall be deemed to have been validly and effectively given on the
Business Day next following the day on which it was sent and confirmation of
transmittal is received.
Either party may from time to time by notice to the other change its address for
service hereunder provided that such address shall be in the City of Ottawa or
Montreal.
16.16 No Consent During Default:
It shall not be unreasonable for the Landlord to withhold its consent at any
time when the Tenant is in default hereunder.
-31-
<PAGE>
16.17 Further Assurances:
Each party agrees to make such further assurances as may be reasonably required
from time to time by the other to more fully implement the true intent of this
Lease.
16.18 Tenant's Notice to Vacate:
The Tenant shall give the Landlord not less than 12 months notice prior to the
last day of the Term of this Lease or any renewal thereof of the Tenant's
intention to vacate the Premises on or before such date, provided that if the
Tenant does not give such notice, the Landlord shall have the right, at the
Landlord's sole option, by giving notice to the Tenant not less than 60 days
prior to such date, to extend this Lease for a further term of one year from
such date on the same terms of this Lease as they exist on such date other than
Basic Rent which shall be the Basic Rent payable during the year prior to such
date plus 20% and except for any rights of the Tenant contained in Article 18,
if any. If the Tenant gives the aforesaid notice or, if not, if the Landlord
does not give the aforesaid notice, this Lease shall terminate on such date
without notice or demand.
16.19 Landlord's Right to Relocate:
The Landlord shall have the right, at any time during the Term, to relocate the
Premises to other premises (the "New Premises") in the Project on the same terms
and conditions as are set out in this Lease provided that:
(a) the Landlord shall first have given not less than 90 days notice to
the Tenant;
(b) the Landlord shall endeavour that the New Premises be of comparable
size and quality to the Premises;
(c) the Landlord shall pay the reasonable costs incurred by the Tenant
for:
(i) its physical move;
(ii) the reconnection of existing communication lines; and
(iii) the reordering of new printed material plates and the
printing of an equal quantity and quality of printed material
the Tenant has in stock as the time of the relocation;
(d) if the Gross Rentable Area of the New Premises is not the same as
the Gross Rentable Area of the Premises, the Basic Rent payable under
this Lease shall be adjusted accordingly; and
(e) upon such relocation, the Landlord and the Tenant shall execute a
supplement to this Lease amending the definition of "Premises" and
making any other necessary changes as aforesaid.
The exercise of the Landlord's right to relocate as aforesaid shall not entitle
the Tenant to any claims against the Landlord.
-32-
<PAGE>
16.20 Other Construction and Shared Common Facilities:
The Tenant acknowledges that the Building comprises one of a multi-phase
development in the Project which includes other buildings and/or structures
whether now constructed or to be hereafter constructed. The Tenant acknowledges
and agrees that:
(a) the Landlord has the right at any time and from time to time to
construct one or more other buildings or structures within the Project
and to make such modifications, alterations, additions or subtractions
to the Building to accommodate the new construction including, without
limitation, the blocking of light, the blocking up of windows, the
elimination of views, the creation of easements or rights of way or
other rights as may be necessary or desirable in connection with such
new construction together with the usual noise and dust during the
construction period;
(b) no such construction or modifications, alterations, additions or
subtractions shall be alleged or deemed as an eviction or disturbance of
the Tenant's enjoyment of the Premises nor render the Landlord liable in
damages to the Tenant nor entitle the Tenant to claim any diminution in
Rent;
(c) the Landlord shall have the right at any time and from time to time
to modify, alter, add or subtract from the Common Facilities as the
Landlord considers necessary or desirable including, without limitation,
the sharing by certain of the tenants within the Project (as determined
by the Landlord) of certain common areas and facilities within the
Project such as, without limitation, parking areas, parking decks,
underground parking garages, loading and shipping/receiving facilities,
a plaza, an atrium, daycare facilities, a conference centre(s),
conference rooms, security systems, central cafeteria, fitness, exercise
or health facilities, passageways and other connections in which event
the Landlord, acting reasonably, may adjust the Gross Rentable Area of
the Premises;
(d) the Landlord shall have the right, at any time and from time to
time, to do what the Landlord, acting reasonably, determines to be
necessary or desirable for the more efficient and proper operation and
use of the Project;
(e) where expenses are incurred or taxes are imposed which relate to the
Development and also another part or parts of the Project or to shared
facilities which are made available to some or all of the occupants of
the Development and some or all of the occupants of one or more other
part or parts of the Project, the Landlord, acting reasonably, shall
have the right to allocate such expenses or taxes among the various
parts of the Project and such expenses or taxes so allocated to the
Development shall form part of Operating Expenses;
<PAGE>
(f) nothing herein contained shall be deemed to constitute any
obligation on the part of the Landlord to proceed with any construction
of or to provide any such common areas or facilities; and
(g) the Tenant acknowledges that, since the Tenant is entitled to share
the use of the conference centre(s) in the Project, the Gross Rentable
Area of the Premises includes the Tenants share, as determined by the
Landlord acting reasonably, of the area of such conference centre(s).
ARTICLE 17 ADDITIONAL PROVISIONS
17.1 Leasehold Allowance
The Landlord shall pay to the Tenant, as an inducement to the Tenant to enter
into this Lease, an amount equal to $30.00 per square foot of Gross Rentable
Area of the Initial Premises provided that all of the following have occurred:
-33-
<PAGE>
(a) the Tenant's right under this section is personal to the original
Tenant and does not extend to any assignee or subtenant so that the
right under this section terminates upon any assignment of this Lease or
upon any subletting the whole of the Premises;
(b) the Tenant is not in default under this Lease;
(c) the Tenant has provided evidence satisfactory to the Landlord that
the Tenant has completed all of the Tenant's Work in the Premises and
all material and labour with respect to the Tenant's Work has been paid
for in full and that all rights to liens which could arise in respect of
the Tenant's Work have expired without any such liens having been
registered against the title to the Development;
(d) the Tenant has executed the Lease and delivered it to the Landlord;
(e) the Commencement Date has occurred and the Tenant has occupied the
Premises and opened for business; and
(f) if the Landlord is performing any work for the Tenant in the
Premises, all of such work has been paid for by the Tenant or the amount
owing to the Landlord in respect of same has been offset against such
inducement.
The Tenant agrees that, if the Landlord terminates the Term as a result of
default by the Tenant, the Landlord shall be entitled to a rebate of an amount
equal to the product obtained by multiplying such inducement by a fraction the
denominator of which is the total number of months in the Term and the numerator
of which is the number of months in the Term following such default.
17.2 License for Parking:
(a) The Landlord grants to the Tenant the license to park two (2)
automobiles (and, after December 31, 1997 two (2) additional
automobiles) on an unreserved basis in the Parking Garage during the
Term and, after December 31, 1997, one additional automobile on a
reserved basis at the monthly rate per automobile as established from
time to time by the Landlord or the operator of the Parking Garage. The
initial monthly rate per automobile (unreserved) is $125.00 plus taxes.
(b) The Tenant agrees to comply with the parking rules governing the use
of the Parking Garage as may be established from time to time by the
Landlord or the operator of the Parking Garage (the "Parking Rules") and
of which notice has been given to the Tenant or of which notice has been
posted in the Parking Garage.
(c) The Tenant agrees to indemnify the Landlord and the operator of the
Parking Garage against all liability, claims, damages or expenses due to
or arising out of any act, omission or neglect by the Tenant or those
for whom it is at law responsible in or about the Parking Garage or due
to or arising out of any breach by the Tenant of the provisions of the
Parking Rules.
(d) Neither the Landlord nor the operator of the Parking Garage shall be
liable for any loss, injury or damage caused to persons using the
Parking Garage or to automobiles or their contents or any other property
thereon, however caused, and the Tenant agrees that such vehicles,
contents and property shall be in the Parking Garage at the sole risk of
the Tenant and agrees to indemnify the Landlord and the operator of the
Parking Garage against all claims, damages or expenses due to or arising
out of the foregoing.
-34-
<PAGE>
17.3 Tenant's First Right to Lease Extra Space:
The Tenant shall have the first right to lease the vacant space adjacent to the
Premises (the "Extra Space") in the area shown cross-hatched on Schedule E
attached hereto upon the following terms and conditions:
(a) the Tenant's right under this section is personal to the original
Tenant and does not extend to any assignee or subtenant so that the
right under this section terminates upon any assignment of this Lease or
upon any subletting of all or any part of the Premises;
(b) the Tenant's right in this section is subject to prior rights
granted from time to time by the Landlord with respect to the Extra
Space;
(c) the Tenant shall not have any right to lease the Extra Space if, at
the time the Landlord would be obligated to give the Landlord's Notice
to the Tenant as hereafter provided, the Tenant is in default hereunder
or has been in default hereunder on a consistent basis;
(d) if at any time during the Term (but not in any renewal), the Extra
Space becomes or is about to become vacant and the provisions of
subsections (a) and (b) are not in effect, the Landlord shall give
notice to the Tenant (the "Landlord's Notice") setting forth the rental
rate which the Landlord is prepared to accept for the extra Space (which
rate shall be the then current rate for such space in the Building under
similar lease terms), the occupancy date for the Extra Space, the length
of the term of lease proposed for the Extra Space and other terms and
conditions required by the Landlord. If the Tenant wishes to acquire the
Extra Space, it shall give notice to the Landlord within 5 days
following receipt of the Landlord's Notice. If the Tenant does not so
give such notice, the Landlord shall be free to Lease the Extra Space at
any time during the Term to any other party. Unless the Landlord
otherwise agrees, the Tenant shall be obligated to acquire all and not
less than all of the Extra Space. This right to acquire the Extra Space,
if the Extra Space is presently vacant, shall not apply until the Extra
Space has been leased out and again becomes vacant in the future; and
(e) if the Tenant exercises its right to lease the Extra Space, the
Landlord shall deliver the Extra Space to the Tenant on the date, at the
rental rate and for the term and subject to any other terms and
conditions specified in the Landlord's Notice and the Extra Space shall
be added to this Lease and shall be subject to all the other terms
hereof.
-35-
<PAGE>
IN WITNESS WHEREOF the parties hereto have duly executed this Lease as of the
date first above written.
LANDLORD
OMERS REALTY CORPORATION
Per: /s/ Paul D. Colangelo
---------------------------
Name: Paul D. Colangelo
Title: Executive Vice President
Per: /s/ John R. Morrison
---------------------------
Name: John R. Morrison
Title: Senior Vice President
Properties
We have authority to bind the Corporation.
TENANT
DRAKE, BEAM, MORIN (OTTAWA), INC.
Per:
Name: John Gerry Stanton
Title: President
Per:
Name:
Title:
We have authority to bind the corporation.
-36-
<PAGE>
SCHDULES
SCHEDULE A Legal Description of Lands and Project
Lands
Part 1 - Development
360 Albert Street, Ottawa, being Phase I of Constitution Square
Part of Lots 18, 19, 20 and 21 on the south side of Albert Street and part of
Lots 18, 19, 20 and 21 on the north side of Slater Street, all on Plan 3922,
City of Ottawa, designated as Parts 1 and 3 on Plan 4R-4412 subject to an
easement in favour of The Regional Municipality of Ottawa, Carleton as in 552200
over Part 3 on Plan 4R-4412.
Part II - Project
The block bounded by Albert Street, Kent Street, Slater Street and Lyon Street
in the City of Ottawa which is legally described as:
Parcel 18-7, in the Register for Section 3922, Land Titles Division of
Ottawa-Carleton No. 4.
