<PAGE>
As filed with the Securities and Exchange Commission on November 30, 1999
Registration No. 333-87537
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
Amendment No. 3
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
Incorporation or Organization) Identification No.)
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. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Amount To Maximum Maximum Amount of
Title of Each Class of Be Offering Price Aggregate Offering Registration
Securities To Be Registered Registered(1) Per Unit(2) Price(2) Fee(3)
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares ................ 2,817,500 US $6.00 US $16,905,000 US $4,699.59
</TABLE>
================================================================================
(1) Includes up to 367,500 common shares which the underwriter may purchase to
cover over-allotments.
(2) Estimated solely for the purpose of computing the amount of the
registration fee.
(3) US $4,089.29 has been previously paid.
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>
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 30, 1999
[GRAPHIC OMITTED]
2,450,000 Common Shares
US $6.00 per Share
E-Cruiter.com Inc. is offering 2,318,162 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 $.53 US $5.47 US $5.47
-----------------------------------------------------------------------------------------------
Total ............. US $14,700,000 US $1,298,500 US $12,680,346 US $721,154
</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 367,500 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>
[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>
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............... 2,318,162 shares
Common shares offered by
selling shareholders.. 131,838 shares
Common shares to be
outstanding after this
offering................ 7,380,611 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 245,000 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 367,500 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 $17,154,625 (US $11,650,000) 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 $17,885,815 $ (1,010,778) $ 496,564 $12,146,564
Total assets ........... 2,176,210 3,476,210 19,330,835 1,477,902 2,360,754 13,127,902
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 18,133,882 (842,311) 665,030 12,315,031
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
increasing losses in the future.
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). Our
losses are continuing and increasing through the date of this prospectus. Note
1 to our consolidated financial statements for our fiscal years ended May 31,
1997, 1998 and 1999 contains a comment that there is substantial doubt about
our ability to continue as a going concern due to our operating losses incurred
during our past three fiscal years. We estimate our loss to be approximately
$1,426,000 for the three months ended August 31, 1999. We expect our operating
expenses to continue to increase significantly in connection with our proposed
expanded activities, and consequently, we expect losses to continue and
increase. 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
9
<PAGE>
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."
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.
10
<PAGE>
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 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. As this
strategy has not been tested fully, it is 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.
11
<PAGE>
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;
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 $3,000,000, 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
12
<PAGE>
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.
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
13
<PAGE>
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.
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
14
<PAGE>
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.
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."
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
15
<PAGE>
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 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 $1.66 and you will have paid US $6.00 per share. As a result, you
will experience immediate and substantial dilution of US $4.34 per share, or
72.3%, 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 783,334 common shares, including 245,000
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 $2,430,000, or 20.9% 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
16
<PAGE>
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.
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 59.0% 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 7,380,611 common shares outstanding or
approximately 7,748,111 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;
17
<PAGE>
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 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 2,318,162 common shares
being offered by E-Cruiter, after deducting underwriting discounts and other
expenses of this offering, are estimated to be US $11,650,000. 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 25.7%
Technology development and acquisition ................. 3,000,000 25.7
Sales .................................................. 1,500,000 12.9
Repayment of indebtedness .............................. 1,020,000 8.8
Client support and network infrastructure .............. 700,000 6.0
Working capital and general corporate purposes ......... 2,430,000 20.9
-------------- -----
Total ................................................. US $11,650,000 100.0%
================= =====
</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 (i) 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, and (ii) borrowings
under a line of credit in the amount of up to $190,000 (US $129,032). The loan
from Mr. Champagne 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. The borrowings
under the line of credit bear interest at the Canadian prime lending rate,
which was 6.25% on October 26, 1999, plus an additional 2.5% per year. We used
the proceeds of the loan from Mr. Champagne for working capital and general
corporate purposes and are using the proceeds of the borrowings under the line
of credit for the same 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 $1,944,075 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 2,318,162 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 $18,032,182 (US $12,245,964) or $2.44 (US
$1.66) per share, representing an immediate increase in our net tangible book
value of US $1.54 per share to the existing shareholders and an immediate
dilution of US $4.34 per share or, 72.3%, to new investors.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price ........................... US $6.00
Net tangible book value before offering .............. US $ .12
Increase attributable to new investors ............... US $1.54
---------
Adjusted net tangible book value after offering ......... US $1.66
---------
Dilution to new investors ............................... US $4.34
=========
</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 68.6% US $ 4,319,756 23.7% US $ .85
New investors ................. 2,318,162 31.4 13,908,972 76.3 US $6.00
--------- ----- --------------- -----
7,380,611 100.0% US $18,228,728 100.0%
========= ===== ================= =====
</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
66.8%, approximately 63.6% if the over-allotment option is exercised in full,
and will increase the number of common shares purchased by new investors to
2,450,000, or approximately 33.2%, or 2,817,500 shares, or approximately 36.4%
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 $16,113,972 for the
2,685,662 common shares being offered by E-Cruiter, representing approximately
78.9% of the total consideration for 34.7% 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 $17,081,000 (US $11,600,000) from the sale of
2,318,162 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 245,000 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 367,500 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.
<PAGE>
<TABLE>
<CAPTION>
(Cdn $) (US $)
As of May 31, 1999 As of May 31, 1999
---------------------------------------- -----------------------------------------
As Further As Further
Actual Adjusted Adjusted Actual Adjusted Adjusted
----------- ----------- ----------- ----------- ----------- ------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Short-term debt:
Short-term loan .......................... $ -- $ 1,300,000 $ -- $ -- $ 882,852 $ --
Current portion of long-term debt ........ 84,173 84,173 84,173 57,163 57,163 57,163
----------- ----------- ----------- ----------- ----------- ------------
Total .................................. $ 84,173 $ 1,384,173 $ 84,173 $ 57,163 $ 940,015 $ 57,163
=========== =========== =========== =========== =========== ============
Convertible promissory notes .............. $ 2,162,063 $ -- $ -- $ 1,468,294 $ -- $ --
Long-term debt, excluding current portion . 40,000 40,000 40,000 27,165 27,165 27,165
----------- ----------- ----------- ----------- ----------- ------------
Total ................................... 2,202,063 40,000 40,000 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 7,380,611 shares, as further
adjusted (unaudited) .................... 3,541,040 6,367,188 23,521,813 2,404,781 4,324,067 15,974,067
Convertible promissory notes -- equity
component ............................... 135,096 -- -- 91,746 -- --
Deficit .................................. (4,916,440) (5,387,931) (5,387,931) (3,338,838) (3,659,036) (3,659,036)
----------- ----------- ----------- ----------- ----------- ------------
Total shareholders' equity
(deficit) .............................. $(1,240,304) $ 979,257 $18,133,882 $ (842,311) $ 665,031 $ 12,315,031
----------- ----------- ----------- ----------- ----------- ------------
Total capitalization ................... $ 961,759 $ 1,019,257 $18,173,882 $ 653,148 $ 692,196 $ 12,342,196
=========== =========== =========== =========== =========== ============
</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 $)
As of May 31, (US $)
----------------------------------------------- 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.
On November 1, 1999, we entered into an agreement to sell our
CareerBridge.com regional-based job board 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.
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>
As a result of our change in sales strategy, for the three months ended
August 31, 1999, our revenue declined by 22.0% to approximately $304,000 from
revenue of approximately $390,000 for the three months ended August 31, 1998.
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.
28
<PAGE>
Our net loss for fiscal 1999 was $2,212,410 compared to a net loss of
$1,846,785 for fiscal 1998. We estimate that our net loss for the three months
ended August 31, 1999 was approximately $1,426,000, compared to a net loss of
approximately $360,000 for the three months ended August 31, 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.
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.
29
<PAGE>
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.
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
30
<PAGE>
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 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.
31
<PAGE>
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:
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.
32
<PAGE>
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.
33
<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.
34
<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
35
<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.
36
<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.
37
<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.
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.
38
<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.
39
<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.
40
<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.
41
<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:
42
<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.
43
<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.
44
<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
45
<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.
46
<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
47
<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.
48
<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. As of October 22, 1999, 17,354 options granted
under this plan were outstanding, and the exercise price of the options is
US $6.00 per share.
49
<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 2,318,162 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 7,380,611 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 32.3%
John Gerard Stanton ................. 1,149,738 22.7 0 1,149,738 15.6
Les Kirkland ........................ 374,207 7.4 0 374,207 5.1
Matthew Ebbs ........................ 374,207 7.4 0 374,207 5.1
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 22.2
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 *
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 1.2
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.
50
<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.
51
<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.
52
<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
53
<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 7,380,611
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.
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.
54
<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 245,000 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;
55
<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.
56
<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.
57
<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.
58
<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.
59
<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;
60
<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 7,380,611
common shares issued and outstanding of which the 2,450,000 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 783,334 common shares, including the 245,000 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 245,000 common
shares issuable upon exercise of the underwriter's warrants. These rights
become exercisable twelve months after the closing of this offering.
61
<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 2,318,162 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 367,500 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 $16,905,000, the total underwriting discounts and
commissions would be US $1,493,275 and the total proceeds to E-Cruiter, before
payment of the expenses of this offering, would be US $14,690,571.
62
<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 $2,258,972, including the underwriter's discounts and
commission, or US $2,519,897 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
245,000 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. During the first year following the date of
this prospectus, the underwriter's warrants are assignable or transferable only
to the officers and partners of the underwriter and members of the selling
group. 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.
63
<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 with respect to U.S.
law. Weil, Gotshal & Manges LLP will rely upon the opinion of Perley-Robertson,
Hill & McDougall with respect to matters governed by Canadian law. Tenzer
Greenblatt LLP, New York, New York, has served as counsel to the underwriter in
connection with this offering.
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
64
<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.
65
<PAGE>
E-Cruiter.com Inc.
Consolidated Financial Statements
Years Ended May 31, 1997, 1998 and 1999
Contents
<TABLE>
<CAPTION>
<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>
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.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Canada
June 18, 1999, except for note 2(a) which is as of November 15 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 November 15, 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.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Ottawa, Canada
November 15, 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 on November 15, 1999 to (i)
create an unlimited number of a single class of common shares; (ii) convert
each outstanding Class A common and Class D special shares into one common
share; (iii) consolidate the issued and outstanding common shares through a
1-for-.216932 reverse share split; (iv) cancel all authorized Class A, B, and C
common shares and Class A, B, C, and D special shares; and (v) 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. 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 ratably over the period of posting. 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:
2000 2001 2002 2003
---------- ----------- ----------- --------
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
======== ======== ======== ======
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
On September 22, 1999 and as amended to November 29, 1999, the Company
filed a registration statement with the United States Securities and Exchange
Commission for a public offering by the Company of 2,318,162 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 $.53 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 245,000 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 367,500 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 ........................................... 34
Management ......................................... 45
Principal and Selling Shareholders ................. 50
Related Party Transactions ......................... 52
Description of Common Shares ....................... 53
Material Income Tax Considerations ................. 56
Shares Eligible for Future Sale .................... 61
Underwriting ....................................... 62
Legal Matters ...................................... 64
Experts ............................................ 64
Additional Information ............................. 64
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]
2,450,000
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.