-37-
<PAGE>
SCHEDULE B Definition of Operating Costs
1. Inclusions
"Operating Costs" mean the aggregate of (a) all of the Landlord's expenses,
costs and charges which are incurred in respect of the operation, maintenance,
repair, replacement, management, administration and supervision of the
Development including the Building Common Facilities and (b) the Building
Proportionate Share of all such costs with respect to each of the Shared Common
Facilities which is shared by the Development. Such expenses, costs and charges
include, without limitation or duplication:
(a) the cost of providing the operation, maintenance, repair, replacement,
management, administration and supervision including, without limitation,
wages, salaries, placement fees and severance costs or other compensation for
employees, agents or contractors of the Landlord performing services rendered
in connection therewith and a building manager and other supervisory
personnel, in each case whether on or off site, elevator operators, porters,
cleaners and other janitorial staff, watchmen and other security personnel,
carpenters, engineers and all other maintenance personnel;
(b) the cost of repairs and maintenance and the cost of acquiring or renting
supplies and equipment;
(c) the annual amortization including interest on the unamortized amount, (on
a straight-line basis over the useful life or such other period as reasonably
determined by the Landlord) of the capital cost of any modifications,
replacements or additions and/or the machinery and equipment where in the
reasonable opinion of the Landlord such modifications, replacements or
additions may reduce Operating Costs or result in energy savings or result in
increased security, or any additional equipment or improvements required by
legal requirements and not to remedy any construction inadequacy or
non-compliance with legal requirements in effect at the time of
constructions, or which in the Landlord's reasonable opinion are for the
benefit or safety of users of the Development;
(d) straight-line amortization including interest on the unamortized amount,
based on manufacturers' recommended life of capitalized machinery and
equipment;
(e) premiums and other charges incurred by the Landlord with respect to
insurance including, without limitation, fire and "All Risk" perils
insurance, public liability and property damage insurance, boiler and
machinery insurance, and loss of rental income insurance, elevator liability
insurance, workmen's compensation insurance for the employees specified in
subsection (a) above and other casualties against which the Landlord may
reasonably insure provided that if the Landlord self insures the Landlord
shall include a deemed amount equal to the amount that would have been
included if the Landlord had placed insurance with a third party;
(f) costs incurred in connection with inspection and servicing of elevators,
electrical distribution and mechanical equipment and the costs of supplies
and equipment used in connection therewith;
(g) costs incurred for fuel or other energy for heating and air-conditioning
and operating the heating and air-conditioning systems, for electricity,
steam or other power required in connection with lighting, use and operation
together with the costs of replacement, maintenance and repair of the
electrical systems and lighting but excluding costs for power for lighting
and office equipment that are charged directly by the Landlord to the Tenant
as excess consumption costs pursuant to subsection 6.4(b) of this Lease;
(h) the costs of water, sewer and service charges, garbage and waste removal
and gardening, landscaping and snow removal;
(i) unemployment insurance expenses, pension plan and any other payments
payable in connection with the employment of any of the employees referred to
in subsection (a) above;
-B2-
<PAGE>
(j) sales and excise taxes on goods and services provided by the Landlord;
(k) fees and expenses of accountants, lawyers and other professionals;
(1) all costs and expenses (including legal and other professional fees)
incurred in good faith in verifying the reasonableness of, or in contesting,
resisting or appealing, assessments and levies for Taxes or taxes charged
against the business of the Landlord;
(m) costs of telephone, stationery, office supplies and other materials;
(n) that part of Other Taxes attributable by the Landlord to the Development;
(o) Sales Taxes payable by the Landlord on the purchase of goods and services
included in Operating Costs (excluding any such Sales Taxes as are available
to an claimed by the Landlord as a credit in determining the Landlord's net
tax liability on account of Sales Taxes but only to the extent that such
Sales Taxes are included in Operating Costs);
(p) that part of Taxes which is attributable to space which would otherwise
be rentable if it were not utilized and reasonably needed~ by the Landlord in
connection with the management, operation and maintenance;
(q) Taxes to the extent attributable to the Common Facilities that are
separately assessed and not included as part of the assessed value of
premises occupied or to be occupied by tenants (including the Tenant) (but
only if and to the extent that such Taxes have not been taken into account by
the Landlord in making any attribution or calculation for the purpose of
determining the Tenant's contribution to Taxes);
(r) such other direct operating costs, charges and expenditures of a like
nature as may be incurred in respect of the proper preservation, protection,
maintenance and operation;
(s) Capital Tax; and
(t) a management fee equal to the management fee charged to the Landlord by
the third party manager from time to time of the Building or, if none, a
management fee equal to the management fee charged by landlords of buildings
similar to the Building,
provided that, with respect to costs of repair, replacement, modifications,
additions and/or equipment which are included in Operating Costs, the Landlord
shall have the right, notwithstanding the forgoing, either to include the whole
of such costs in Operating Costs in the year such costs were incurred or to
amortize such costs over such period as the Landlord, acting reasonably,
determines is reasonable in the circumstances.
- B3 -
<PAGE>
2. Adjustment to Costs
Those items of Operating Costs which vary with the use and occupancy of rentable
premises shall be adjusted and calculated as if 100% occupied and operational
for the entire operating year so that those items of Operating Costs (which
shall include, without limitation, items such as cleaning costs, garbage removal
and utility costs) shall be adjusted to what they would have been in the
Landlord's reasonable estimation if 100% occupied and operational for the entire
operating year, and such adjusted amount shall be included in the Operating
Costs.
3. Exclusions
Operating Costs shall exclude, except where expressly included above:
(a) all costs normally attributed to capital account under generally accepted
accounting principles;
(b) costs which are unreasonably or imprudently incurred (to the extent of
the excess of such costs over the amount thereof if reasonably and prudently
incurred);
(c) costs incurred in leasing premises to other tenants; and
(d) debt service including interest.
4. Reductions
Costs which are reimbursed to the Landlord from tenants or others corresponding
to expenses incurred by the Landlord, (such as Additional Service Costs,
insurance recoveries and recoveries pursuant to damage or indemnity claims),
otherwise than by a general contribution by tenants of shares of Operating
Costs, shall, to the extent the expenses pertaining thereto are included in
Operating Costs, be applied in reduction of Operating Costs.
- B4 -
<PAGE>
SCHEDULE C RULES AND REGULATIONS
1. The sidewalk, entry passages, elevators, fire escapes, common stairways and
Common Facilities shall not be obstructed by any of the tenants or used by them
for any other purpose other than for ingress and egress to and from their
respective premises. Tenants will not place or allow to be placed in the
Building corridors or public stairways any waste paper, dust, garbage, refuse or
anything whatever that would tend to make them unclean or untidy.
2. The skylights and windows that reflect or admit light into passageways and
Common Facilities of the Development shall not be covered or obstructed by any
of the tenants, and no awnings shall be put up, without the written consent of
the Landlord.
3. The water-closets and other water apparatus shall not be used for any purpose
other than those for which they were constructed, and no sweepings, rubbish,
rags, ashes or other substances shall be thrown therein. Any damage resulting by
misuse shall be borne by the tenant by whom or by whose agents, servants or
employees the same is caused (save in respect of Insured Damage). Tenants shall
not let the water run unless in actual use, nor shall they deface any part of
the Common Facilities or the Development.
4. Tenants shall not do or permit anything to be done in their premises or bring
or keep anything therein which will in any way increase the risk of fire, or
obstruct or interfere with the rights of other tenants, or violate or ct at
variance with the laws relating to fires or with the regulations of the Fire
Department or the Board of Health.
5. No tenant, its clerks or servants, shall make or commit any improper noises
in the Building, lounge about doors or corridors or interfere in any way with
other tenants or those having business with them.
6. Nothing shall be thrown by any tenant, its clerks or servants, out of windows
or doors, or down the passages, elevator shafts or skylights of the Building.
7. No birds or animals shall be kept in or about the premises of any tenant nor
shall any tenant operate, or permit to be operated, any musical or sound
producing instruments or device inside or outside the premises of any tenant
which may be heard outside such premises.
8. No one shall use the premises of any tenant for sleeping apartments or
residential purposes, or for the storage of personal effects or articles other
than those required for business purposes, nor shall the tenant permit any
cooking on the premises.
9. The Landlord shall have the right:
(a) to require all persons entering or leaving the Building during such
hours as the Landlord may reasonably determined, to identify themselves to a
watchperson or security officer by registration or otherwise to establish
their right to enter or leave; and
(b) to exclude or expel any peddlar or beggar at any time from any premises
or the Building.
10. Any injury or damage caused to the Common Facilities or other areas of the
Building or heating and other appliances, or to any other tenant or to the
premises occupied by any other tenant, by interference with or neglect of the
heating appliances, or any other person or servant subject to it, shall be made
good by the tenant in whose premises the neglect, interference or misconduct
arose (save in respect of Insured Damage).
<PAGE>
11. It shall be the duty of each tenant to assist and co-operate with the
Landlord in preventing injury to such Tenant's premises, and premises demised to
other tenants.
12. No inflammable oils or other inflammable, dangerous or explosive materials
shall be kept or permitted to be kept in any premises. Nothing shall be placed
on the outside of window sills or projections.
13. Furniture, effects and supplies shall not be taken into or removed from any
premises, except at such time and ii= such manner as may be previously approved
by the Landlord.
14. No bicycles or other vehicles shall be brought within the Building except in
the Parking Garage, and then only in accordance with the Landlord's or Parking
Garage operator's direction.
15. Business machines, filing cabinets, heavy merchandise or other articles
liable to overload, injure or destroy any part of the Building shall not be
taken into it without the written consent of the Landlord and the Landlord shall
in all cases retain the right to prescribe the weight and proper position of all
such articles and the ways, means and times and routes for moving them into or
out of the Building; the cost of repairing any damage done to the Building by
such moving or by keeping any such articles on any premises shall be paid by the
tenant causing such damage (save in respect of Insured Damage).
16. Tenants shall not place any additional lock upon any door of the Building
without the written consent of the Landlord (except in the case of vaults or
other security areas which the Tenant may reasonably designate).
17. Tenants shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, heating, air-conditioning, mechanical or electrical
apparatus or any other part of the Building.
18. Only persons authorized by the Landlord, acting reasonably, shall be
permitted to deliver or to use the elevators in the Building for the purpose of
delivering food or beverages to any premises.
19. The lining of all window drapes facing the interior surface of exterior
windows shall be subject to the prior approval of the Landlord as to colour and
material and a tenant shall not hang and will remove any draperies which in the
Landlord's opinion do not conform to any uniform scheme of window coverings
established for the Building.
20. In order to maintain the high character and uniqueness of the Development,
the Landlord shall have the absolute right to designate the kind, type and
colour of any interior drapes or wall coverings or hangings which the tenants
desire to place on any wall or window and to designate the locations, kind and
colour of any partitions which are visible from outside the premises.
21. Each Tenant shall take all steps as reasonably required by the Landlord from
time to time to ensure that no employees of the Tenant or others on the Premises
from time to time use any Common Facilities for the purpose of smoking.
22. The Landlord shall have the exclusive right to supply and sell or caused to
be supplied and sold all coffee, soft drinks, cigarettes, sandwiches,
confections and other food and to install or caused to be installed all vending
machines within the Project, provided that the Tenant shall have the right to
prohibit all such sales and installations in its Premises by giving written
notice to the Landlord to this effect.
23. The Landlord shall have the right to make such other and further reasonable
rules and regulations, not inconsistent with the provisions of this Lease, as in
its reasonable judgment may from time to time be necessary for the safety, care,
cleanliness and appearance of any premises and the Development in keeping with
the existing standards in and of the Development, and for the preservation of
good order therein, and the same shall be kept and observed by all tenants,
their clerks and servants.
<PAGE>
SCHEDULE D
Intentionally left blank.
<PAGE>
E-CRUITER.COM INC
EMPLOYEE AND DIRECTOR STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the E-Cruiter.com Inc Employee and Director Stock Option
Plan is to develop the interest of and provide an incentive to eligible
employees and directors of E-Cruiter.com Inc (the "Corporation") in the
Corporation's growth and development by granting to eligible employees
and directors from time to time options to purchase Common Shares of
the Corporation, thereby advancing the interests of the Corporation and
its shareholders.
2. Definitions
In this Plan:
a) "Audit Committee" means the Audit Committee of the Corporations
Board of Directors;
b) "Board of Directors" means the Board of Directors of the
Corporation;
c) "Common Shares" means the Common Shares of the Corporation;
d) "Corporations Act" means the Canada Business Corporations Act, as
amended, and the regulations promulgated thereunder.
e) "Date of Grant" means, for any Option, the date specified by the
Audit Committee, or its designate, at the time it grants the
Option, (provided, however, that such date shall not be prior to
the date the Audit Committee effects the Plan with approval of a
majority of the Corporations shareholders). The Option must be
granted within five years from the date the Plan is approved by
shareholders.
f) "Disability" means permanent and total disability as determined
under procedures established by the Audit Committee for the
purposes of the Plan;
g) "Exercise Date" means the date the Corporation receives from a
Participant a completed Notice of Exercise form with payment for
the Option Shares being purchased;
h) "Exercise Period" means, with respect to any Option Shares, the
period during which a Participant may purchase such Option Shares;
i) "Incentive Stock Option" means an Option granted under this Plan,
and designated as such, and meeting the definition of section 422
of the United States Internal Revenue Code so that an individual
may receive favourable tax treatment. The individual, at the time
at the Option is granted, cannot own more than 10% of all classes
of voting shares of the Corporation, unless the Exercise Price of
the Option is equal to at least 110% of the fair market value of
the Common Shares, for the Option to be designated as an Incentive
Stock Option.
<PAGE>
j) "Non-Qualified Stock Option" means an option designated as a
Non-Qualified Stock Option;
k) "Option" means a non-assignable and non-transferable option to
purchase Common Shares granted pursuant to the Plan;
k) "Optionee" means a Participant who has been granted one or more
Options;
l) "Option Shares" means Common Shares which are subject to purchase
upon the exercise of outstanding Options;
m) "Participant" means a current or former full-time permanent
employee, or director of the Corporation;
n) "Plan" means the E-Cruiter.com Inc Employee and Director Stock
Option Plan as set out herein and approved by majority of
shareholders;
o) "Plan Shares" means 250,000 Common Shares for issuance pursuant to
the exercise of Options. The Plan shares may be granted as
Incentive Stock Options, Non-Qualified Options, or have no
designation.
p) "Retirement" means retirement from active employment with the
Corporation at or after age 65, or with the consent for purposes
of the Plan of such officer of the Corporation as may be
designated by the Audit Committee, at or after such earlier age
and upon the completion of such years of service as the Committee
may specify.
3. Operation of the Plan
The Plan Has been designed for both Canadian and United States
employees. For United States employees, the Option shall be designated,
at the Date of Grant, as Incentive Stock Options or Non-Qualified Stock
Options. For Canadian Employees, no such designation shall be made.
4. Currency
All dollar amounts referred to in this Plan are in Canadian or United
States funds as specified.
5. Extended Meanings
In this Plan, words importing the singular number include the plural
and vice versa and words importing the masculine gender include the
feminine and neuter genders.
6. Headings
Article headings are not to be considered part of the Plan and are
included solely for convenience of reference and are not intended to be
full or accurate descriptions of the contents thereof.
2
<PAGE>
7. Eligibility
All Participants shall be eligible to participate in the Plan.
Eligibility to participate shall not confer upon any Participant any
right to be granted Options pursuant to the Plan. The extent to which
any Participant shall be entitled to be granted Options pursuant to the
Plan shall be determined in the sole and absolute discretion of the
Audit Committee.
8. Number of Option Shares Available for Grants
No Option may be granted by the Audit Committee which would have the
effect of causing the total number of all Option Shares subject to
purchase under outstanding Options to exceed the number of Plan Shares.
Upon the expiration, surrender, cancellation or termination, in whole
or in part, of an unexercised Option, the Option Shares subject to such
Option shall be available for other Options to be granted from time to
time.
9. Granting of Options
The Audit Committee may from time to time grant Options to Participants
to purchase a specified number of Option Shares at a specified exercise
price per share. The number of Option Shares to be granted, the
exercise price, the Date of Grant, and such other terms and conditions
of the Option shall be as determined by the Audit Committee.
10. Exercise Price
The exercise price per Common Share purchasable under an Option shall
be determined by the Audit Committee but in any event shall not be
lower than the fair market value of a Common Share on the Date of
Grant. Fair market value shall be determined in good faith using common
practices for such determination without regard to any restriction on
the Common Shares.
11. Exercise Period
Unless otherwise specified by the Audit Committee at the time of
granting an Option, and except as otherwise provided in the Plan, each
Option shall be exercisable in the following installments:
Percentage of
Total Number of
Option Shares Which
May be Purchased Exercise Period
---------------- ---------------
33 1/3% From the first anniversary of the Date
of Grant to and including the fifth
anniversary of the Date of Grant
33 1/3% From the second anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of
Grant
33 1/3% From the third anniversary of the
Date of Grant to and including the
fifth anniversary of the Date of
Grant
3
<PAGE>
Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise
specified by the Audit Committee. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up
to the total number of Common Shares with respect to which it is then
exercisable. The Audit Committee shall have the right to accelerate the
date which any installment of any Option is exercisable.
12. Term of Options
Subject to accelerated termination as provided for in the Plan, each
Option shall, unless otherwise specified by the Audit Committee, expire
on the fifth anniversary of the Date of Grant.
13. Exercise of Options
An Optionee may at any time within the Exercise Period elect to
purchase all or a portion of the Option Shares which such Optionee is
then entitled to purchase by delivering to the Corporation a completed
Notice of Exercise, specifying the Date of Grant of the Option being
exercised, the exercise price of the Option and the number of Option
Shares the Optionee desires to purchase. The Notice of Exercise shall
be accompanied by payment in full of the purchase price for such Option
Shares. Payment can be made by cash, certified cheque, bank draft,
money order or the equivalent payable to the order of the Corporation
or by such other means as may be specified by the Audit Committee.
14. Withholding of Tax
If the Corporation determines that under the requirements of applicable
taxation laws it is obliged to withhold for remittance to a taxing
authority any amount upon exercise of an Option, the Corporation may,
prior to and as a condition of issuing the Option Shares, require the
Optionee exercising the Option to pay to the Corporation, in addition
to and in the same manner as the purchase price for the Option Shares,
such amount as the Corporation is obliged to remit to such taxing
authority in respect of the exercise of the Option. Any such additional
payment shall, in any event, be due no later than the date as of which
any amount with respect to the Option exercised first becomes
includable in the gross income of the Optionee for tax purposes.
15. Share Certificates
Upon exercise of an Option and payment in full of the purchase price
and any applicable tax withholdings, the Corporation shall cause to be
issued and delivered to the Optionee within a reasonable period of time
a certificate or certificates in the name of or as directed by the
Optionee representing the number of Common Shares the Optionee has
purchased.
4
<PAGE>
16. Termination of Employment
Unless otherwise determined by the Audit Committee, if an Optionee's
employment or services terminate for any reason other than death,
Disability or Retirement, any Option held by such Optionee shall
thereupon terminate, except that each such Option, to the extent then
exercisable, may be exercised for the lessor of 60 days or the balance
of such Option's term.
Options shall not be affected by any change of employment within or
among the Corporation, its Subsidiaries or an Other Related Company, or
unless otherwise determined by the Audit Committee, so long as the
Participant continues to be an employee of the Corporation, a
Subsidiary or an Other Related Company.
17. Termination by Reason of Death, Disability or Retirement
If an Optionee's employment or services terminate by reason of death,
Disability or Retirement, any Option held by such Optionee may
thereafter be exercised, to the extent then exercisable or to such
other extent as the Audit Committee may determine, for a period of 180
days (or such other period as the Audit Committee may specify) from the
date of such death, Disability or Retirement or until the expiration of
the stated term of such Option, whichever period is the shorter.
18. Transfer and Assignment
Options granted under the Plan are not assignable or transferable by
the Optionee or subject to any other alienation, sale, pledge or
encumbrance by such Optionee except by will or by the laws of descent
and distribution. During the Optionee's lifetime Options shall be
exercisable only by the Optionee. The obligations of each Optionee
shall be binding on his/her heirs, executors and administrators.
19. No Right to Employment
The granting of an Option to a Participant under the Plan does not
confer upon the Participant any right to expectation of employment by,
or to continue in the employment of, the Corporation, or to be retained
as a consultant by the Corporation.
20. Rights as Shareholders
The Optionee shall not have any rights as a shareholder with respect to
Option Shares until full payment has been made to the Corporation and a
share certificate or share certificates have been duly issued.
5
<PAGE>
21. Administration of the Plan
The Plan shall be administered by the Audit Committee which shall have
the authority to:
a) determine the individuals and entities (from among the class of
individuals and entities eligible to receive Options) to whom
Options may be granted;
b) determine the number of Option Shares to be subject to each
Option;
c) determine the terms and conditions of any grant of Option,
including but not limited to
o the time or times at which Options may be granted;
o the exercise price at which Option Shares subject to each
Option may be purchased;
o the time or times when each Option shall be come exercisable
and the duration of the Exercise Period but, in case excess of
five years from the Date of Grant;
o whether restrictions or limitations are to be imposed on Option
Shares, and the nature of such restrictions or limitations, if
any; and
o any acceleration of exercisability or waiver of termination
regarding any Option, based on such factors as the Audit
Committee may determine;
d) interpret the Plan and prescribe and rescind rules and regulations
relating to the Plan.
The interpretation and construction by the Audit Committee of any
provisions of the Plan or of any Option granted under it shall be final
and binding on all persons. Nothing in the Plan shall be interpreted,
amended or altered in such a manner as to disqualify the plan under
section 422 of the United States Internal Revenue Code. No members of
the Audit Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Option granted under
it. The day-to-day administration of the Plan may be delegated to such
officers and employees of the Corporation or any Subsidiary as the
Audit Committee shall determine.
22. Recapitalization and Reorganization
The number of Option Shares subject to each outstanding Option and the
purchase price for such Option Shares shall be appropriately adjusted
for any subdivision, redivision, consolidation or any similar change
affecting the Common Shares.
23. Conditions
The Plan and each Option shall be subject to the requirement that, if
at any time the Audit Committee determines that the listing,
registration or qualification of the Common Shares subject to such
Option upon any securities exchange or under any provincial, state or
federal law, or the consent or approval of any governmental body,
securities exchange, or the holders of the Common Shares generally, is
necessary or desirable, as a condition of, or in connection with, the
granting of such Option or the issue or purchase of Common Shares
thereunder, no such Option may be granted or exercised in whole or in
part unless such listing, registration, qualification, consent or
approval shall have been affected or obtained free of any conditions
not acceptable to the Audit Committee.