<TABLE>
<S> <C>
SEC fee ................................................. US$ 4,699.59
NASD filing fee ......................................... 2,191.00
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 ......... 417,269.00
Miscellaneous ........................................... 70,186.41
-------------
TOTAL ................................................ US$1,030,346.00
=============
</TABLE>
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. All
options granted to employees were granted pursuant to our option plans for
services rendered or to be rendered in the ordinary course of the employee's
employment, and we did not receive any cash consideration for the options so
granted. The number of shares subject to options has been adjusted to give
effect to the recapitalization of the various classes of our shares into one
class of common shares and to the 1-for-0.216932 reverse share split of our
common shares.
(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) From April 18, 1997 through December 1, 1997, we granted options to
purchase 159,446 shares to 20 employees at an exercise price of $2.30
per share. These options were granted pursuant to our 1997 option plan.
62,910 of these options were subsequently cancelled and 96,536 remain
outstanding as of the date of this registration statement.
(g) On June 16, 1997, we issued 10,000 Class D Special Shares to an
individual for aggregate consideration of $5,000.
(h) 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.
II-2
<PAGE>
(i) From January 5, 1998 through November 16, 1998, we granted options to
purchase 97,188 shares to 22 employees at an exercise price of $2.30 per
share. These options were granted pursuant to our 1997 option plan,
24,515 of these options were subsequently cancelled and 72,673 remain
outstanding as of the date of this registration statement.
(j) On June 11, 1998, we issued 2 million Class A Common Shares to Paul
Champagne for aggregate consideration of $1 million.
(k) 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 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.
(l) From January 31, 1999 through August 30, 1999, we granted options to
purchase 369,125 shares to 48 employees and 3 directors. 233,093 of
these options were granted at an exercise price of $2.30 per share,
30,370 were granted at an exercise of $8.07 per share and 105,662 were
granted at an exercise price of US $6.00 per share. These options were
granted pursuant to our 1997 option plan. 35,794 of these options were
subsequently cancelled and 333,331 remain outstanding as of the date of
this registration statement.
(m) On June 24, 1999, we granted options to purchase 21,693 shares to the
spouse of one of our directors in consideration of the services rendered
by such director. The exercise price of these options is $2.30 per share
and they are non-plan options.
(n) 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..
(o) From September 20, 1999 through October 12, 1999, we granted options to
purchase 17,354 shares to 5 employees at an exercise price of US $6.00
per share. These options were granted pursuant to our 1999 option plan.
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>
<CAPTION>
<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.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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
II-4
<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-5
<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. 3 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 29th 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. 3 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 29, 1999
----------------------- Officer and President
John Gerard Stanton
/s/ Jeffery E. Potts Chief Financial Officer and Principal November 29, 1999
----------------------- Accounting Officer
Jeffery E. Potts
* Director November 29, 1999
-----------------------
Roderick M. Bryden
* Director November 29, 1999
-----------------------
John McLennan
* Director November 29, 1999
-----------------------
Matthew J. Ebbs
*By /s/ Jeffery E. Potts
-----------------------
Jeffery E. Potts
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
Authorized Representative in the United States
E-Cruiter.Com USA Inc.
By: /s/ Jeffery E. Potts
----------------------------------
Name: Jeffery E. Potts
Title: Secretary
II-7
<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
<PAGE>
E-Cruiter.com Inc.
2,450,000 Shares of Common Stock
(No Par Value Per Share)
UNDERWRITING AGREEMENT
----------------------
Whale Securities Co., L.P. New York, New York
650 Fifth Avenue ___________, 1999
New York, New York 10019
Dear Sirs:
E-Cruiter.com Inc., a corporation incorporated under the laws
of Canada (the "Company"), proposes to issue and sell to Whale Securities Co.,
L.P. (the "Underwriter") two million three hundred eighteen thousand one hundred
sixty-two (2,318,162) common shares of the Company, no par value (the "Company
Offered Shares"), which Company Offered Shares are presently authorized but
unissued common shares, no par value (individually a "Common Share" and
collectively the "Common Shares"), of the Company. In addition, the selling
shareholders as set forth on Schedule A hereto ("Selling Shareholders") propose
to sell to the Underwriter an aggregate of one hundred thirty one thousand eight
hundred thirty eight (131,838) Common Shares, as set forth on Schedule A hereto
(the "Selling Shareholders' Shares"). The Company Offered Shares and the Selling
Shareholders' Shares are sometimes collectively referred to herein as the
"Offered Shares". In addition, the Underwriter, in order to cover
over-allotments in the sale of the Offered Shares, may purchase from the Company
up to an aggregate of three hundred sixty seven thousand five hundred (367,500)
Common Shares (the "Optional Shares"; the Offered Shares and the Optional Shares
are hereinafter sometimes collectively referred to as the "Shares"). The Company
also proposes to issue and sell to the Underwriter for its own account and the
accounts of its designees, warrants (the "Underwriter's Warrants") to purchase
up to an aggregate of two hundred forty-five thousand (245,000) Common Shares
(the "Warrant Shares") at an exercise price of $9.90 per Warrant Share, which
sale will be consummated in accordance with the terms and conditions of the form
of Underwriter's Warrant filed as an exhibit to the Registration Statement, as
defined in Section 4(d) below. The Shares, the Underwriter's Warrants and the
Warrant Shares are more fully described in the Registration Statement and the
Prospectus, as defined in Section 4(d) below.
<PAGE>
The Company and the Selling Shareholders hereby confirm their
respective agreements with the Underwriter as follows:
1. Purchase and Sale of Offered Shares. On the basis of the representations
and warranties herein contained, but subject to the terms and conditions herein
set forth, the Company and the Selling Shareholders hereby agree to sell the
Company Offered Shares and the Selling Shareholder's Shares, respectively, to
the Underwriter, and the Underwriter agrees to purchase the Company Offered
Shares from the Company and the Selling Shareholders' Shares from the Selling
Shareholders, at a purchase price of $5.47 per Offered Share. The Underwriter
plans to offer the Offered Shares to the public at a public offering price of
$6.00 per Offered Share. The Underwriter agrees that it will not offer or sell
the Offered Shares to any resident of Canada unless an exception from
registration is available or registration is not required.
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the Company and the
Selling Shareholders by wire transfer or official bank check or checks payable
to their respective order in New York Clearing House funds, at the offices of
the Underwriter, 650 Fifth Avenue, New York, New York 10019, against delivery of
the Offered Shares to the Underwriter. Such payment and delivery will be made at
10:00 A.M., New York City time, on the third business day following the
Effective Date (as defined in Section 4(d) below) (the fourth business day
following the Effective Date in the event that trading of the Offered Shares
commences on the day following the Effective Date), the date and time of such
payment and delivery being herein called the "Closing Date." The certificates
representing the Offered Shares to be delivered will be in such denominations
and registered in such names as the Underwriter may request not less than two
full business days prior to the Closing Date, and will be made available to the
Underwriter for inspection, checking and packaging at the office of American
Stock Transfer & Trust Company, the Company's transfer agent, at 40 Wall Street,
New York, New York 10005 not less than one full business day prior to the
Closing Date.
(b) On the Closing Date, the Company will sell the Underwriter's
Warrants to the Underwriter or to the Underwriter's designees, which designees
may only be officers and partners of the Underwriter and members of the selling
group and/or their officers and partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant Agreement attached
as an exhibit to the Registration Statement. The aggregate purchase price for
the Underwriter's Warrants is One Hundred Dollars ($100.00). The Underwriter's
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one (1) year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company by
2
<PAGE>
check or checks payable to its order on the Closing Date against delivery of the
certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as the Underwriter may request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any over-allotments in connection with
the distribution and sale of the Offered Shares as contemplated by the
Prospectus, the Underwriter is hereby granted an option to purchase all or any
part of the Optional Shares from the Company. The purchase price to be paid for
the Optional Shares will be the same price per Optional Share as the price per
Offered Share set forth in Section 1 hereof. The option granted hereby may be
exercised by the Underwriter as to all or any part of the Optional Shares at any
time within 45 days after the Effective Date. The Underwriter will not be under
any obligation to purchase any Optional Shares prior to the exercise of such
option.
(b) The option granted hereby may be exercised by the Underwriter by
giving oral notice to the Company, which must be confirmed by a letter, telex or
telegraph within one business day thereafter setting forth the number of
Optional Shares to be purchased, the date and time for delivery of and payment
for the Optional Shares to be purchased and stating that the Optional Shares
referred to therein are to be used for the purpose of covering over-allotments
in connection with the distribution and sale of the Offered Shares. If such
notice is given prior to the Closing Date, the date set forth therein for such
delivery and payment will not be earlier than either two full business days
thereafter or the Closing Date, whichever occurs later. If such notice is given
on or after the Closing Date, the date set forth therein for such delivery and
payment will not be earlier than two full business days thereafter. In either
event, the date so set forth will not be more than 15 full business days after
the date of such notice. The date and time set forth in such notice is herein
called the "Option Closing Date." Upon exercise of such option, through the
Underwriter's delivery of the aforementioned notice, the Company will become
obligated to convey to the Underwriter, and, subject to the terms and conditions
set forth in Section 3(d) hereof, the Underwriter will become obligated to
purchase, the number of Optional Shares specified in such notice.
(c) Payment for any Optional Shares purchased will be made to the
Company by wire transfer or official bank check or checks payable to its order
in New York Clearing House funds, at the office of the Underwriter, against
delivery of the Optional Shares purchased to the Underwriter. The certificates
representing the Optional Shares to be delivered will be in such denominations
and registered in such names as the Underwriter requests not less than two full
business days prior to the Option Closing Date, and will be made available to
3
<PAGE>
the Underwriter for inspection, checking and packaging at the aforesaid office
of the Company's transfer agent not less than one full business day prior to the
Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay for any of the
Optional Shares is subject to the accuracy and completeness in all material
respects (as of the date hereof and as of the Option Closing Date) of and
compliance in all material respects with the representations and warranties of
the Company herein, to the accuracy and completeness of the statements of the
Company or its officers made in any certificate or other document to be
delivered by the Company pursuant to this Agreement, to the performance in all
material respects by the Company of its obligations hereunder, to the
satisfaction by the Company of the conditions, as of the date hereof and as of
the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery
to the Underwriter of opinions, certificates and letters dated the Option
Closing Date substantially similar in scope to those specified in Sections 6 and
7(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares" and
"Closing Date" to be, respectively, to the Optional Shares and the Option
Closing Date.
4. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of Canada, with full corporate power and authority
to own or lease, as the case may be, and operate its properties, whether
tangible or intangible, and to conduct its business as described in the
Registration Statement and to execute, deliver and perform this Agreement and
the Underwriter's Warrant Agreement and to consummate the transactions
contemplated hereby and thereby. The Company has no subsidiaries other than
3451615 Canada Inc., a corporation duly organized, validly existing and in good
standing under the laws of Canada and E-Cruiter.com USA Inc., a corporation duly
organized, validly existing and in good standing under the laws of Delaware,
(the "Subsidiaries"). Unless the context otherwise requires, all references to
the "Company" in this Agreement shall include the Subsidiaries. Each of the
Subsidiaries has full power and authority, corporate and other, necessary to own
or lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement. The Company and each of the Subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
wherein such qualification is necessary and where failure so to qualify could
have a material adverse effect on the financial condition, results of
operations, business or properties of the Company and the Subsidiaries, taken as
a whole (a "Material Adverse Effect").
4
<PAGE>
(b) The Company owns all of the issued and outstanding shares of capital
stock of each of the Subsidiaries, free and clear of any security interests,
liens, encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
options or warrants for the purchase of, or other rights to purchase or acquire,
or outstanding securities convertible into or exchangeable for, any capital
stock or other securities of the Subsidiaries. Other than the Subsidiaries, the
Company has no equity interests in any entity.
(c) This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, and the
Underwriter's Warrant Agreement, when executed and delivered by the Company on
the Closing Date, will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms. The
execution, delivery and performance of this Agreement and the Underwriter's
Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement and the Underwriter's Warrant Agreement have
been duly authorized by all necessary corporate action and do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the Articles of Incorporation or By-Laws, each as amended,
of the Company or the Subsidiaries; (ii) result in a breach of or conflict with
any of the terms or provisions of, or constitute a default under, or result in
the modification or termination of, or result in the creation or imposition of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company or the Subsidiaries pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties or assets is or may be bound
or affected; (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or the Subsidiaries or any of
their respective properties or businesses; or (iv) have any effect on any
permit, certification, registration, approval, consent order, license, franchise
or other authorization (collectively, the "Permits") necessary for the Company
or the Subsidiaries to own or lease and operate, as the case may be, its
properties or conduct its businesses or the ability of the Company or the
Subsidiaries to make use thereof.
(d) No Permits of any court or governmental agency or body, other than
under the Securities Act of 1933, as amended (the "Act"), the Regulations, as
defined in Section 4(d) below, and applicable state securities or Blue Sky laws,
are required (i) for the valid authorization, issuance, sale and delivery of the
Shares to the Underwriter, and (ii) the consummation by the Company of the
transactions contemplated by this Agreement and the Underwriter's Warrant
Agreement.
5
<PAGE>
(e) The conditions for use of a registration statement on Form F-1 set
forth in the General Instructions to Form F-1 have been satisfied with respect
to the Company, the transactions contemplated herein and in the Registration
Statement. The Company has prepared in conformity with the requirements of the
Act and the rules and regulations (the "Regulations") of the Securities and
Exchange Commission (the "Commission") and filed with the Commission a
registration statement (File No. 333-87537) on Form F-1 and has filed one or
more amendments thereto, covering the registration of the Shares under the Act,
including the related preliminary prospectus or preliminary prospectuses (each
thereof being herein called a "Preliminary Prospectus") and a proposed final
prospectus. Each Preliminary Prospectus was endorsed with the legend required by
Item 501(c)(5) of Regulation S-K of the Regulations and, if applicable, Rule
430A of the Regulations. Such registration statement including any documents
incorporated by reference therein and all financial schedules and exhibits
thereto, as amended at the time it becomes effective, and the final prospectus
included therein are herein, respectively, called the "Registration Statement"
and the "Prospectus," except that, (i) if the prospectus filed by the Company
pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term
"Prospectus" will also include the prospectus filed pursuant to Rule 424(b), and
(ii) if the Registration Statement is amended or such Prospectus is supplemented
after the date the Registration Statement is declared effective by the
Commission (the "Effective Date") and prior to the Option Closing Date, the
terms "Registration Statement" and "Prospectus" shall include the Registration
Statement as amended or supplemented.
(f) Neither the Commission nor, to the best of the Company's knowledge,
any state regulatory authority has issued any order preventing or suspending the
use of any Preliminary Prospectus or has instituted or, to the best of the
Company's knowledge, threatened to institute any proceedings with respect to
such an order.
(g) The Registration Statement when it becomes effective, the Prospectus
(and any amendment or supplement thereto) when it is filed with the Commission
pursuant to Rule 424(b), and both documents as of the Closing Date and the
Option Closing Date, referred to below, will contain all statements which are
required to be stated therein in accordance with the Act and the Regulations and
will in all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements or omissions made in
6
<PAGE>
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter expressly for use therein.
(h) The Company had at the date or dates indicated in the Prospectus a
duly authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus. Based on the assumptions stated in the
Registration Statement and the Prospectus, the Company will have on the Closing
Date the adjusted stock capitalization set forth therein. Except as set forth in
the Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(i) The descriptions in the Registration Statement and the Prospectus of
contracts and other documents are accurate and present fairly the information
required to be disclosed, and there are no contracts or other documents required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits to the Registration Statement under the Act or the Regulations which
have not been so described or filed as required.
(j) PricewaterhouseCoopers, LLP, the accountants who have certified
certain of the consolidated financial statements filed and to be filed with the
Commission as part of the Registration Statement and the Prospectus, are
independent public accountants within the meaning of the Act and Regulations.
The consolidated financial statements and schedules and the notes thereto filed
as part of the Registration Statement and included in the Prospectus present
fairly the financial position of the Company as of the dates thereof, and the
results of operations and cash flows of the Company for the periods indicated
therein, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the periods involved. The selected financial
data set forth in the Registration Statement and the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
that of the audited and unaudited financial statements included in the
Registration Statement and the Prospectus.
(k) The Company and each of the Subsidiaries has filed with the
appropriate federal, state and local governmental agencies, and all appropriate
foreign countries and political subdivisions thereof, all material tax returns,
including material franchise tax returns, which it is required to file or has
duly obtained extensions of time for the filing thereof and has paid all taxes
7
<PAGE>
shown on such returns and all assessments received by it to the extent that the
same have become due; and the provisions for income taxes payable, if any, shown
on the consolidated financial statements filed with or as part of the
Registration Statement are sufficient for all accrued and unpaid foreign and
domestic taxes, whether or not disputed, and for all periods to and including
the dates of such consolidated financial statements. Except as disclosed in
writing to the Underwriter, neither the Company nor any of the Subsidiaries has
executed or filed with any taxing authority, foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes and is not
a party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and no claims for
assessment or collection of taxes have been asserted against the Company or the
Subsidiaries.
(l) The outstanding Common Shares, including, without limitation, the
Selling Shareholders' Shares, and the outstanding options and warrants to
purchase Common Shares have been duly authorized and validly issued. The
outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms. The
Company has duly reserved a sufficient number of Common Shares from its
authorized but unissued Common Shares for issuance upon exercise of the
outstanding options and warrants. None of the outstanding Common Shares or
options or warrants to purchase Common Shares has been issued in violation of
the preemptive rights of any shareholder of the Company. None of the holders of
the outstanding Common Shares is subject to personal liability solely by reason
of being such a holder. The offers and sales of the outstanding Common Shares
and outstanding options and warrants to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options and warrants to purchase Common
Shares conform to the descriptions thereof contained in the Registration
Statement and Prospectus in all material respects. Except as set forth in the
Registration Statement and the Prospectus, on the Effective Date and the Closing
Date, there will be no outstanding options or warrants for the purchase of, or
other outstanding rights to purchase or acquire, Common Shares or securities
convertible into Common Shares.
(m) No securities of the Company have been sold by the Company or by or
on behalf of, or for the benefit of, any person or persons controlling,
controlled by, or under common control with the Company within the three years
prior to the date hereof, except as disclosed in the Registration Statement.
(n) The issuance and sale of the Company Offered Shares and Optional
Shares have been duly authorized and, when the Shares have been issued and duly
8
<PAGE>
delivered against payment therefor as contemplated by this Agreement, the
Company Offered Shares and Optional Shares will be validly issued, fully paid
and nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. The Shares will not be subject
to preemptive rights of any shareholder of the Company.
(o) The issuance and sale of the Common Shares issuable upon exercise of
the Underwriter's Warrants have been duly authorized and, when such Common
Shares have been duly delivered against payment therefor, as contemplated by the
Underwriter's Warrant Agreement, such Common Shares will be validly issued,
fully paid and nonassessable. Holders of Common Shares issuable upon the
exercise of the Underwriter's Warrants will not be subject to personal liability
solely by reason of being such holders. Neither the Underwriter's Warrants nor
the Common Shares issuable upon exercise thereof will be subject to preemptive
rights of any shareholder of the Company. The Company has reserved a sufficient
number of Common Shares from its authorized but unissued Common Shares for
issuance upon exercise of the Underwriter's Warrants in accordance with the
provisions of the Underwriter's Warrant Agreement. The Underwriter's Warrants
conform to the descriptions thereof contained in the Registration Statement and
the Prospectus.
(p) Neither the Company nor any of the Subsidiaries is in violation of,
or in default under, (i) any term or provision of its articles of incorporation
or by-laws, each as amended; (ii) any term or provision or any financial
covenants of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its property or
business is or may be bound or affected; or (iii) any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company, any of the
Subsidiaries or any of the properties or businesses of the Company or the
Subsidiaries, the default or violation of which, in the case of clauses (ii) and
(iii) of this Section 4(o), could cause a Material Adverse Effect. The Company
and each of the Subsidiaries owns, possesses or has obtained all governmental
and other (including those obtainable from third parties) Permits, necessary to
own or lease, as the case may be, and to operate its properties, whether
tangible or intangible, and to conduct its business and operations as presently
conducted and all such Permits are outstanding and in good standing, and there
are no proceedings pending or, to the best of the Company's knowledge
threatened, or any basis therefor, seeking to cancel, terminate or limit such
Permits.
(q) Except as set forth in the Prospectus, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's
knowledge, threatened against the Company or any of the Subsidiaries or
9
<PAGE>
involving the properties or business of the Company or any of the Subsidiaries
which, if determined adversely to the Company or any of the Subsidiaries, would,
individually or in the aggregate, result in a Material Adverse Effect or which
question the validity of the capital stock of the Company or any of the
Subsidiaries or of this Agreement or of any action taken or to be taken by the
Company pursuant to, or in connection with, this Agreement; nor, to the best of
the Company's knowledge is there any basis for any such claim, action, suit,
proceeding, arbitration, investigation or inquiry. There are no outstanding
orders, judgments or decrees of any court, governmental agency or other tribunal
naming the Company or any of the Subsidiaries and enjoining the Company or any
of the Subsidiaries from taking, or requiring the Company or any of the
Subsidiaries to take, any action, or to which the Company or any of the
Subsidiaries, or the property or business of the Company or any of the
Subsidiaries, is bound or subject, in each case, which singly or in the
aggregate could have a Material Adverse Effect.
(r) Neither the Company nor any of its affiliates has incurred any
liability for any finder's fees or similar payments in connection with the
transactions herein contemplated.