6
<PAGE>
24. Notices
All written notices to be given by the Optionee to the Corporation
shall be delivered personally or by registered mail, postage prepaid,
addressed as follows:
E-Cruiter.com Inc
360 Albert Street, Suite 1510
Ottawa, ON K1R 7X7
Attention: Secretary - Treasurer
Any notice given by the Optionee pursuant to the terms of an Option
shall not be effective until actually received by the Corporation at
the above address.
25. Corporate Action
Nothing contained in the Plan or in an Option shall be construed so as
to prevent the Corporation from taking corporate action which is deemed
by the Corporation to be appropriate or in its best interest, whether
or not such action would have an adverse effect on the Plan or any
Option.
26. Amendments
The Board of Directors, with approval of a majority of Common
shareholders, shall have the right, in its sole discretion, to alter,
amend, modify or terminate the Plan or any Option granted under the
Plan at any time without notice. The Plan shall not, however, be
altered, amended or modified more often than once every six months
other than to comport with changes to applicable tax and employee
benefit laws and the respective rules and regulations thereunder. No
such amendment, however, may, without the consent of the Optionee,
alter or impair any rights or increase any obligations with respect to
an Option previously granted under the Plan.
27. Third Party Offer
In the event of a Third Party Offer which is accepted by a majority of
the shareholders of the Corporation as defined below, unless otherwise
determined by the Board of Directors prior to the occurrence of such
Third Party Offer, any options outstanding as of the date of the Third
Party Offer and then not exercisable shall become fully exercisable at
the Exercise Price, provided that Optionees are not required to
exercise the options if the Third Party Offer is not for all the
Corporation's securities or the offer price per share is less than the
Exercise Price.
For the purposes of the Plan, "Third Party Offer" means the happening
of any of the following:
a) When a third party, acting at arm's length, as defined in the Income
Tax Act (Canada), as amended, makes an offer to acquire the
"beneficial ownership", as defined in the Corporations Act, directly
or indirectly, of securities of the Corporation representing 50.1
percent or more of the combined voting power of the Corporation's
then outstanding securities; or
b) When a third party, acting at arm's length, as defined in the Income
Tax Act (Canada), as amended, makes an offer to acquire the
Corporation through the purchase of assets, by amalgamation or
otherwise.
"Exercise Price" shall mean the price per share as determined herein
from time to time.
7
<PAGE>
28. Termination of Plan
Except as otherwise provided herein, Options may be granted only within
the five year period from the date the Plan has been approved by a
majority of common shareholders. The termination of the Plan shall have
no effect on outstanding Options, which shall continue in effects in
accordance with their terms and conditions and the terms and conditions
of the Plan, provided that no Option may be exercised after the fifth
anniversary of its Date of Grant.
29. Further Assurances
Each Participant shall, when requested to do so by the Corporation,
sign and deliver all such documents relating to the granting or
exercise of Options deemed necessary or desirable by the Corporation.
30. Governing Law
The Plan is established under the laws of the Province of Ontario, and
the rights of all parties and the construction and effect of each
provision of the Plan shall be according to the laws of the Province of
Ontario.
DATED this 22nd day of October, 1999.
E-CRUITER.COM INC
President _______________________
J. Gerard Stanton
Secretary _______________________
J. Potts
8
<PAGE>
SALES & MARKETING AGREEMENT
THIS AGREEMENT is made and entered into as of October 13,
1999, ("the Effective Date") by and between WorkLife Solutions, Inc., a Delaware
corporation ("WorkLife"), and E-Cruiter.com, Inc., a corporation incorporated
under the laws of Canada ("E-Cruiter").
WHEREAS, WorkLife specializes in the design, development and
installation of Internet solutions for career management and maintains a site on
the World Wide Web located at www.worklife.com, and manages the Career Channel
for AltaVista, located at www.altavista.com;
WHEREAS, E-Cruiter is a leading provider of Web-based job
posting and applicant management solutions that allow companies to utilize
Internet-based recruiting and manage the hiring process;
WHEREAS, WorkLife and E-Cruiter desire to enter into a Sales
and Marketing Agreement (the "Agreement") by which they share certain technology
and jointly promote, develop, and distribute certain services and products;
NOW, THEREFORE, in consideration of the mutual promises and
conditions set forth in this Agreement, the parties hereby agree as follows:
1. Definitions.
1.1 "E-Cruiter Code Base" shall mean E-Cruiter's current and
future shipping product set.
1.2 "E-Cruiter Solutions" shall mean (i) E-Cruiter Express,
targeted to individual recruiters on a single user basis, providing features
such as job posting, applicant response, communications with applicants, and
administration of accounts; and (ii) E-Cruiter Enterprise, targeted to
corporations or workgroups and other multiple users, providing various of the
above features as well as sharing of candidate files, job descriptions, and
similar material.
1.3 "Helius Platform" shall mean the NT, SQL-Server7,
COM-based architecture and software that may be incorporated into future
E-Cruiter products.
1.4 "Party's Brand Features" shall mean a party's trademarks,
trade names, service marks, service names and distinct brand elements that
appear from time to time in connection with their properties, products, ventures
and services worldwide and are protected under state, United States or other
jurisdiction's trademark or copyright law or as to which the party has
established trademarks or trade dress rights, including any modifications to the
foregoing, that may be created during the term of this Agreement.
1
<PAGE>
1.5 "Party's Brand Guidelines" means the guidelines for use of
a Party's Brand Features, which may be prescribed by that party from time to
time.
1.6 "Precision Matching Technology" shall mean technology and
software designs, implementation, data schema and plans for matching a
description to another description, including the matching of candidate skills
and competencies with job descriptions or requisitions.
1.7 "WorkLife Corporate Career Portal Solutions" ("CCPS")
shall mean career channels developed by WorkLife that provide career development
tools to employees and recruiting tools for Human Resources departments and
hiring management personnel. CCPS can be hosted by either WorkLife as an
Application Service Provider (ASP) or by the corporate customer.
1.8 "WorkLife Internet Career Portal Solutions" ("ICPS") shall
mean career channels developed by WorkLife that are deployed via Internet portal
companies such as AltaVista.
1.9 "Sales" shall mean customer billings excluding billings
attributable to professional services or technical support services,
irrespective of the revenue recognition policies of either party.
1.10 "Hosts" shall mean to be responsible for systems backups,
technical support and necessary updates.
2. Term.
2.1 Initial Term. The initial term of this Agreement shall be
three (3) years from the Effective Date.
2.2 Renewal. The term of this Agreement shall automatically
renew for successive terms of one (1) year each; provided, however, that either
party may elect not to renew this Agreement by providing written notice of its
intent not to renew at least ninety (90) days prior to the commencement of the
renewal term.
2.3 Termination. Either party may terminate this Agreement in
the event that the other party is in material breach provided the terminating
party provides thirty (30) days written notice specifying the breach and the
breach is not cured within those thirty (30) days, or if the breach is not
curable in a commercially reasonable manner within that time frame, the party in
breach commits sufficient resources to the remedial effort to effect a remedy as
soon as reasonably possible.
3. Technology Sharing. The parties agree to disclose to the other
during the term of this Agreement their respective technologies and
capabilities, including but not limited to E-Cruiter's Helius Platform, in the
context of joint exploration of licensing and cross-licensing opportunities of
such technologies and capabilities on mutually beneficial terms.
2
<PAGE>
4. Grant of License; Distribution.
4.1. WorkLife Corporate Career Portal Solutions. WorkLife
hereby grants E-Cruiter a fully paid, irrevocable, non-exclusive,
non-transferable, worldwide license for the term of this Agreement to use, copy
and distribute CCPS through E-Cruiter's Website or in connection with
E-Cruiter's other products as provided in this Agreement, in joint promotion
with WorkLife.
4.2. (a) E-Cruiter Solutions. E-Cruiter hereby grants WorkLife
a fully paid, irrevocable, non-exclusive, non-transferable, worldwide license
for the term of this Agreement to use, copy and distribute E-Cruiter Solutions
including but not limited to in connection with ICPS and CCPS created by
WorkLife and in connection with joint promotion efforts with E-Cruiter.
4.3 Brand Features. Each party hereby grants to the other an
irrevocable, non-exclusive, non-transferable worldwide license for the term of
this Agreement to use the other Party's Brand Features in connection with the
party's performance of their promotional obligations as set forth in this
Agreement, provided such use is consistent with the Party's Brand Guidelines.
Notwithstanding the foregoing, each party shall promptly cease any use of the
other Party's Brand Features to which the latter objects at any time.
(a) Sales Sharing. E-Cruiter shall pay royalties to WorkLife
and WorkLife shall pay royalties to E-Cruiter as described in paragraphs 4.5
through 4.7 of this Agreement.
(b) Accounting. An accounting of each month's sales by both
parties, in the currency of the individual sales transactions for which sales
sharing is provided for under this Agreement, shall be made within 30 days of
the end of each month, and payments shall be made, based on appropriate currency
conversions, in US Dollars ("USD") within 30 days of the end of the month in
which the sales were billed to customers of either party.
(c) Pricing. Each party shall sell the other Party's products,
as provided in this Agreement, at no less than the minimum prices set forth in
the Minimum Acceptable Price Schedules attached hereto as Appendix A.
4.4 Intentionally Omitted.
4.5 E-Cruiter Selling WorkLife Corporate Career Portal
Solutions.
(a) WorkLife Hosts CCPS Components. E-Cruiter shall
pay WorkLife 65% of CCPS Net Sales for the first year of the customer contract
and 75% of CCPS Net Sales for subsequent years of the customer contract. CCPS
Net Sales shall mean CCPS Gross Sales, less fees to third-party service
providers (which may include providers of training or development services) paid
by E-Cruiter. CCPS Gross Sales shall mean all billings derived from the sale of
WorkLife products through E-Cruiter's Web site, or other direct or indirect
selling efforts.
3
<PAGE>
(b) E-Cruiter Hosts CCPS components. E-Cruiter shall
pay WorkLife 50% of CCPS Net Sales.
(c) E-Cruiter Authorized Reseller Sells CCPS
Components. WorkLife shall pay E-Cruiter 5% of CCPS Net Sales, concurrent to
E-Cruiter paying to WorkLife royalties payable under paragraphs 4.5(a) and/or
4.5(b) of this Agreement. Payments to the reseller shall be made by E-Cruiter.
4.6 WorkLife Selling CCPS Bundled Together with E-Cruiter
Solutions.
(a) E-Cruiter Hosts E-Cruiter Solution Components.
Where WorkLife sells its CCPS bundled together with E-Cruiter Solutions and
E-Cruiter Hosts the E-Cruiter Solutions component of the CCPS, WorkLife shall
pay E-Cruiter 65% of E-Cruiter Solutions Net Sales in the first year of the
customer contract and 75% in subsequent years of the customer contract.
E-Cruiter Net Sales is defined as gross sales attributable to E-Cruiter
Solutions components less any third-party fees (such as job postings or
selection testing services). E-Cruiter and WorkLife agree to price their
respective components of the bundled solution separately in their respective
sales contracts (the "Sales Contract"). Sales attributable to either party shall
be determined on the basis of the Sale Contracts.
(b) WorkLife Hosts E-Cruiter Solution Components.
WorkLife shall pay E-Cruiter 50% of E-Cruiter Net Sales in all years of the
customer contract.
(c) WorkLife Authorized Reseller Sells E-Cruiter
Solution Components. E-Cruiter shall pay WorkLife 5% of E-Cruiter Net Sales,
concurrent to WorkLife paying to E-Cruiter royalties payable under paragraphs
4.6(a) or 4.6(b) of this Agreement. Payments to the authorized reseller shall be
made by of WorkLife.