(s) The Company and each of the Subsidiaries owns or possesses adequate
and enforceable rights to use all patents, patent applications, trademarks,
service marks, copyrights, rights, trade secrets, confidential information,
processes and formulations necessary for the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of the
Company's knowledge, neither the Company nor any of the Subsidiaries has
infringed or is infringing upon the rights of others with respect to
Intangibles; and neither the Company nor any of the Subsidiaries has received
any notice of conflict with the asserted rights of others with respect to the
Intangibles which could, singly or in the aggregate, cause a Material Adverse
Effect, and the Company knows of no basis therefor; and, to the best of the
Company's knowledge, no others have infringed upon the Intangibles of the
Company or any of the Subsidiaries.
(t) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus and the Company's latest consolidated
financial statements, neither the Company nor any of the Subsidiaries has
incurred any material liability or obligation, direct or contingent, or entered
into any material transaction, whether or not incurred in the ordinary course of
business, and has not sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree; and since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there have not been, and prior
10
<PAGE>
to the Closing Date referred to below there will not be, any changes in the
capital stock or any material increases in the long-term debt of the Company or
any change which has resulted or could result in a Material Adverse Effect,
other than as set forth or contemplated in the Prospectus.
(u) Neither the Company nor any of the Subsidiaries owns any real
property. The Company and each of the Subsidiaries has good title to all
personal property (tangible and intangible) owned by it, free and clear of all
security interests, charges, mortgages, liens, encumbrances and defects, except
such as are described in the Registration Statement and Prospectus or such as do
not materially affect the value or transferability of such property and do not
interfere with the use of such property made, or proposed to be made, by the
Company or by each of the Subsidiaries. The leases, licenses or other contracts
or instruments under which the Company and each of the Subsidiaries lease, hold
or are entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company or
each of the Subsidiaries, and all rentals, royalties or other payments accruing
thereunder which became due prior to the date of this Agreement have been duly
paid, and neither the Company nor any of the Subsidiaries, nor, to the best of
the Company's knowledge, any other party is in default thereunder and, to the
best of the Company's knowledge, no event has occurred which, with the passage
of time or the giving of notice, or both, would constitute a default thereunder,
in each case that could cause a Material Adverse Effect. Neither the Company nor
any of the Subsidiaries has received notice of any violation of any applicable
law, ordinance, regulation, order or requirement relating to its owned or leased
properties which singly or in the aggregate could have a Material Adverse
Effect. The Company and each of the Subsidiaries has adequately insured its
properties against loss or damage by fire or other casualty and maintains, in
adequate amounts, such other insurance as is usually maintained by companies
engaged in the same or similar businesses.
(v) Each contract or other instrument (however characterized or
described) to which the Company or each of the Subsidiaries is a party or by
which the properties or businesses of the Company or each of the Subsidiaries is
or may be bound or affected and to which reference is made in the Prospectus has
been duly and validly executed, is in full force and effect in all material
respects and is enforceable against the parties thereto in accordance with its
terms, and none of such contracts or instruments has been assigned by the
Company or any of the Subsidiaries, and neither the Company nor any of the
Subsidiaries, nor, to the best of the Company's knowledge, any other party, is
in default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the lapse of time or the giving of notice, or both, would
constitute a default thereunder, except to the extent that any such default
singly or in the aggregate could not be expected to have a Material Adverse
Effect.
11
<PAGE>
None of the provisions of such contracts or instruments violates any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any of the
Subsidiaries or any of their respective assets or businesses, including, without
limitation, those promulgated by the Commission, and comparable state and local
regulatory authorities, except to the extent that any such violation, singly or
in the aggregate, could not be expected to have a Material Adverse Effect.
(w) The employment, consulting, confidentiality and non-competition
agreements between the Company and its officers, employees and consultants and
between each of the Subsidiaries and their respective officers, employees and
consultants, described in the Registration Statement, are binding and
enforceable obligations upon the respective parties thereto in accordance with
their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws or
arrangements affecting creditors' rights generally and subject to principles of
equity.
(x) Except as set forth in the Prospectus, neither the Company nor any
of the Subsidiaries has employee benefit plans (including, without limitation,
profit sharing and welfare benefit plans) or deferred compensation arrangements
that are subject to the provisions of the Employee Retirement Income Security
Act of 1974.
(y) To the best of the Company's knowledge, no labor problem exists with
any of the Company's employees or any of the employees of the Subsidiaries or is
imminent which could materially adversely affect the Company or the
Subsidiaries.
(z) Neither the Company nor any of the Subsidiaries has, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office, or failed to disclose fully any such contribution in violation
of law or (ii) made any payment to any state, federal or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The Company's internal accounting controls and procedures are sufficient to
cause the Company to comply in all material respects with the United States
Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Shares have been approved for listing on the Nasdaq SmallCap
Market and the Boston Stock Exchange.
(bb) The Company has provided to Tenzer Greenblatt LLP, counsel to the
Underwriter ("Underwriter's Counsel"), all agreements, certificates,
correspondence and other items, documents and information in its possession
and/or available to it requested by such counsel's Corporate Review Memorandum
dated April 21, 1999 (the "Memorandum") and the Company's response to such
Memorandum is accurate and complete in all material respects.
12
<PAGE>
Any certificate signed by an officer of the Company, by an officer of any of
the Subsidiaries or by any of the Selling Shareholders and delivered to the
Underwriter or to Underwriter's Counsel shall be deemed to be a representation
and warranty by the Company, such Subsidiaries or the Selling Shareholder, as
the case may be, to the Underwriter as to the matters covered thereby.
5. Representations and Warranties of the Selling Shareholders. Each Selling
Shareholder severally represents and warrants to the Underwriter that:
(a) The Shares to be sold by such Selling Shareholder are, and on the
Closing Date will be, duly and validly authorized and validly issued, fully paid
and nonassessable; the certificates for such Shares will be genuine; such
Selling Shareholder will have on the Closing Date valid, marketable title to
such Shares, free and clear of all security interests, liens, encumbrances,
claims, charges, restrictions on transfer (other than applicable securities laws
and blue sky law restrictions) or other defects whatsoever, with full right and
authority to sell and deliver such Shares; and upon the delivery of and payment
for such Shares as herein contemplated the Underwriter will receive valid,
marketable title thereto, free and clear of all security interests, liens,
encumbrances, claims, charges, restrictions on transfer or other defects, except
any that may be created by the Underwriter's own action.
(b) None of the information furnished to the Company in writing by such
Selling Shareholder for use in, or in connection with the preparation of, the
Registration Statement or the Prospectus contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and the statements with
respect to such Selling Shareholder contained in the "Principal and Selling
Shareholders" section of the Prospectus and in Item 15 of the Registration
Statement are accurate and complete in all material respects.
(c) Such Selling Shareholder has duly authorized the Company to act as
attorney-in-fact (the "Attorney-in-Fact") for such Selling Shareholder pursuant
to a power of attorney (each, a "Power of Attorney") executed by such Selling
Shareholder (and, by the Company's execution of this Agreement on behalf of the
Selling Shareholders, it represents and warrants that it has been duly appointed
as Attorney-in-Fact by each of the Selling Shareholders) pursuant to which the
13
<PAGE>
Attorney-in-Fact is authorized on behalf of the Selling Shareholder to execute
this Agreement and any other documents necessary or desirable in connection with
the sale of the Shares, to make delivery of the certificates for the Shares, to
receive the proceeds of the sale of the Shares and to give a receipt therefor
and to distribute the proceeds from the sale of such Selling Shareholder's
Shares to such Selling Shareholder. Such Selling Shareholder has caused a
certificate or certificates for the number of Shares to be sold by such Selling
Shareholder hereunder to be delivered to the Attorney-in-Fact with irrevocable
authority to purchase all requisite stock transfer tax stamps and to hold such
certificate or certificates in custody for delivery, or for exchange for other
certificates in proper form for delivery, pursuant to the provisions hereof on
the Closing Date.
(d) This Agreement constitutes the valid and binding obligation of such
Selling Shareholder, enforceable against the Selling Shareholder in accordance
with its terms subject, as to enforcement of remedies, to applicable bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors generally and the discretion of courts in
granting equitable remedies and except that enforceability of the
indemnification provisions set forth in Section 8 hereof and the contribution
provisions set forth in Section 9 hereof may be limited by the United States
federal and state securities laws or public policy underlying such laws.
(e) All authorizations and consents necessary for the execution and
delivery by such Selling Shareholder of this Agreement and the sale and delivery
hereunder of such Selling Shareholder's Shares have been obtained and are in
full force and effect on the date hereof and will be in full force and effect at
the Closing Date.
(f) The sale of such Selling Shareholder's Shares by such Selling
Shareholder pursuant to this Agreement is not prompted by any material
information concerning the Company known by such Selling Shareholder which is
not set forth in the Prospectus.
6. Certain Covenants of the Company and the Selling Shareholders. The
Company and the Selling Shareholders covenant with the Underwriter as follows:
(a) The Company will not at any time, whether before the Effective Date
or thereafter during such period as the Prospectus is required by law to be
delivered in connection with the sales of the Shares by the Underwriter or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Underwriter has not been previously advised
and furnished a copy, or to which the Underwriter shall reasonably object in
writing.
14
<PAGE>
(b) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Underwriter immediately, and,
if requested by the Underwriter, confirm such advice in writing, (i) when the
Registration Statement, or any post-effective amendment to the Registration
Statement or any supplemented Prospectus is filed with the Commission; (ii) of
the receipt of any comments from the Commission; (iii) of any request of the
Commission for amendment or supplementation of the Registration Statement or
Prospectus or for additional information; and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, or of the initiation of any proceedings for any of
such purposes. The Company will use its best efforts to prevent the issuance of
any such stop order or of any order preventing or suspending such use and to
obtain as soon as possible the lifting thereof, if any such order is issued.
(c) The Company will deliver to the Underwriter, without charge, from
time to time until the Effective Date, as many copies of each Preliminary
Prospectus as the Underwriter may reasonably request, and the Company hereby
consents to the use of such copies for purposes permitted by the Act. The
Company will deliver to the Underwriter, without charge, as soon as the
Registration Statement becomes effective, and thereafter from time to time as
requested, such number of copies of the Prospectus (as supplemented, if the
Company makes any supplements to the Prospectus) as the Underwriter may
reasonably request. The Company has furnished or will furnish to the Underwriter
a certified copy of the Registration Statement filed and of all amendments
thereto, whether filed before or after the Registration Statement becomes
effective, a copy of all exhibits filed therewith and a certified copy of all
consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations thereunder so as to permit the continuance of sales of and
dealings in the Offered Shares and in any Optional Shares which may be issued
and sold. If, at any time when a prospectus relating to the Shares is required
to be delivered under the Act, any event occurs as a result of which the
Registration Statement and Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it shall be necessary to amend or
supplement the Registration Statement and Prospectus to comply with the Act or
the regulations thereunder, the Company will promptly file with the Commission,
subject to Section 6(a) hereof, an amendment or supplement which will correct
such statement or omission or which will effect such compliance.
15
<PAGE>
(e) The Company will furnish such proper information as may be required
and otherwise cooperate in qualifying the Shares for offering and sale under the
securities or Blue Sky laws relating to the offering in such jurisdictions as
the Underwriter may reasonably designate, provided that no such qualification
will be required in any jurisdiction where, solely as a result thereof, the
Company would be subject to service of general process or to taxation or
qualification as a foreign corporation doing business in such jurisdiction.
(f) The Company will make generally available to its securityholders, in
the manner specified in Rule 158(b) under the Act, and deliver to the
Underwriter and Underwriter's Counsel as soon as practicable and in any event
not later than 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earning statement meeting the requirements of Rule 158(a) under the Act covering
a period of at least 12 consecutive months beginning after the effective date of
the Registration Statement.
(g) For a period of three years from the Effective Date, the Company
will deliver to the Underwriter and to Underwriter's Counsel on a timely basis
(i) a copy of each report or document, including, without limitation, reports on
Forms 6-K, 8-K, 20-F, 10-K (or 10-KSB) and 10-Q (or 10-QSB) (to the extent
applicable) and exhibits thereto, filed or furnished to the Commission, any
securities exchange or the National Association of Securities Dealers, Inc. (the
"NASD") within one business day of the date each such report or document is so
filed or furnished; (ii) as soon as practicable, copies of any reports or
communications (financial or other) of the Company mailed to its
securityholders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time which has
been filed with the Commission; (iv) monthly statements setting forth such
information regarding the Company's results of operations and financial position
(including balance sheet, profit and loss statements and data regarding
outstanding purchase orders) as is regularly prepared by management of the
Company; and (v) such additional information concerning the business and
financial condition of the Company as the Underwriter may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial statements and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company, nor any Selling Shareholder nor any person that
controls, is controlled by or is under common control with the Company or a
Selling Shareholder will take any action during any period when the Prospectus
is required to be delivered designed to or which might be reasonably expected to
cause or result in the stabilization or manipulation of the price of the Common
Shares.
16
<PAGE>
(i) If the transactions contemplated by this Agreement are consummated,
the Underwriter shall retain the $50,000 previously paid to it, and the Company
will pay or cause to be paid the following: all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including, but not limited to, the fees and expenses of accountants and counsel
for the Company; the preparation, printing, mailing and filing of the
Registration Statement (including financial statements and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or supplements
thereto; the printing and mailing of the Selected Dealer Agreement, the issuance
and delivery of the Shares to the Underwriter; all taxes, if any, on the
issuance of the Shares; the fees, expenses and other costs of qualifying the
Shares for sale under the Blue Sky or securities laws of those states in which
the Shares are to be offered or sold, including fees and disbursements of
counsel in connection therewith (including those of such local counsel as may
have been retained for such purpose) and the cost of printing and mailing the
"Blue Sky Survey"; the filing fees incident to securing any required review by
the NASD, the NASDAQ Stock Market and the Boston Stock Exchange; the cost of
furnishing to the Underwriter copies of the Registration Statement, Preliminary
Prospectuses and the Prospectus as herein provided; the costs, up to an
aggregate maximum of $10,000, of placing "tombstone advertisements" in any
publications which may be selected by the Underwriter; and all other costs and
expenses incident to the performance of the Company's obligations hereunder
which are not otherwise specifically provided for in this Section 6(i).
In addition, at the Closing Date or the Option Closing Date, as the case
may be, the Underwriter will deduct from the payment (to the Company or the
Selling Shareholders, as the case may be), for the Offered Shares or any
Optional Shares three percent (3%) of the gross proceeds of the offering (less
the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's nonaccountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of
Underwriter's Counsel (other than the fees and expenses of Underwriter's Counsel
relating to Blue Sky qualifications and registrations, which, as provided for
above, shall be in addition to the three percent (3%) nonaccountable expense
allowance and shall be payable directly by the Company to Underwriter's Counsel
on or prior to the Closing Date).
(j) If the transactions contemplated by this Agreement or related hereto
are not consummated because the Company decides not to proceed with the offering
for any reason or because the Underwriter decides not to proceed with the
offering as a result of a breach by the Company of its representations,
warranties or covenants in the Agreement or as a result of adverse changes in
the affairs of the Company, then the Company will be obligated to reimburse the
17
<PAGE>
Underwriter for its accountable expenses up to the sum of $75,000, inclusive of
the $50,000 previously paid to the Underwriter by the Company. In the event the
Company or the Underwriter decides not to proceed with the offering for reasons
other than those set forth in the preceding sentence, the Company will only be
obligated to reimburse the Underwriter for its accountable expenses up to
$50,000, inclusive of the $50,000 previously paid to the Underwriter by the
Company. In no event, however, will the Underwriter, in the event the offering
is terminated, be entitled to retain or receive more than an amount equal to its
actual accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the sale of the
Shares for the purposes set forth in the Prospectus. Except as set forth in the
Prospectus, no portion of the net proceeds from the sale of the Shares will be
used to repay any indebtedness.
(l) During the period of twelve (12) months from the Effective Date
hereof, neither the Company nor any of its officers, directors or
securityholders will publicly offer for sale or publicly sell or otherwise
publicly dispose of, directly or indirectly, any securities of the Company
(other than the Selling Shareholders' Shares by the Selling Shareholders), in
any manner whatsoever, whether pursuant to Rule 144 of the Regulations or
otherwise, and no holder of registration rights relating to securities of the
Company will exercise any such registration rights, in either case, without the
prior written consent of the Underwriter. During the 12-month period commencing
one year from the date hereof, no officer, director or securityholder who
beneficially owns or holds 5% or more of the outstanding Common Shares
(calculated in accordance with Rule 13d-3(d)(i) under the Exchange Act) may sell
any Common Shares in excess of the amount that they would be allowed to sell if
they were deemed "affiliates" of the Company and their shares were deemed
"restricted," as those terms are defined in Rule 144 promulgated under the
Securities Act, without the prior written consent of the Underwriter. The
Company will deliver to the Underwriter the undertakings, as of the date hereof,
of its officers, directors and shareholders to the effect of the foregoing.
Notwithstanding anything in this Section 6(l) to the contrary, the Underwriter
agrees to waive the requirements of this Section 6(l) with respect to
securityholders who are not officers or directors and who hold less than an
aggregate of 5,000 shares and/or options to purchase shares.
(m) The Company will not file any registration statement relating to the
offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the twelve (12) months from the Effective Date,
without the Underwriter's prior written consent.
18
<PAGE>
(n) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) The Company will use its best efforts to maintain the listing of the
Shares on the Nasdaq SmallCap Market and will, if so qualified, list the Shares,
and maintain such listing for so long as qualified, on the Nasdaq National
Market System.
(p) The Company will, concurrently with the Effective Date, register the
class of equity securities of which the Shares are a part under Section 12(b) or
12(g) of the Exchange Act and the Company will maintain such registration for a
minimum of five (5) years from the Effective Date.
(q) Subject to the sale of the Offered Shares, the Underwriter and its
successors will have the right to designate a nominee for election, at its or
their option, either as a member of or a non-voting advisor to the Board of
Directors of the Company (which board, during such period, shall meet at least
quarterly, have no members who are related (by marriage or otherwise) to other
of its board members, and be comprised of members, a majority of which are not
otherwise affiliated with the Company, its management or its founders), and the
Company will use its best efforts to cause such nominee to be elected and
continued in office as a director of the Company or as such advisor until the
expiration of three (3) years from the Effective Date. Each of the Company's
current officers, directors and shareholders (other than shareholders owning
less than an aggregate of 5,000 shares) agree to vote all of the Common Shares
owned by such person or entity so as to elect and continue in office such
nominee of the Underwriter. Following the election of such nominee as a director
or advisor, such person shall receive no more or less compensation than is paid
to other non-officer directors of the Company for attendance at meetings of the
Board of Directors of the Company and shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings including, but not
limited to, food, lodging and transportation. The Company agrees to indemnify
and hold such director or advisor harmless, to the maximum extent permitted by
law, against any and all claims, actions, awards and judgments arising out of
his service as a director or advisor and, in the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, to include such director or advisor as an insured under such policy.
19
<PAGE>
The rights and benefits of such indemnification and the benefits of such
insurance shall, to the extent possible, extend to the Underwriter insofar as it
may be or may be alleged to be responsible for such director or advisor. The
Company will deliver to the Underwriter the undertakings as of the date hereof
of each of its officers, directors and shareholders (other than shareholders
owning less than an aggregate of 5,000 shares) to be bound by the terms of this
Section 6(q).
If the Underwriter does not exercise its option to designate a member of or
advisor to the Company's Board of Directors, the Underwriter shall nonetheless
have the right to send a representative (who need not be the same individual
from meeting to meeting) to observe each meeting of the Board of Directors. The
Company agrees to give the Underwriter notice of each such meeting and to
provide the Underwriter with an agenda and minutes of the meeting no later than
it gives such notice and provides such items to the directors.
(r) The Company shall retain American Stock Transfer and Trust Company
as its transfer agent for the Common Shares, or another transfer agent
reasonably acceptable to the Underwriter, for a period of three (3) years from
the Effective Date. In addition, for a period of three (3) years from the
Effective Date, the Company, at its own expense, shall cause such transfer agent
to provide the Underwriter, if so requested in writing, with copies of the
Company's daily transfer sheets, and, when requested by the Underwriter, a
current list of the Company's securityholders, including a list of the
beneficial owners of securities held by a depository trust company and other
nominees.
(s) The Company hereby agrees, at its sole cost and expense, to supply
and deliver to the Underwriter and Underwriter's Counsel, within a reasonable
period from the date hereof, four bound volumes, including the Registration
Statement, as amended or supplemented, all exhibits to the Registration
Statement, the Prospectus and all other underwriting documents.
(t) The Company shall, as of the date hereof, have applied for listing
in Standard & Poor's Corporation Records Service (including annual report
information) or Moody's Industrial Manual (Moody's OTC Industrial Manual not
being sufficient for these purposes) and shall use its best efforts to have the
Company listed in such manual and shall maintain such listing for a period of
three (3) years from the Effective Date.
(u) For a period of three (3) years from the Effective Date, the Company
shall provide the Underwriter, on a not less than annual basis, with internal
forecasts setting forth projected results of operations for each quarterly and
annual period in the two (2) fiscal years following the respective dates of such
20
<PAGE>
forecasts. Such forecasts shall be provided to the Underwriter more frequently
than annually if prepared more frequently by management, and revised forecasts
shall be prepared and provided to the Underwriter when required to reflect more
current information, revised assumptions or actual results that differ
materially from those set forth in the forecasts.
(v) For a period of three (3) years from the Effective Date, the Company
shall nominate for appointment PricewaterhouseCoopers, LLP (or such other
nationally recognized accounting firm reasonably acceptable to the Underwriter)
as the Company's independent public accountants.
(w) For a period of three (3) years from the Effective Date, the
Company, at its expense, shall cause its then independent certified public
accountants, as described in Section 6(v) above, to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's 10-Q (or 10-QSB) quarterly report (or other equivalent report) and the
mailing of quarterly financial information to shareholders.