4.7 WorkLife Selling Internet Career Portals with
E-Cruiter Solution Components.
(a) WorkLife shall pay to E-Cruiter 50% of Internet
Career Portal E-Cruiting Net Net Sales ("ICPS E-Cruiting Net Net Sales"). ICPS
E-Cruiting Net Net Sales shall mean ICPS E-Cruiting Net Sales minus Marketing
Channel Fees. Marketing Channel Fees means fees paid to Internet portals,
including but not limited to AltaVista, strategic advertisers, or institutions
in connection with the distribution of WorkLife's ICPS. Marketing Channel Fees
shall not exceed 30% of ICPS E-Cruiting Net Sales. ICPS E-Cruiting Net Sales
equals all sales derived from all customers, whether corporate or individual,
who employ E-Cruiter Solutions within ICPS built by WorkLife, minus:
4
<PAGE>
(i) Third party fees, including fees
paid to job boards;
(ii) Cost of Goods; provided, however,
E-Cruiter shall pay the cost of goods associated with the Hosting of E-Cruiter
Solutions by the parties ("Cost of Goods") unless otherwise agreed. Cost of
Goods shall be equal to 15% of sales derived from all customers deploying
E-Cruiter Solutions within ICPS built by Worklife ("ICPS Gross Sales");
(b) Selling Costs. The cost of sales, including the
cost of handling customer accounts, collections and disbursements, e-commerce
transactions, and telesales ("Cost of Sales"), shall be paid by E-Cruiter unless
otherwise agreed by the parties. Cost of Sales shall be equal to 20% of ICPS
Gross Sales in year one of this Agreement and 15% of ICPS Gross Sales in
subsequent years of this Agreement.
(c) Administration of Accounts. E-Cruiter will
directly administer the number of recruiter bundles sold and sales collection
from recruiters and/or employers. WorkLife or E-Cruiter, in any combination, may
administer the set-up and maintenance of accounts to individuals, recruiters or
employers in the event that such services are developed during the term of this
Agreement.
4.8 Other Business Model(s). In the event that WorkLife and E-Cruiter
agree upon another model for selling and hosting E-Cruiter Solutions components,
the parties will at that time mutually agree upon fair and reasonable terms with
respect to revenue sharing.
4.9 Audit Rights. Each party shall maintain accounting and
administrative records of its sales transactions, Cost of Goods, Cost of Sales
and other costs during the term of this Agreement and for a period of one year
thereafter. At any time during the term of this Agreement, and for a period of
one year thereafter, either party may initiate an independent financial audit
("Audit") of the other party's calculations and payments made in connection with
the terms of this Agreement. The cost of the Audit is to be borne by the
initiating party. The party under audit shall, at such times and in such places
as shall be mutually convenient to the parties, permit auditors to make
photocopies of all documents relating to the Audit.
5. Milestones. The parties agree to use commercially reasonable efforts
to reach the following milestones:
-----------------------------------------------------------------------
Alta Vista Launch. Complete the project Oct 8th, 1999
plan and schedule. Identify
resources
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Deliver a joint Technology Plan for Future Dec 17th, 1999
Co-Development
-----------------------------------------------------------------------
6. Content Partner Program Purchase. E-Cruiter agrees to purchase the
Employment Classifieds category in WorkLife's Content Partner Program at the
time of the launch of the new E-Cruiting portion of the WorkLife Career Portal
for a minimum of 1,000,000 monthly page impressions on WorkLife's careers home
page on Alta Vista at WorkLife's preferred pricing terms (the "Content Partner
Program Purchase"), for a period of one year; provided, however, that E-Cruiter
may terminate its obligations under this paragraph 6 at any time after three
months after the date of the Content Partner Program Purchase by providing 30
days written notice to WorkLife. Preferred pricing shall not exceed $15,000 USD
per month. Additional impressions in excess of 1,000,000 per month will be
charged at $15 USD per month per thousand, with the total monthly charge not to
exceed $30,000 USD per month.
5
<PAGE>
7. Promotion; Cooperation. The parties shall engage in the following
individual and joint promotional activities and joint development projects.
7.1 Joint.
(a) Any public announcement relating to this
Agreement or the parties' relationship shall be subject to the parties' mutual
written approval, which shall not be unreasonably withheld or delayed.
(b) The parties shall, within fifteen (15) days of
the Effective Date, meet to prepare a joint promotion campaign publicizing this
Agreement, and make commercially reasonable efforts to include Alta Vista in the
public relations campaign.
(c) The parties shall introduce each other to
potential business customers or partners, including WorkLife's introduction of
E-Cruiter to Alta Vista as soon as is practicable after the Effective Date and
WorkLife's introduction of E-Cruiter to MSN.com upon a determination by WorkLife
that the contributions of E-Cruiter can add value to the existing
WorkLife-MSN.com endeavor.
(d) The parties shall hold joint monthly business
development meetings at mutually convenient locations.
(e) The Parties may refer publicly to this Agreement
as a "Strategic Alliance."
(f) The parties agree to explore mutually beneficial
development projects that may include but are not limited to the following:
(i) Inclusion of Precision Matching
technology from WorkLife, with or without modifications or extensions by either
party, into the E-Cruiter Code Base.
(ii) Development of bridging software to
include WorkLife CCPS components into the E-Cruiter Code Base.
(iii) Examination of Helius Platform as the
architecture on which to develop future releases of WorkLife CCPS or ICPS
products and services.
6
<PAGE>
(iv) Development of ideas and intellectual
property of either party to add features, such as advanced competency analysis,
assessment, testing and resume building modules into the E-Cruiter Code Base.
7.2 E-Cruiter. E-Cruiter agrees to promote this Agreement in
accordance with a promotional plan to be developed in consultation with
WorkLife. E-Cruiter will work with WorkLife to create badge and content for the
co-branded pages of the ICPS. Other promotional activities may include
advertising in trade publications and career/recruiting Web sites, participation
in trade shows, direct mail campaigns and the hosting of chat sessions for
recruiters.
7.3 WorkLife. WorkLife agrees to promote this strategic
alliance in accordance with a promotional plan to be developed in consultation
with E-Cruiter. The plan may include strategies to create awareness with
analysts, press briefings, press releases, work with AltaVista to promote the
new E-Cruiting offering on the AltaVista home page and the Careers Channel home
page, lead generating activities including chat sessions hosted by and
discussions led by E-Cruiter, and support for E-Cruiter led marketing efforts as
appropriate.
8. Customer Data. The parties agree to promptly share all user and
customer data acquired through any promotional efforts or sales under this
Agreement and both parties shall be considered owners of such data and may make
such use of it as the law allows. The parties agree that they will not resell
this data or share this data with third parties unless mutually agreed and as
permitted by law. The parties shall work together to make appropriate
disclosures to users regarding the use of such data.
9. Exclusivity. Except as otherwise set forth herein, the parties agree
to deal exclusively with the other in the development and sale of Internet
career portals during the term of this Agreement.
10. Intentionally Omitted.
11. Confidentiality and Proprietary Information; Non-disclosure. The
parties acknowledge that during the term of this Agreement they will acquire
proprietary and confidential information about the other, potentially including
but not limited to, business methods, trade secrets, know-how, inventions,
techniques, processes, algorithms, software, source code, designs, schematics,
contracts, customer lists, financial information, sales and marketing
information, and other business information, relating to the operation of their
respective businesses ("Confidential Information"). Confidential Information
includes but is not limited to all material identified in this Agreement as the
material shared, to be shared, licensed, or to be licensed, to or from E-Cruiter
or WorkLife to the other. Each agrees (i) that it will protect the other's
Confidential Information from unauthorized use or disclosure; (ii) that it will
not disclose the other's Confidential Information to any third party without the
other's prior written consent; (iii) that it will take reasonable steps to
ensure that no unauthorized person has access through it to the other's
Confidential Information; (iv) that it will promptly return all tangible or
electronic copies of the other's Confidential Information to such other upon its
request; and (v) that it will only use the other party's Confidential
Information for the purposes set forth in this Agreement. Notwithstanding the
foregoing, Confidential Information does not include any information that (a) is
acquired by a party from any source other than the other party without
restriction as to its use or disclosure; or (b) is or becomes available to the
public other than through a breach of this Agreement by the acquiring party.
This non-disclosure obligation shall survive the termination of this Agreement
for a period of two (2) years.
7
<PAGE>
12. Ownership.
12.1 Reserved Rights. Each party reserves all rights other
than those expressly granted in this Agreement, and no ownership is transferred
or licenses granted except as expressly set forth in this Agreement.
12.2 Jointly Developed Products. With respect to any
technology developed by either WorkLife or E-Cruiter that either (a) adds new
features to the products of the non-developing party, (b) is software needed to
incorporate WorkLife's products into E-Cruiter's Code Base or E-Cruiter's
services into WorkLife's products or services, or (c) is technology needed to
imbed the Precision Matching Technology into E-Cruiter's products or services,
such technology shall be the property of the party developing it (the
"Developing Party"); provided, however, that upon request, the Developing Party
shall execute in favor of the non-developing party a fully paid, irrevocable,
non-exclusive, non-transferable, worldwide license for the term of this
Agreement to use, copy and distribute such technology.
13. Representations and Warranties. The parties represent and warrant
for themselves as follows:
(a) That it is duly organized and validly existing as a
corporation and is in good standing under the laws of its organization and that
it has the power and authority to enter into this Agreement.
(b) That it has the corporate power and authority to transact
the business in which it is engaged and holds all necessary federal, state, and
local permits, licenses or approvals, including exemptions, where applicable, to
perform its business and its obligations under this Agreement, and that it is in
good standing under such permits, licenses and approvals.
(c) That neither the Party's Brand Features nor any
intellectual property underlying any technology licensed under paragraph 4
hereof infringes, misappropriates or otherwise violates any intellectual
property right of a third party.
14. Indemnification.
14.1 Indemnity. Each party (the "Indemnifying Party") agrees
to defend, indemnify, and hold the other party, its officers, directors,
employees and agents (the "Indemnified Party"), harmless from any obligations,
costs, claims, judgments, losses, expenses and liabilities (including reasonable
attorneys' fees) incurred as a result of any claim by a third party to the
extent caused by (i) a breach of the Indemnifying Party's obligations,
representations or warranties under this Agreement; (ii) a material act or
material failure to act by the Indemnifying Party related directly or indirectly
to the activities contemplated by this Agreement if taken at the direction or
request of the Indemnifying Party; (iii) an alleged misrepresentation, negligent
or otherwise, made by the Indemnifying Party to a third party concerning the
service or products of the Indemnified Party; or (iv) a fraudulent act, willful
misconduct or gross negligence committed by any officer, director, employee or
agent of the Indemnifying Party (whether or not within the scope of his or her
employment or agency) related directly or indirectly to the activities
contemplated by this Agreement .
8
<PAGE>
14.2 Notice. In the event either party becomes aware of any
action proceeding, claim or demand (collectively, an "Action") that may result
in a claim for indemnification hereunder, the Indemnified Party shall promptly
notify the Indemnifying Party of the Action. The Indemnifying Party may assume
the sole responsibility for defense of the Action (at its sole cost and expense)
if it so notifies the Indemnified Party within thirty (30) calendar days after
receiving the above notice of the Action. If the Indemnifying Party fails to
notify the Indemnified Party of the former's desire to assume responsibility for
defense of the Action, the Indemnified Party may defend the Action at the cost
and expense of the Indemnifying Party, in which case the Indemnifying Party
shall periodically reimburse the Indemnified Party of such costs and expenses
within thirty (30) calendar days of receiving a demand for reimbursement,
provided such demand includes detailed backup of such costs and expenses. No
Action may be settled without the Indemnifying Party's consent, which consent
shall not be unreasonably withheld.