(x) For a period of twenty-five (25) days from the Effective Date,
neither the Company nor any Selling Shareholder will issue press releases or
engage in any other publicity without the Underwriter's prior written consent,
other than normal and customary releases issued in the ordinary course of the
Company's business or those releases required by law.
(y) For a period of three (3) years from the Effective Date, the Company
will not offer or sell any of its securities (i) pursuant to Regulation S
promulgated under the Act (other than options granted under employee stock
option plans, provided that the excise price of the options is equal to or
greater than the market price per Common Share on the date of grant) or (ii) at
a discount to market or in a discounted transaction, without the prior written
consent of the Underwriter, other than the issuance of Common Shares upon
exercise of options and warrants outstanding on the Closing Date and described
in the Prospectus.
(z) For a period of three (3) years from the Effective Date, the Company
will provide to the Underwriter ten day's written notice prior to any issuance
by the Company or its subsidiaries of any equity securities or securities
exchangeable for or convertible into equity securities of the Company, except
for (i) Common Shares issuable upon exercise of currently outstanding options
and warrants or conversion of currently outstanding convertible securities and
(ii) options available for future grant pursuant to any stock option plan in
effect on the Effective Date and the issuance of shares of Common Shares upon
the exercise of such options.
21
<PAGE>
(aa) Prior to the Effective Date and for a period of three (3) years
thereafter, the Company will retain a financial public relations firm reasonably
acceptable to the Underwriter.
(bb) For a period of three (3) years from the Effective Date, the
Company will cause its Board of Directors to meet, either in person or
telephonically, a minimum of four (4) times per year and will hold a
shareholder's meeting at least once per annum.
(cc) Prior to the Effective Date, the Company shall have obtained
Director's and Officer's insurance naming the Underwriter as an additional
insured party, in an amount equal to twenty-five percent (25%) of the gross
proceeds of the offering, and the Company will maintain such insurance for a
period of at least three (3) years from the Closing Date.
(dd) For a period of three years from the Effective Date, the Company
will not enter any transactions with any of its officers, directors or 5%
shareholders, or their affiliates, without the approval of a majority of the
independent and disinterested directors. In addition to the foregoing, the
Company will not exercise its option to purchase from Paul Champagne his
interest in Worklife Solutions, Inc. (the "Interest") without obtaining an
independent valuation of the Interest and a fairness opinion as to the
transaction (including the purchase price) from an investment banking firm,
financial consultant or similar firm reasonably acceptable to the Underwriter.
7. Conditions of the Underwriter's Obligation to Purchase the Offered Shares
from the Company and the Selling Shareholders. The obligation of the Underwriter
to purchase and pay for the Offered Shares which it has agreed to purchase from
the Company and the Selling Shareholders is subject (as of the date hereof and
the Closing Date) to the accuracy of and compliance in all material respects
with the representations and warranties of the Company and the Selling
Shareholders herein, to the accuracy in all material respects of the statements
of the Company and its officers and of the Selling Shareholders made pursuant
hereto, to the performance in all material respects by the Company and the
Selling Shareholders of their respective obligations hereunder, and to the
following additional conditions:
(a) The Registration Statement will have become effective not later than
10:00 A.M., New York City time, on the day following the date of this Agreement,
or at such later time or on such later date as the Underwriter may agree to in
writing; prior to the Closing Date, no stop order suspending the effectiveness
of the Registration Statement will have been issued and no proceedings for that
22
<PAGE>
purpose will have been initiated or will be pending or, to the best of the
Underwriter's or the Company's knowledge, will be contemplated by the
Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the Closing Date,
there will have been delivered to the Underwriter the signed opinion of
Perley-Robertson, Hill and McDougal, counsel for the Company ("Company
Counsel"), dated as of the date hereof or the Closing Date, as the case may be
(and any other opinions of counsel referred to in such opinion of Company
Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing and in good standing under the laws of Canada, with full corporate
power and authority, and with all Permits necessary, to own or lease, as the
case may be, and operate its properties, whether tangible or intangible, and to
conduct its business as described in the Registration Statement. To the best of
Company Counsel's knowledge, the Company has no subsidiaries, other than 3451615
Canada Inc., a corporation duly organized, validly existing and in good standing
under the laws of Canada (the "Canadian Subsidiary"), and E-Cruiter.com USA
Inc., (together with the Canadian Subsidiary, the "Subsidiaries"). Unless the
context otherwise requires, all references to the "Company" shall include the
Subsidiaries. The Canadian Subsidiary has full corporate power and authority and
all Permits necessary, to own or lease, as the case may be, and operate its
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. The U.S. Subsidiary has all Permits
necessary, to own or lease, as the case may be, and operate its Canadian
properties, whether tangible or intangible, and to conduct its business as
described in the Registration Statement. Each of the Company and the
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in all jurisdictions wherein such qualification is necessary.
The Company owns all of the issued and outstanding shares of capital stock
of the Canadian Subsidiary, free and clear of any security interests, liens,
encumbrances, claims and charges of any nature whatsoever, except as set forth
in the Registration Statement and all of such shares have been duly authorized
and validly issued and are fully paid and nonassessable. To the best of Company
Counsel's knowledge, there are no options or warrants for the purchase of, or
other rights to purchase or acquire, or outstanding securities convertible into
or exchangeable for, any capital stock or other securities of the Canadian
Subsidiary. To the best of Company Counsel's knowledge, other than the
Subsidiaries, the Company has no equity interests in any entity.
23
<PAGE>
(ii) The Company has full corporate power and authority to execute,
deliver and perform this Agreement and the Underwriter's Warrant Agreement and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Underwriter's Warrant
Agreement by the Company, the consummation by the Company of the transactions
herein and therein contemplated and the compliance by the Company with the terms
of this Agreement and the Underwriter's Warrant Agreement have been duly
authorized by all necessary corporate action, and this Agreement has been duly
executed and delivered by the Company.
(iii) The execution, delivery and performance of this Agreement and
the Underwriter's Warrant Agreement by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement and the Underwriter's Warrant
Agreement do not, and will not, with or without the giving of notice or the
lapse of time, or both, (A) result in a violation of the Articles of
Incorporation or By-Laws, each as amended, of the Company or any of the Canadian
Subsidiary, (B) to the best of Company Counsel's knowledge, result in a breach
of or conflict with any terms or provisions of, or constitute a default under,
or result in the modification or termination of, or result in the creation or
imposition of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any of the Subsidiaries pursuant to any
indenture, mortgage, note, contract, commitment or other material agreement or
instrument to which the Company or any of the Subsidiaries is a party or by
which the Company, any of the Subsidiaries or any of the properties or assets of
the Company or any of the Subsidiaries are or may be bound or affected; (C)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company, any of the Subsidiaries or any of the properties or businesses
of the Company or any of the Subsidiaries; or (D) to the best of Company
Counsel's knowledge, have any effect on any Permit necessary for the Company or
any of the Subsidiaries to own or lease, as the case may be, and operate their
properties or conduct their business or the ability of the Company or any of the
Subsidiaries to make use thereof.
(iv) To the best of Company Counsel's knowledge, no Permits of any
Canadian court or governmental agency or body are required for the valid
authorization, issuance, sale and delivery of the Shares or the Underwriter's
Warrants to the Underwriter, and the consummation by the Company and the Selling
Shareholders of the transactions contemplated by this Agreement or the
Underwriter's Warrant Agreement.
(v) Each Selling Shareholder has duly executed and delivered a Power
of Attorney appointing the Company as Attorney-in-Fact with authority to execute
and deliver this Agreement on behalf of such Selling Shareholder, to authorize
the delivery of the Selling Shareholders' Shares to be sold by such Selling
24
<PAGE>
Shareholder thereunder and otherwise to act on behalf of such Selling
Shareholder in connection with the transactions contemplated by this Agreement.
This Agreement has been duly and validly authorized, executed and delivered on
behalf of each of the Selling Shareholders by the Attorney-in-Fact and is a
valid and binding obligation of each of the Selling Shareholders, enforceable
against such Selling Shareholders in accordance with their respective terms.
(vi) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
10 of Form F-1 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments described
above violates any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company, any Canadian Subsidiary or any of their
respective assets or businesses.
(vii) The outstanding Common Shares, including, without limitation,
the Selling Shareholders' Shares, and outstanding options and warrants to
purchase Common Shares have been duly authorized and validly issued. The
outstanding Common Shares are fully paid and nonassessable. The outstanding
options and warrants to purchase Common Shares constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms, subject
as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies. None of
the outstanding Common Shares or options or warrants to purchase Common Shares
has been issued in violation of the preemptive rights of any shareholder of the
Company. None of the holders of the outstanding Common Shares is subject to
personal liability solely by reason of being such a holder. The authorized
Common Shares and outstanding options and warrants to purchase Common Shares
conform to the descriptions thereof contained in the Registration Statement and
Prospectus. To the best of Company Counsel's knowledge, except as set forth in
the Prospectus, no holders of any of the Company's securities has any rights,
"demand", "piggyback" or otherwise, to have such securities registered under the
Act.
25
<PAGE>
(viii) The issuance and sale of the Company Offered Shares and
Optional Shares have been duly authorized and, when the Shares have been issued
and duly delivered against payment therefor as contemplated by this Agreement,
the Shares will be validly issued, fully paid and nonassessable, and the holders
thereof will not be subject to personal liability solely by reason of being such
holders. The Shares are not subject to preemptive rights of any shareholder of
the Company. The certificates representing the Shares are in proper legal form.
(ix) The issuance and sale of the Common Shares issuable upon exercise of the
Underwriter's Warrants have been duly authorized and, when such Common Shares
have been duly delivered against payment therefor, as contemplated by the
Underwriter's Warrant Agreement, such Common Shares will be validly issued,
fully paid and nonassessable. Holders of Common Shares issuable upon exercise of
the Underwriter's Warrants will not be subject to personal liability solely by
reason of being such holders. Neither the Underwriter's Warrants nor the Common
Shares issuable upon exercise thereof will be subject to preemptive rights of
any shareholder of the Company. The Company has reserved a sufficient number of
Common Shares from its authorized, but unissued Common Shares for issuance upon
exercise of the Underwriter's Warrants in accordance with the provisions of the
Underwriter's Warrant Agreement. The Underwriter's Warrants conform to the
descriptions thereof in the Registration Statement and Prospectus in all
material respects.
(x) Upon delivery of the Company Offered Shares to the Underwriter
against payment therefor as provided in this Agreement, the Underwriter
(assuming it is a bona fide purchaser within the meaning of the Canada Business
Corporations Act) will acquire title to the Company Offered Shares, free of any
adverse claims as defined in the Business Corporations Act.
(xi) Assuming that the Underwriter exercises the over-allotment
option to purchase any of the Optional Shares and makes payment therefor in
accordance with the terms of this Agreement, upon delivery of the Optional
Shares to the Underwriter hereunder, the Underwriter (assuming it is a bona fide
purchaser within the meaning of the Canada Business Corporations Act) will
acquire good title to such Optional Shares, free and clear of any adverse claims
as defined in the Canada Business Corporations Act.
(xii) To the best of Company Counsel's knowledge, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, foreign or domestic, or
before any private arbitration tribunal, pending or threatened against the
Company or any of the Subsidiaries, or involving the Company's or any of the
Subsidiaries' properties or businesses, other than as described in the
Prospectus, such description being accurate in all material respects, and other
than litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, could result in a Material Adverse Effect.
26
<PAGE>
(xiii) The Company and each of the Subsidiaries owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, service marks, copyrights, rights, trade secrets, confidential
information, processes and formulations used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively the
"Intangibles"); to the best of Company Counsel's knowledge, neither the Company
nor any of the Subsidiaries has infringed nor is infringing with the rights of
others with respect to the Intangibles; and, to the best of Company Counsel's
knowledge, neither the Company nor any of the Subsidiaries has received any
notice that it has or may have infringed, is infringing upon or is conflicting
with the asserted rights of others with respect to the Intangibles which might,
singly or in the aggregate, materially adversely affect its business, results of
operations or financial condition and such counsel is not aware of any licenses
with respect to the Intangibles which are required to be obtained by the Company
or any of the Subsidiaries other than those licenses which the Company and each
of the Subsidiaries have obtained. The opinions described in this Section
7(b)(xvi) may be given by Company Counsel in reliance on the opinion of an
attorney, reasonably acceptable to Underwriter's Counsel, practicing in the
intellectual property area.
Although, except as otherwise stated herein, Company Counsel has not
verified and is not passing upon and assumes no responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus, based upon Company Counsel's
participation in the preparation of the Registration Statement and the
Prospectus and in meetings attended by representatives of the Company, United
States Counsel (as hereinafter defined), the independent auditors of the
Company, representatives of the Underwriters, and Underwriter's Counsel, at
which the contents of the Registration Statement and the Prospectus and related
matters were reviewed and discussed, no facts came to its attention which lead
it to believe that (A) the Registration Statement (except as to the financial
statements and other financial data contained therein, as to which Company
Counsel need not express an opinion), on the Effective Date, contained any
untrue statement of a material fact required to be stated therein or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that (B) the Prospectus (except as to the financial
statements and other financial data contained therein, as to which Company
Counsel need not express an opinion) contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
27
<PAGE>
In rendering its opinion pursuant to this Section 7(b), Company Counsel
may rely upon the certificates of government officials and officers of the
Company as to matters of fact, provided that Company Counsel shall state that
they have no reason to believe, and do not believe, that they are not justified
in relying upon such opinions or such certificates of government officials and
officers of the Company as to matters of fact, as the case may be.
The opinion letter delivered pursuant to this Section 7(b) shall state
that any opinion given therein qualified by the phrase "to the best of our
knowledge" is being given by Company Counsel after due investigation of the
matters therein discussed.
(c) At the time that this Agreement is executed and at the Closing Date,
there will have been delivered to the Underwriter the signed opinion of Weil,
Gotshal & Manges LLP, United States counsel for the Company ("United States
Counsel"), dated as of the date hereof or the Closing Date, as the case may be
(and any other opinions of counsel referred to in such opinion of Company
Counsel or relied upon by Company Counsel in rendering their opinion),
reasonably satisfactory to Underwriter's Counsel, to the effect that:
(i) The U.S. Subsidiary is a corporation validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted.
(ii) The Company owns all of the outstanding shares of capital stock
of the U.S. Subsidiary of record. To United States Counsel's knowledge, such
shares are also owned beneficially by the Company and are free and clear of all
adverse claims, limitations on voting rights, options and other encumbrances,
except as set forth in the Registration Statement, and are duly authorized,
validly issued, fully paid and nonassessable. To United States Counsel's
knowledge, there are no outstanding or authorized options, warrants, calls,
subscriptions, rights, commitments or other instruments or agreements of any
character obligating the Company or the U.S. Subsidiary to issue any shares of
capital stock of the U.S. Subsidiary or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such stock, and
there are no agreements or understandings with respect to the voting, sale or
transfer of any shares of capital stock of the U.S. Subsidiary.
(iii) Each of this Agreement and the Warrant Agreement constitutes
the legal, valid and binding obligation of the Company, enforceable against it
in accordance with its respective terms, subject to applicable bankruptcy,
28
<PAGE>
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity) and except that
rights to indemnification and contribution under this Agreement may be limited
by federal or state securities laws or public policy relating thereto.
(iv) The execution and delivery by the Company of this Agreement and
the Warrant Agreement and the performance by the Company of its obligations
thereunder do not and will not conflict with, constitute a default under or
violate (i) any of the terms, conditions or provisions of any material document,
agreement or other instrument to which the Company or the U.S. Subsidiary is a
party or by which either of them is bound of which United States Counsel is
aware, (ii) any New York or U.S. federal law or regulation (other than federal
and state securities or blue sky laws, as to which we express no opinion in this
paragraph), or (iii) any judgment, writ, injunction, decree, order or ruling of
any New York or U.S. federal court or governmental authority binding on the
Company or the U.S. Subsidiary of which United States Counsel is aware.
(v) No consent, approval, waiver, license or authorization or other
action by or filing with any New York or U.S. federal governmental authority is
required in connection with the execution and delivery by the Company of the
Underwriting Agreement and the Warrant Agreement, the consummation by the
Company of the transactions contemplated thereby or the performance by the
Company of its obligations thereunder, except for (i) the registration of the
Offered Shares under the Securities Act (which has occurred), (ii) the
registration of the common shares of the Company under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")(which has occurred), (iii) the
approval of Nasdaq Listing Qualifications for listing the Offered Shares on the
Nasdaq SmallCap as contemplated by the Underwriting Agreement (which has been
obtained), (iv) the approval of The Boston Stock Exchange for listing the
Offered Shares on The Boston Stock Exchange, as contemplated by the Underwriting
Agreement (which has been obtained), and (v) such consents, approvals,
authorizations, registrations, qualifications or notices as may be required
under state securities or blue sky laws in connection with the purchase and
distribution by the Underwriter of the Offered Shares to be purchased by it
under the Underwriting Agreement (as to which United States Counsel expresses no
opinion).
(vi) The Registration Statement and the Prospectus (except for the
financial statements and the notes thereto and the other financial, statistical
and accounting data included in the Registration Statement or the Prospectus as
to which United States Counsel expresses no opinion) comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations thereunder.
29
<PAGE>
(vii) The Registration Statement has become effective under the
Securities Act, and United States Counsel is not aware of any stop order
suspending the effectiveness of the Registration Statement. To United States
Counsel's knowledge, no proceedings therefor have been initiated or overtly
threatened by the Commission.
(viii) To United States Counsel's knowledge, there are no legal or
governmental proceedings pending or overtly threatened to which the Company or
any of its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be described
in the Registration Statement or the Prospectus and are not so described or any
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed or incorporated by
reference as exhibits to the Registration Statement that are not described,
filed or incorporated as required. To United States Counsel's knowledge, the
response to the requirements of Item 10 of Form F-1 in the Registration
Statement and the Prospectus is accurate in all material respects and presents
fairly the information required to be disclosed therein.
United States Counsel has participated in conferences with directors,
officers and other representatives of the Company, representatives of Canadian
counsel for the Company, representatives of the independent public accountants
for the Company, representatives of the Underwriter and representatives of
counsel for the Underwriter, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed,
and, although United States Counsel has not independently verified and is not
passing upon and assumes no responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and
Prospectus (except to the extent specified in the foregoing opinion), no facts
have come to United States Counsel's attention which leads it to believe that
the Registration Statement, on the effective date thereof, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading or that the Prospectus, on the date thereof or on the date hereof,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading (it being understood that United States Counsel
expresses no view with respect to the financial statements and related notes,
the financial statement schedules and the other financial, statistical and
accounting data included).
30
<PAGE>
In rendering its opinion pursuant to this Section 7(c), United States
Counsel may rely upon the certificates of government officials and officers of
the Company as to matters of fact, provided that United States Counsel shall
state that they have no reason to believe, and do not believe, that they are not
justified in relying upon such opinions or such certificates of government
officials and officers of the Company as to matters of fact, as the case may be.
(d) At the Closing Date, there will have been delivered to the
Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing
Date, to the effect that the opinions delivered pursuant to Sections 7(b) and
7(c) hereof appear on their face to be appropriately responsive to the
requirements of this Agreement, except to the extent waived by the Underwriter,
specifying the same, and with respect to such related matters as the Underwriter
may require.
(e) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will contain all material
statements which are required to be stated therein in accordance with the Act
and the Regulations and will conform in all material respects to the
requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; (ii)
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there will not have been any material adverse
change in the financial condition, results of operations or general affairs of
the Company from that set forth or contemplated in the Registration Statement
and the Prospectus, except changes which the Registration Statement and the
Prospectus indicate might occur after the Effective Date; (iii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there shall have been no material transaction, contract or
agreement entered into by the Company, other than in the ordinary course of
business, which would be required to be set forth in the Registration Statement
and the Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
knowledge, overtly threatened against the Company which is required to be set
forth in the Registration Statement and the Prospectus, other than as set forth
therein, and no proceedings will be pending or, to the best of the Company's
knowledge, overtly threatened against the Company before or by any federal,
state or other commission, board or administrative agency wherein an unfavorable
decision, ruling or finding would materially adversely affect the business,
property, financial condition or results of operations of the Company, other
than as set forth in the Registration Statement and the Prospectus. At the
Closing Date, there will be delivered to the Underwriter a certificate signed by
31
<PAGE>
the Chairman of the Board or the President or a Vice President of the Company,
dated the Closing Date, evidencing compliance with the provisions of this
Section 7(e) and by the Selling Shareholders and stating that the
representations and warranties of the Company set forth in Sections 4 and 5
hereof were accurate and complete in all material respects when made on the date
hereof and are accurate and complete in all material respects on the Closing
Date as if then made; that each of the Company and each Selling Shareholder has
performed in all material respects all covenants and complied in all material
respects with all conditions required by this Agreement to be performed or
complied with by each of them prior to or as of the Closing Date; and that, as
of the Closing Date, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been initiated or, to the best of his knowledge, are contemplated or overtly
threatened. In addition, the Underwriter will have received such other and
further certificates of officers of the Company and of the Selling Shareholders
as the Underwriter or Underwriter's Counsel may reasonably request.