15. Waiver of Consequential Damages. IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY LOSS OF USE, LOSS OF PROFIT, INTERRUPTION OF
BUSINESS, ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES
OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION, WHETHER
IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE, EVEN IF
THAT PARTY HAS BEEN ADVISED OR SHOULD HAVE BEEN AWARE OF THE POSSIBILITY OF SUCH
DAMAGES.
16. Notices. All notices and other communications provided for
hereunder shall be in writing and may be sent by facsimile, overnight courier or
e-mail (provided e-mail delivery is confirmed by facsimile or overnight courier)
to the following authorized representative of the parties (or to such other
address or person as the parties may notify each other), and will be effective
on the earlier of (a) two (2) days after being deposited in registered or
certified mail; (b) one day after being sent by overnight courier; or (c) when
received:
WorkLife Solutions, Inc.
20770 Monte Sunset Drive
San Jose, CA 95120
Attention: President
E-Cruiter.com, Inc.
Suite 1510
360 Albert Street
Ottowa, Ontario
Canada K1R7X7
Attention: President
9
<PAGE>
17. General.
17.1 Final Agreement. This Agreement is the entire agreement
between the parties regarding the subject matter hereof and supersedes all prior
and contemporaneous agreements, verbal or written. This Agreement may only be
amended by a writing executed by both parties.
17.2 Governing Law. This Agreement shall be governed by the
laws of California without application of its conflicts of law principles.
17.3 Attorneys' Fees. In any action to enforce this Agreement,
the prevailing party shall be entitled to recover its court costs and expenses,
and its reasonable attorneys' fees, in addition to any other relief to which it
may be entitled.
17.4 No Waiver. No waiver of any right hereunder shall be
deemed to be a waiver of the same or any other right on any other occasion.
17.5 Assignment. Neither party may assign this Agreement or
any of its rights or obligations hereunder (whether voluntarily or by operation
of law) without the prior written consent of the other party, except that (i)
E-Cruiter may assign this Agreement to its subsidiary E-Cruiter.com USA Inc. and
(ii) either party may assign this agreement to an entity that acquires all or
substantially all of its assets, or that has all or substantially all of its
assets controlled by that party.
17.6 Change in Control. A purchaser of substantially all of
the assets of WorkLife or a successor to the business of WorkLife shall be
required to assume the terms of this Agreement.
17.7 Severability. If any provision of this Agreement is held
illegal or unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall remain in effect and the invalid provision
deemed modified to the least degree necessary to remedy such invalidity.
17.8 Survivability. Sections 8, 11, 12, 13 and 14 shall
survive the termination or expiration of this Agreement.
17.9 Relationship of Parties. The parties hereto are
independent contractors and nothing in this Agreement is intended to or should
be construed to create a partnership, joint venture, or employment relationship
between E-Cruiter and WorkLife, nor to permit either party to create binding
agreements on behalf of the other.
10
<PAGE>
17.10 No Third Party Beneficiaries. Nothing express or implied
in this Agreement is intended to confer, nor shall anything herein confer, upon
any person other than the parties and the respective successors or permitted
assigns of the parties, any rights, remedies, obligation or liabilities
whatsoever.
17.11 Subject Headings. The subject headings of this Agreement
are included for the purpose of convenience only, and shall not affect the
construction or interpretation of any of its provisions.
17.12 Force Majeure. Nonperformance by either party shall be
excused to the extent that performance is rendered impossible by strike, fire,
flood, state of war (declared or undeclared), earthquake, governmental acts or
orders, failure of suppliers, natural or manmade disaster, or any other reason
where failure to perform is wholly beyond the control and not caused by the
negligence of the nonperforming party; provided that any such nonperformance
will be cause for termination of this Agreement by the other party if
nonperformance covered by this subsection continues for more than sixty (60)
days.
17.13 Counterparts; Facsimiles. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts copy or copies executed by
it. For purposes hereof, a facsimile copy of this agreement, including the
signature page thereof, shall be deemed to be an original.
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the Effective Date.
WORKLIFE SOLUTIONS, INC. E-CRUITER.COM, INC.
By: By:
---------------------------- -----------------------------
Sunir K. Kapoor Gerry Stanton
Chairman and CEO President and CEO
<PAGE>
Appendix A
Minimum Acceptable Price Schedule
Section A1: E-Cruiter Solutions Minimum Acceptable Price Schedule
Schedule to be completed by October 31st 1999.
Section A2: WorkLife Solutions Minimum Acceptable Price Schedule
Schedule to be completed by October 31st 1999.
<PAGE>
1
OPTION AGREEMENT
THIS AGREEMENT is made as of the 13th day of October 1999.
BETWEEN:
PAUL CHAMPAGNE,
of the Regional Municipality of Ottawa Carleton, Province of Ontario
(hereinafter referred to as "Champagne")
AND:
E-CRUITER.COM INC.,
a corporation incorporated under the laws of Canada
(hereinafter referred to as "E-Cruiter")
WHEREAS:
A. Champagne and Worklife Solutions, Inc. ("Worklife") entered into a
letter agreement dated as of October 13, 1999 (the "Letter Agreement"),
a copy of which is attached hereto as Schedule "A"; and
B. The parties wish to set forth herein the terms by which Champagne may
assign to E-Cruiter all of his right, title and interest in the Letter
Agreement and all documents referenced therein.
NOW THEREFORE in consideration of the premises and the mutual covenants
herein and other good and valuable consideration (the receipt and sufficiency of
which is hereby acknowledged by each of the parties) the parties hereto covenant
and agree as follows:
<PAGE>
2
1. DEFINITIONS
1.1 "Agreement" "hereto", "herein", "hereof", "hereunder" and similar
expressions refer to this Assignment Agreement and not any particular
paragraph or any particular portion of this agreement and includes all
schedules attached to this agreement.
2. OPTION
------
2.1 E-Cruiter shall have an option, with the consent of Champagne, to
acquire all of the rights granted by the Letter Agreement and all of
the shares issued to Champagne pursuant to that Letter Agreement at a
price to be the greater of: the fair market value of the rights and
shares granted by the Letter Agreement or US$1,000,000. The term of
this option shall be for a period of six (6) months effective this
date. The option may be extended by mutual consent for a further six
(6) months.
3. FURTHER ASSURANCES
------------------
3.1 The parties hereto shall do all further acts and things and execute
all further documents reasonably required in the circumstances to
effect the provisions and intent of this Agreement.
4. ENTIRE AGREEMENT
----------------
4.1 This Agreement together with the Schedule attached hereto
constitutes the entire agreement between the parties and supersedes all
prior and contemporaneous agreements, understandings and discussions,
whether oral or written, and there are no other warranties, agreements
or representations between the parties except as expressly set forth
herein.
5. PROPER LAW
----------
5.1 This Agreement shall be governed by and interpreted in accordance
with the laws of the Province of Ontario, and the laws of Canada
applicable therein.
<PAGE>
3
6. AMENDMENT OF AGREEMENT
----------------------
6.1 This Agreement may be altered, amended or annulled at any time by
the mutual consent in writing of the parties hereto.
7. HEADINGS
--------
7.1 The headings appearing throughout this Agreement are inserted for
convenience only and form no part of the Agreement.
8. SEVERABILITY
------------
8.1 The invalidity or unenforceability of any provision of this
Agreement will not affect the validity or enforceability of any other
provision hereof and any such invalid or unenforceable provision will
be deemed to be severable.
9. WAIVERS
-------
9.1 No amendment, waiver or termination of this Agreement will be
binding unless executed in writing by the parties to be bound hereby.
No waiver of any provision of this Agreement will be deemed or will
constitute a waiver of any other provision, nor will any such waiver
constitute a continuing waiver unless expressly provided.
10. COUNTERPARTS
------------
10.1 This Agreement may be executed in several counterparts, all of
which together shall constitute one and the same instrument. This
Agreement may be executed by facsimile with originally executed
documents to follow by courier thereafter and shall be as binding as if
originally executed.
IN WITNESS WHEREOF this Agreement has been executed by the parties
hereto as of the date first set forth above.
<PAGE>
4
SIGNED, SEALED AND DELIVERED
---------------------------
Witness PAUL CHAMPAGNE
E-CRUITER.COM INC.
Per:
-----------------------
Title:
<PAGE>
5
SCHEDULE "A"
LETTER AGREEMENT
Paul Champagne
141 Kerry Hill Crescent
Dunrobin, Ontario
Canada K0A 1T0
October 13, 1999
Sunir K. Kapoor
Chairman & CEO
WorkLife Solutions, Inc.
20770 Monte Sunset Drive
San Jose, CA 95120
Re: Upcoming Transactions
Dear Mr. Kapoor:
I am writing this letter (the "Letter") in reference to that Secured Promissory
Note ("First Note") and Security Agreement ("Security Agreement") dated as of
September 30, 1999 by and between WorkLife Solutions, Inc., a Delaware
corporation ("WorkLife") and Paul Champagne ("Champagne"). In connection with
the transactions contemplated in the above-referenced documents, I am writing to
clarify certain agreements and understandings of the parties that are not fully
memorialized in such documents.
We now agree as follows:
1. Second Secured Promissory Note. Following WorkLife's execution of the Secured
Promissory Note ("Second Note") attached hereto as Exhibit A, and the Amendment
to the Security Agreement, attached hereto as Exhibit B, Champagne shall
transfer to WorkLife a principal amount of Eight Hundred Thousand U.S. Dollars
($800,000). In connection with the above and that Inter-Creditor Agreement dated
as of October 6, 1999 by and between WorkLife, Champagne, and Minority
Enterprise Fund, L.P., a California limited partnership ("MEF"), WorkLife shall
also promptly obtain for Champagne an original counterpart of the Amendment to
the Inter-Creditor Agreement, attached hereto as Exhibit C, duly executed by an
authorized MEF representative.
<PAGE>
6
2. Board Position. WorkLife shall make every effort to ensure that Champagne's
designee is appointed or elected as a member of WorkLife's Board. Such effort
shall include taking all actions to increase the size of the Board and electing
Champagne's designee to fill such vacancy, all in accordance with Article 3 of
the WorkLife Bylaws. In addition, WorkLife shall promptly procure for Champagne
counterparts of the Voting Agreement attached hereto as Exhibit D, duly executed
by WorkLife stockholders holding a sufficient number of shares to ensure the
election of Champagne's designee to the Board on an ongoing basis.
3. Acquisition of WorkLife. If WorkLife does not raise at least Two Million U.S.
Dollars ($2,000,000) in new capital through its Series C Preferred Stock
financing, such amount not to include any amounts received from Champagne
("Series C Financing"), after the date hereof and on or prior to December 31,
1999, or at least Four Million U.S. Dollars ($4,000,000) after the date hereof
and on or prior to January 31, 2000, Champagne shall have the option to purchase
WorkLife for a price determined by an independent business valuation
professional mutually agreeable to WorkLife and Champagne (each an "Acquisition
Option," and collectively the "Acquisition Options"). If WorkLife and Champagne
are unable to agree on such a professional within 10 days after Champagne's
exercise of an Acquisition Option, either party may apply to Arthur Andersen for
such independent valuation, which valuation shall be final for the purposes of
such Acquisition Option. Any valuation of WorkLife under this paragraph shall be
based upon the likely value of what an independent party would pay to purchase
all of the outstanding capital stock or assets of WorkLife, on a fully diluted
basis, given the financial condition of WorkLife at the time of such valuation.
In the event that WorkLife receives a bonafide offer to be acquired by
a third party prior to the effective date of either Acquisition Option,
Champagne shall have the right to acquire WorkLife on the same terms as the
third party offer ("Third Party Option"). If Champagne fails to exercise its
Third Party Option within 10 days after receiving written notice of the third
party's offer, WorkLife may accept the third party's offer, and Champagne's
Acquisition Options shall be terminated. Notwithstanding the foregoing,
Champagne's Acquisition Options shall continue in force if either (a) WorkLife
and the third party do not enter into a binding agreement regarding the
consummation of the acquisition contemplated by the third party's offer within
30 days of such offer, or (b) such acquisition by the third party is not
consummated within 180 days of such offer.
<PAGE>
7
The Acquisition Options and the Third Party Option shall be exercised
by the delivery of written notice from Champagne to WorkLife within ten (10)
days after the date the option becomes effective evidencing his desire to
exercise such option. Upon Champagne's exercise of any option, WorkLife shall
cooperate with Champagne to determine the form of acquisition that will be most
beneficial to Champagne, such determination to include review of tax issues and
corporate approval procedures. Champagne shall make the final determination as
to the form of the acquisition, and WorkLife shall make every effort to ensure
that all necessary approvals are received in order to effect the acquisition. In
order to give effect to Champagne's options, promptly following the execution of
this Letter, WorkLife shall procure counterparts of the Voting Agreement
attached hereto as Exhibit D, duly executed by WorkLife stockholders holding a
sufficient number of shares to ensure the approval of any acquisition of
WorkLife by Champagne.
4. Conversion of Notes. Following the execution of the Voting Agreement as
outlined in Sections 2 and 3 above, and following written confirmation of MEF's
agreement to simultaneously convert its outstanding debt from WorkLife, whether
fixed or contingent, into shares of WorkLife's capital stock, Champagne shall
immediately tender the First Note and the Second Note for shares of WorkLife's
Series C Preferred Stock ("Series C Shares"). The amount of Series C Shares
issued to Champagne shall be equal to the principal value of the notes together
with any accrued interest thereon, divided by the lowest price paid for the
purchase of one Series C Share of WorkLife by outside investors (currently $1.50
per share). Notwithstanding the above and any provisions currently contained in
any Series C Financing documents, Champagne shall receive Series C Shares on
conditions no less favorable than those granted to any other recipient of Series
C Shares. Following Champagne's receipt of any Series C Shares, Champagne shall
have the right to freely transfer all or a portion of such Series C Shares to a
designee. Upon the conversion of all outstanding amounts owed under the First
Note and the Second Note into Series C shares of WorkLife, Champagne or his
designee shall take all actions necessary to release all of his liens on the
assets of WorkLife, including filing UUC-3 termination statements.
5. Issuance of Common Stock. Champagne has entered into a strategic partnership
with WorkLife under which Champagne, as a principal shareholder of
E-Cruiter.com, Inc., a corporation incorporated under the laws of Canada
("E-Cruiter"), shall cause E-Cruiter to enter into that Sales & Marketing
Agreement with WorkLife dated as of October 13, 1999. As an inducement to cause
E-Cruiter to enter into such agreement, WorkLife shall issue to Champagne an
amount of shares of WorkLife's Common Stock equal to 11% of WorkLife's capital
stock then outstanding. At the closing of the Series C Financing, but in no
event later than January 31, 2000, WorkLife shall issue to Champagne an
additional amount of shares of WorkLife's Common Stock sufficient to provide
Champagne with an aggregate of at least 15% of the shares of WorkLife's capital
stock on a fully diluted basis, such percentage to also include any Series C
Shares already received or to be received by Champagne as a result of the tender
or proposed tender of the First Note and Second Note under Section 4 above.
<PAGE>
8
6. Assignment. Champagne shall have the right to assign to E-Cruiter any rights
under this Letter and the related agreements, in whole or in part, by giving
written notice to Worklife. Champagne shall also have the right to assign all of
his rights under this Letter and the related agreements, in whole but not in
part, to an assignee other than E-Cruiter, by giving written notice to WorkLife.
Contemporaneously with any assignment under this Letter, the assignee must agree
in writing to be bound by the relevant terms of this Letter.
7. Governing Law. This Letter shall be governed by and construed in accordance
with the laws of California, without regard to its principles of conflicts of
laws.
8. Counterparts. This Letter may be executed in one or more counterparts for the
convenience of the parties hereto, all of which together shall constitute one
and the same Letter. Facsimile copies of this Letter and the Exhibits hereto, as
well as any signatures received by facsimile, shall be treated as originals.
9. Supremacy. In the event of any discrepancy between the terms of this Letter
and the terms of the documents referred to herein, the terms set forth herein
shall control.
If the foregoing accurately reflects the agreements and understandings between
us, please so acknowledge by signing and returning the enclosed copy of this
Letter.
Very truly yours,
Paul Champagne
ACKNOWLEDGED AND AGREED AS OF OCTOBER 13, 1999:
Sunir K. Kapoor
Chairman & CEO
WorkLife Solutions, Inc.
<PAGE>
9
Exhibit A
SECURED PROMISSORY NOTE
US$800,000 October 13, 1999
San Jose, California
FOR VALUE RECEIVED, WorkLife Solutions, Inc.("Maker"), promises to pay
to Paul Champagne, or order (collectively, the "Holder"), at 141 Kerry Hill
Crescent, Dunrobin, Ontario, Canada K0A 1T0, or such other place as Holder may
from time to time designate, in lawful money of the United States, the principal
sum of Eight Hundred Thousand Dollars ($800,000), plus interest thereon, in the
manner set forth below.
1. Interest. Interest on the principal sum of this Secured Promissory
Note (the "Note") will accrue at the rate of seven percent (7 1/8%) per annum
based on a 360 day year and the actual number of days elapsed.
2. Payment. The entire principal sum and all accrued interest and any
other sums payable hereunder (collectively, the "Payment") will be due and
payable in full on November 15, 1999 (the "Maturity Date").
3. Default Interest. If Maker fails to make the Payment by the Maturity
Date, whether or not Holder has declared a default hereunder, interest will
accrue on the delinquent Payment at the rate of eleven percent (11%) per annum
(the "Default Rate") commencing on the Maturity Date and continuing until all
sums due and owing under this Note are received by Holder.
4. Prepayment. This Note may be prepaid in whole or in part, at any
time.
5. Application of Payments. All payments received by Holder will be
applied first to all fees, costs, and expenses incurred by Holder with respect
to this Note or any other document executed by Maker in connection herewith;
second, to accrued and unpaid interest; and third, to the unpaid principal
balance of this Note.
6. Security. This Note is secured by a Security Agreement dated as of
September 30, 1999 and amended as of even date herewith(the "Security
Agreement"), pursuant to which Maker granted to Holder a blanket first lien and
security interest in all of Maker's assets (collectively, the "Collateral").
<PAGE>
10
7. Default and Remedies.
7.1 Default. Maker will be in default under this Note if: (i)
Maker fails to make the Payment by the Maturity Date, (ii) Maker breaches any
other covenant or agreement under this Note, (iii) Maker agrees to or does sell,
convey, encumber, hypothecate or otherwise alienate the Collateral, or any part
thereof, or any interest therein, or is divested of its title to the Collateral
or any interest therein in any manner or in any way, whether voluntarily or
involuntarily, without the prior written consent of Holder, or (iv) an event of
default occurs under the Security Agreement.
7.2 Remedies. Upon Maker's default, Holder may: (i) upon
written notice to Maker, declare the entire principal sum and all accrued and
unpaid interest hereunder immediately due and payable and (ii) exercise any and
all of the remedies provided in the Security Agreement and by law.
8. Waivers. Maker, and any endorsers or guarantors hereof, severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor, acceleration, intent to accelerate, and nonpayment of this
Note, and expressly agree that this Note, or any payment hereunder, may be
extended from time to time without notice, and consent to the acceptance of
further security or the release of any security for this Note, all without in
any way affecting the liability of Maker or any endorsers or guarantors hereof.
No extension of time for the payment of this Note, or any installment hereof,
agreed to by Holder with any person now or hereafter liable for the payment of
this Note, will affect the original liability of Maker under this Note, even if
Maker is not a party to such agreement. Holder may waive its right to require
performance of or compliance with any term, covenant or condition of this Note
only by express written waiver.
9. Maximum Legal Rate of Interest. All agreements between Maker and
Holder, whether now existing or hereafter arising, are hereby limited so that in
no event will the interest charged hereunder or agreed to be paid to Holder
exceed the maximum amount permissible under applicable law. Holder will be
entitled to amortize, prorate and spread throughout the full term of this Note
all interest paid or payable so that the interest paid does not exceed the
maximum amount permitted by law. If Holder ever receives interest or anything
deemed interest in excess of the maximum lawful amount, an amount equal to the
excessive interest will be applied to the reduction of the principal, and if it
exceeds the unpaid balance of principal hereof, such excess will be refunded to
Maker. If interest otherwise payable to Holder would exceed the maximum lawful
amount, the interest payable will be reduced to the maximum amount permitted
under applicable law. This paragraph will control all agreements between Maker
and Holder in connection with the indebtedness evidenced hereby.
3
<PAGE>
11
10. Representations and Warranties. Maker represents and warrants to
Holder that it has full power, authority and legal right to execute, deliver and
comply with this Note and any other document or instrument relating to this Note
to be executed by it. All corporate actions of Maker that are necessary or
appropriate for the execution and delivery of and compliance with this Note and
such other documents and instruments have been taken. Upon its execution and
delivery, this Note will constitute the valid and legally binding obligation of
Maker, enforceable against it in accordance with its terms, subject only to
bankruptcy, insolvency, reorganization, moratorium and other laws applicable to
creditors' rights or the collection of debtors' obligations generally.
11. Successors and Assigns. The terms of this Note will inure to the
benefit of and bind Maker and Holder and their respective heirs, executors,
administrators, legal representatives, successors, assigns, agents,
representatives, spouses, and all persons claiming by or through them.
12. Time. Time is of the essence with respect to all of the provisions
of this Note.
13. Replacement Note. If this Note is destroyed, lost or stolen, Maker
will deliver a new secured promissory note to Holder on the same terms and
conditions as this Note, with a notation of the unpaid principal and accrued and
unpaid interest in substitution of the prior Note. Holder will furnish to Maker
reasonable evidence that the Note was destroyed, lost or stolen and any security
or indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
14. Governing Law; Arbitration; Venue; Equitable Relief.
14.1 Governing Law. This Note will be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to principles of conflicts of laws.
14.2 Initiation of arbitration proceeding. Maker agrees that
all disputes, claims and controversies between Maker and Holder concerning the
interpretation or enforcement of this Note, or any other matter arising out of
or relating to this Note, will be arbitrated pursuant to the provisions of this
paragraph. Either Maker or Holder may initiate an arbitration proceeding by
making a written demand for arbitration and serving a notice of said demand upon
the adverse party by hand delivery or overnight, express carrier, and upon the
San Francisco regional office of J.A.M.S ("JAMS"). A written
response to the demand must be served upon the initiating party and JAMS within
ten (10) days of the adverse party's receipt of the demand.
4
<PAGE>
12
14.3 Selection of arbitrator. The arbitration will be
conducted by a single arbitrator who is a retired judge associated with the San
Francisco regional office of JAMS. The arbitrator will be selected in accordance
with the JAMS Rules of Practice & Procedure for Arbitration then in effect (the
"JAMS Rules") within fourteen (14) days of the service of the written demand for
arbitration. If Maker and Holder cannot so agree upon the selection of the
arbitrator within the fourteen (14) day period, then the arbitration will be
conducted by a single arbitrator who will be a retired judge associated with the
San Francisco regional office of JAMS, and who will be selected by JAMS within
five (5) days of the service of a written request that JAMS select the
arbitrator.
14.4 Venue. Maker covenants and agrees that any arbitration
proceeding instituted under the provisions of this Note will be conducted in San
Francisco through the San Francisco regional office of JAMS. Maker acknowledge
to Holder that its agreement to abide by the specific provisions of this
paragraph is a material inducement to Holder to make the loan evidenced by this
Note, and that Holder is reasonably relying upon Maker's representation.
14.5 Arbitration hearing and award. The arbitration hearing
will be conducted within thirty (30) days of the appointment of the arbitrator.
The arbitration will be conducted in accordance with the JAMS Rules. The
arbitrator's award will be conclusive and binding upon Maker and Holder. The
arbitrator's award will provide, among other things, that the prevailing party
in the arbitration is entitled to recover from the adverse party its costs and
expenses incurred in connection therewith including, without limitation,
attorneys' fees as determined by the arbitrator, the costs of the arbitration,
and actual out-of-pocket expenses including, without limitation, expert witness
and consultants' fees, if any. Judgment upon the arbitrator's award may be
entered in any court of competent jurisdiction.
14.6 Equitable Relief. The Arbitrator has the authority to
grant Holder or Maker equitable relief on such terms and conditions as it deems
reasonably necessary or appropriate.
<PAGE>
13
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
Maker:
WORKLIFE SOLUTIONS, INC.
By:___________________________
Sunir Kapoor
Chairman & Chief Executive Officer
<PAGE>
14
Exhibit B
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO security AGREEMENT ("Amendment") is made and
entered into as of the 13th day of October, 1999, by and between WorkLife
Solutions, Inc., a Delaware corporation ("Borrower"), and Paul Champagne
("Lender").
R E C I T A L S
A. On or about September 30, 1999, Lender and Borrower entered into a
Security Agreement dated as of September 30, 1999 (the "Agreement"), pursuant to
which Borrower granted to Lender a security interest in all of Borrower's
assets, as security for the payment and performance of Borrower's obligations
under a secured promissory note dated September 30, 1999, in the principal face
amount of $200,000 (the "Note"), which Borrower made, executed, and delivered to
Lender, and which evidences a $200,000 loan to Borrower by Lender.
B. On or about October 13, 1999, Lender loaned Borrower the sum of
Eight Hundred Thousand Dollars ($800,000). This $800,000 loan is evidenced by a
secured promissory note dated October 13, 1999, in the principal face amount of
$800,000 (the "Second Note"), which Borrower made, executed, and delivered to
Lender.
C. As security for the payment and performance of its obligations to
Lender under the Second Note, Borrower desires to grant to Lender a security
interest in all of Borrower's assets. Borrower and Lender wish to amend the
Agreement to expand the definition of "Obligations" to include the Second Note
and any other document or instrument evidencing any other loan made at any time,
now or in the future, by Lender to Borrower.
NOW, THEREFORE, in consideration of the foregoing Recitals, and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Lender and Borrower agree as follows:
1. Paragraph 1 of the Agreement is amended as follows: the definition
of "Obligations" is amended to read as follows:
6
<PAGE>
15
"Obligations" means all debts, liabilities, obligations,
covenants and duties owing to Lender by Borrower, arising under the Note, and/or
that certain secured promissory note dated October 13, 1999, in the principal
face amount of $800,000 (the "Second Note")and/or this Agreement and/or any
other document or instrument evidencing any other loan made at any time, now or
in the future, by Lender to Borrower, and all extensions, amendments,
modifications, restructurings and/or refinancings of any of the same.
2. Except as is explicitly set forth in this Amendment, the Agreement
remains unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date and year first above written.
WORKLIFE SOLUTIONS, INC.
By:_____________________________ _______________________________
Sunir Kapoor, Chairman & CEO PAUL CHAMPAGNE
<PAGE>
16
Exhibit C
FIRST AMENDMENT TO INTER-CREDITOR AGREEMENT
THIS FIRST AMENDMENT TO INTER-CREDITOR AGREEMENT ("Amendment") is made
and entered into as of October 13, 1999, by and among Minority Enterprise Fund,
L.P., a California limited partnership ("MEFLP"), Paul Champagne, an individual
("Lender"), and WorkLife Solutions, Inc., a Delaware corporation ("Borrower").
RECITALS
A. On or about October 6, 1999, the parties entered into an Inter-Creditor
Agreement, pursuant to which MEFLP and Lender agreed to share, pari passu, a
first lien and security interest in the Borrower's Collateral.
B. On or about October 13, 1999 Lender loaned Borrower an additional sum of
Eight Hundred Thousand Dollars ($800,000).
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lender and Borrower agree as follows:
1. The amount of the Bridge Loan referred to in the second line of Recital
E of the Inter-Creditor Agreement is hereby amended from "$200,000" to
read "$1,000,000".
<PAGE>
17
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement as of the date and year first above written.
WORKLIFE SOLUTIONS, INC. MINORITY ENTERPRISE FUND, L.P.
By:____________________________ By:____________________________
Sunir Kapoor Rodney M. White
Chairman & Chief Managing Partner
Executive Officer
____________________________
PAUL CHAMPAGNE
<PAGE>
18
Exhibit D
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into as of October
13, 1999, by and among Paul Champagne ("Champagne"), Sunir Kapoor, and the
undersigned stockholders (each a "Stockholder" and collectively the
"Stockholders"), and WorkLife Solutions, Inc., a Delaware corporation (the
"Corporation").
WHEREAS, as of the Effective Date, as defined below, each Stockholder holds of
record and beneficially certain shares of the Corporation's stock; and
WHEREAS, the Stockholders have agreed to act and to provide for the future
voting of their shares of the Corporation's stock as set forth below.
NOW THEREFORE, in consideration of the mutual covenants and undertakings given
by the Stockholders to each other, the Stockholders agree as follows:
1. Effective Date. This Agreement shall become effective ("Effective Date") at
the earlier of the date on which either Champagne or Champagne's designee
receive in any manner any share of the Corporation's stock.
2. Agreement to Vote for Champagne's Nominee. So long as either Champagne or
Champagne's designee shall continue to own any of the Corporation's shares, the
Stockholders hereby agree to vote all shares of the Corporation now or hereafter
owned by them, whether beneficially or otherwise, at any regular or special
meeting of the Corporation, or, in lieu of any such meeting, to give their
written consent, to elect Champagne's nominee as a member of the Corporation's
Board of Directors. Champagne shall provide each Stockholder with the name of
the nominee as selected by Champagne from time to time.
3. Agreement to Vote for Acquisition. As contemplated by that Letter dated as of
October 13, 1999 by and between the Corporation and Champagne, Champagne has
been granted certain options to acquire the Corporation (the "Purchase Option").
The Stockholders hereby agree to vote all shares of the Corporation now or
hereafter owned by them, whether beneficially or otherwise, at any regular or
special meeting of the Corporation, or, in lieu of any such meeting, to give
their written consent, to approve any sale of the Corporation's assets to
Champagne or Champagne's designee pursuant to the Purchase Option, whether or
not such sale shall constitute a sale of all or substantially all of the
Corporation's assets, and to approve any merger, consolidation or other form of
acquisition of the Corporation by Champagne or Champagne's designee pursuant to
the Purchase Option. The Stockholders further agree to enter into any
subscription agreement or other agreements that may be necessary to effect such
acquisition.
<PAGE>
19
4. Successors in Interest. The provisions of this Agreement shall be binding
upon the successors in interest of any of the shares of the Corporation now or
hereafter owned by the Stockholders. The Corporation shall not permit the
transfer of any of the Stockholders' shares on its books or issue a new
certificate representing any such shares unless and until the person to whom
such security is transferred shall have executed a written agreement pursuant to
which such person becomes subject to the provisions of this Agreement and agrees
to be bound by all the provisions hereof.
5. Termination. This Agreement shall terminate at the earlier to occur of (a)
the closing date of an initial public offering of the Corporation's shares
pursuant to a registration statement filed, and declared effective under the
United States Securities Act of 1933, as amended, (b) the date on which neither
Champagne nor any of his affiliates shall remain a stockholder of the
Corporation, or (c) the consummation of an acquisition by Champagne or
Champagne's designee of shares representing more than 50% of the votes in the
Corporation, or an acquisition of all or substantially all of the Corporation's
assets.
6. Specific Enforcement. The parties agree and understand that monetary damages
cannot adequately compensate for a breach of this Agreement, that this Agreement
shall be specifically enforceable, and that any breach or threatened breach
shall be the proper subject of a temporary or permanent injunction or
restraining order.
7. Amendment. This Agreement may be amended only by a writing signed by the
parties hereto.
8. Notices. All notices and communications under this Agreement shall be in
writing and shall be: (a) delivered in person; or (b) sent by fax; or (c)
mailed, postage prepaid, either by certified mail, return receipt requested, or
by overnight express carrier, addressed in each case to the relevant party at
the address of such party shown on the Corporation's records.
9. Governing Law. This Agreement shall be governed by and interpreted under the
laws of the State of Delaware, without regard to its principles of conflicts of
laws.
10
<PAGE>
20
10. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument, but only one of which need be
produced.
11. Separability; Severability. Any invalidity, illegality or limitation on the
enforceability of this Agreement with respect to any party shall not affect the
validity, legality or enforceability of this Agreement with respect to any other
party. If any provision of this Agreement is judicially determined to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired.
[Intentionally left blank.]
<PAGE>
21
IN WITNESS WHEREOF, the Corporation and the Stockholders have executed
this Agreement on the day and year first set above.
__________________________________
Sunir K. Kapoor
Chairman & CEO
WorkLife Solutions, Inc.
__________________________________ _______________________________
Paul Champagne Sunir K. Kapoor
__________________________________ _______________________________
Name:_____________________________ Name:__________________________
Number, Class, Series of Shares: Number, Class, Series of Shares:
__________________________________ _______________________________
__________________________________ _______________________________
Name:_____________________________ Name:__________________________
Number, Class, Series of Shares: Number, Class, Series of Shares:
__________________________________ _______________________________
__________________________________ _______________________________
Name:_____________________________ Name:__________________________
Number, Class, Series of Shares: Number, Class, Series of Shares:
__________________________________ _______________________________
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to us under the heading "Experts" in Amendment No. 1
to the Registration Statement (Form F-1) and related Prospectus of
E-Cruiter.com Inc.
PricewaterhouseCoopers LLP
Ottawa, Canada Chartered Accountants
November 3, 1999
<PAGE>
Exhibit 23.3
November 3, 1999
E-Cruiter.com Inc.
360 Albert Street, Suite 1510
Ottawa, ON K1R7X7
Dear Sirs:
We hereby consent to the references to our firm under the headings "Material
Income Tax Considerations" and "Legal Matters" in the prospectus which is a part
of E-Cruiter.com Inc's registration statement on Form F-1, File No. 333-87537.
In giving this consent we do not hereby admit that we are within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
Yours very truly,
Weil, Gotshal & Manges LLP