(f) At the time that this Agreement is executed and at the Closing
Date, the Underwriter will have received a signed letter from
PricewaterhouseCoopers LLP, dated the date such letter is to be received by the
Underwriter and addressed to it, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by such firm, in its opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration Statement
and Prospectus, inquiries of officers of the Company responsible for financial
and accounting matters as to the transactions and events subsequent to the date
of the latest audited financial statements of the Company, and a reading of the
minutes of meetings of the shareholders, the Board of Directors of the Company
and any committees of the Board of Directors, as set forth in the minute books
of the Company, nothing has come to its attention which, in its judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or decreases [increases] in total or per share net income [loss] compared
with the corresponding period in the preceding year or any change in the
32
<PAGE>
capitalization or long-term debt of the Company, except in all cases as set
forth in or contemplated by the Registration Statement and the Prospectus, and
(B) the unaudited interim financial statements of the Company, if any, appearing
in the Registration Statement and the Prospectus, do not comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Regulations or are not fairly presented in conformity with generally
accepted accounting principles and practices on a basis substantially consistent
with the audited financial statements included in the Registration Statement or
the Prospectus; and (iii) it has compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(g) There shall have been duly tendered to the Underwriter
certificates representing the Offered Shares to be sold on the Closing Date.
(h) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(i) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of the Underwriter's or the Company's
knowledge, shall be contemplated by the Commission or the NASD. Each of the
Company and each of the Selling Shareholders represent at the date hereof, and
shall represent as of the Closing Date or Option Closing Date, as the case may
be, that it has no knowledge that any such action is in fact contemplated by the
Commission or the NASD.
(j) The Company meets the current and any existing and proposed
criteria for inclusion of the Shares on Nasdaq SmallCap Market.
33
<PAGE>
(k) All proceedings taken at or prior to the Closing Date or the
Option Closing Date, as the case may be, in connection with the authorization,
issuance and sale of the Shares shall be reasonably satisfactory in form and
substance to the Underwriter and to Underwriter's Counsel, and such counsel
shall have been furnished with all such documents, certificates and opinions as
they may reasonably request for the purpose of enabling them to pass upon the
matters referred to in Section 7(d) hereof and in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company and the Selling
Shareholders, or the compliance by the Company and the Selling Shareholders with
any of the conditions herein contained.
(l) As of the date hereof, the Company will have delivered to the
Underwriter the written undertakings of its officers, directors and
securityholders and/or registration rights holders, as the case may be, to the
effect of the matters set forth in Sections 6(l) and (q).
If any of the conditions specified in this Section 7 have not been
fulfilled, this Agreement may be terminated by the Underwriter on notice to the
Company.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint or
several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Underwriter
and each such person, if any, for any legal or other expenses reasonably
incurred by them or any of them in connection with investigating or defending
any actions, whether or not resulting in any liability, insofar as such losses,
claims, damages, expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in the Registration Statement, in any Preliminary Prospectus or in the
Prospectus (or the Registration Statement or Prospectus as from time to time
amended or supplemented) or (ii) in any application or other document executed
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
34
<PAGE>
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 8(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 8(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) The Selling Shareholders agree to indemnify and hold harmless the
Underwriter, each officer, director, partner, employee and agent of any
Underwriter, the Company and each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Underwriter or the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, from and against any and all losses, claims,
damages, expenses or liabilities, joint or several (and actions in respect
thereof), to which they or any of them may become subject under the Act or under
any other statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each such indemnified persons for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon (A) any untrue statement or alleged
untrue statement of a material fact contained (i) in the Registration Statement,
in any Preliminary Prospectus or in the Prospectus (or the Registration
Statement of Prospectus as from time to time amended or supplemented) or (ii) in
any application (including any applicable for registration of the Shares under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such Selling Shareholders expressly for use therein or (B) any
action taken by such Selling Shareholders in connection with the offering of the
Selling Shareholders' Shares (including, without limitation, the dissemination
of any written materials or the making of any oral statement).
35
<PAGE>
(c) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from
and against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), to which they or any of them may
become subject under the Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer or controlling person for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions, whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained (i) in the Registration Statement, in any
Preliminary Prospectus or in the Prospectus (or the Registration Statement or
Prospectus as from time to time amended or supplemented) or (ii) in any
application (including any application for registration of the Shares under
state securities or Blue Sky laws), or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, in light of the circumstances under which they were made, but only
insofar as any such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by the Underwriter expressly for use therein.
(d) Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against any indemnifying
party under this Section 8, the indemnified party will notify the indemnifying
party in writing of the commencement thereof, and the indemnifying party will,
subject to the provisions hereinafter stated, assume the defense of such action
(including the employment of counsel satisfactory to the indemnified party and
the payment of expenses) insofar as such action relates to an alleged liability
in respect of which indemnity may be sought against the indemnifying party.
After notice from the indemnifying party of its election to assume the defense
of such claim or action, the indemnifying party shall no longer be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
if, in the reasonable judgment of the indemnified party or parties, it is
advisable for the indemnified party or parties to be represented by separate
counsel, the indemnified party or parties shall have the right to employ a
single counsel to represent the indemnified parties who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the indemnified parties thereof against the indemnifying party, in which
event the fees and expenses of such separate counsel shall be borne by the
36
<PAGE>
indemnifying party. Any party against whom indemnification may be sought under
this Section 8 shall not be liable to indemnify any person that might otherwise
be indemnified pursuant hereto for any settlement of any action effected without
such indemnifying party's consent, which consent shall not be unreasonably
withheld.
9. Contribution. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 8 hereof
(subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any Selling Shareholder, any director of the Company, any
officer of the Company who signed the Registration Statement and any controlling
person of the Company) as one entity and the Underwriter (including, for this
purpose, any contribution by or on behalf of each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and each officer, director, partner, employee and agent of the
Underwriter) as a second entity, shall contribute to the losses, liabilities,
claims, damages and expenses whatsoever to which any of them may be subject, so
that the Underwriter is responsible for the proportion thereof equal to the
percentage which the underwriting discount per Share set forth on the cover page
of the Prospectus represents of the initial public offering price per Share set
forth on the cover page of the Prospectus and the Company is responsible for the
remaining portion; provided, however, that if applicable law does not permit
such allocation, then, if applicable law permits, other relevant equitable
considerations such as the relative fault of the Company and the Underwriter in
connection with the facts which resulted in such losses, liabilities, claims,
damages and expenses shall also be considered. The relative fault, in the case
of an untrue statement, alleged untrue statement, omission or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission or alleged omission relates to information supplied by a
Selling Shareholder or the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Selling Shareholders, on the one hand, and the Underwriter, on
the other hand, agree that it would be unjust and inequitable if the respective
obligations of the Company and the Selling Shareholders and of the Underwriter
for contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses or by any other
method of allocation that does not reflect the equitable considerations referred
to in this Section 9. No person guilty of a fraudulent misrepresentation (within
37
<PAGE>
the meaning of Section 11(f) of the Act) will be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For purposes
of this Section 8, each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partner, employee and agent of the Underwriter will have the
same rights to contribution as the Underwriter, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who has signed the
Registration Statement and each director of the Company will have the same
rights to contribution as the Company, subject in each case to the provisions of
this Section 9. Anything in this Section 9 to the contrary notwithstanding, no
party will be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 9 is intended
to supersede, to the extent permitted by law, any right to contribution under
the Act or the Exchange Act or otherwise available.
10. Survival of Indemnities, Contribution, Warranties and Representations.
The respective indemnity and contribution agreements of the Company and the
Selling Shareholders and of the Underwriter contained in Sections 8 and 9
hereof, and the representations and warranties of the Company and the Selling
Shareholders contained herein shall remain operative and in full force and
effect, regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of the Underwriter, the Company or any of its
directors and officers, any of the Selling Shareholders or any controlling
person referred to in said Sections, and shall survive the delivery of, and
payment for, the Shares.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the Underwriter,
or the Underwriter, by written or telegraphic notice to the Company, may
terminate this Agreement prior to the earlier of (i) 11:00 A.M., New York City
time, on the first full business day after the Effective Date; or (ii) the time
when the Underwriter, after the Registration Statement becomes effective,
releases the Offered Shares for public offering. The time when the Underwriter
"releases the Offered Shares for public offering" for the purposes of this
Section 11 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Offered Shares, or the time when the Underwriter releases for delivery to
members of a selling group copies of the Prospectus and an offering letter or an
offering telegram relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation to
purchase the Shares and the obligation to purchase the Optional Shares after
exercise of the option referred to in Section 3 hereof, are subject to
38
<PAGE>
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or such
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 or 5 hereof are not materially correct or cannot be complied with;
(iii) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange will have been suspended; (iv) limited or minimum prices
will have been established on either such Exchange; (v) a banking moratorium
will have been declared either by federal or New York State authorities; (vi)
any other restrictions on transactions in securities materially affecting the
free market for securities or the payment for such securities, including the
Offered Shares or the Optional Shares, will be established by either of such
Exchanges, by the Commission, by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) trading in any securities of the
Company shall have been suspended or halted by any national securities exchange,
the NASD or the Commission; (viii) there has been a materially adverse change in
the condition (financial or otherwise), prospects or obligations of the Company;
(ix) the Company will have sustained a material loss, whether or not insured, by
reason of fire, flood, accident or other calamity; (x) any action has been taken
by the government of the United States or any department or agency thereof
which, in the judgment of the Underwriter, has had a material adverse effect
upon the market or potential market for securities in general; or (xi) the
market for securities in general or political, financial or economic conditions
will have so materially adversely changed that, in the judgment of the
Underwriter, it will be impracticable to offer for sale, or to enforce contracts
made by the Underwriter for the resale of, the Offered Shares or the Optional
Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 7 hereof or
this Section 11 or if the purchases provided for herein are not consummated
because any condition of the Underwriter's obligations hereunder is not
satisfied or because of any refusal, inability or failure on the part of the
Company or any Selling Shareholder to comply in any material respect with any of
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company or any of the Selling Shareholders shall be unable to or do
not perform all of their respective obligations in any material respect under
this Agreement, the Company will not be liable to the Underwriter for damages on
account of loss of anticipated profits arising out of the transactions covered
by this Agreement, but the Company will remain liable to the extent provided in
Sections 6(j), 8, 9 and 10 of this Agreement.
39
<PAGE>
12. Information Furnished by the Underwriter to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(f), 8(a), 8(b) and 9
hereof, the only information given by the Underwriter to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
13. Confidentiality.
(a) The Underwriter agrees to treat as confidential any and all
business, financial, marketing, technical or other information concerning the
business, affairs or operations of the Company which is delivered to it by the
Company pursuant to the terms of this Agreement (collectively, the
"Information"). All Information shall be kept in confidence and not disclosed to
a third party or used by the Underwriter, except as required for the
consummation of the transactions contemplated by this Agreement or as provided
in Section 13(b) hereof. The Underwriter further agrees to reveal the
Information only to those of its representatives who need to know the
Information for the purposes of consummating the transactions contemplated by
this Agreement and who are informed of the confidential nature of the
Information.
(b) The restrictions set forth in Section 13(a) hereof do not apply
to any Information which: (a) is or becomes generally available to the public;
(b) was known to the Underwriter prior to its receipt of Information from the
Company; (c) the Underwriter obtained from an independent third party who
obtained such Information lawfully and was under no obligation of
confidentiality; or (d) is disclosed when such disclosure is compelled pursuant
to legal, judicial or administrative proceedings, or otherwise required by law,
subject to the Underwriter giving reasonable prior notice to the Company to
allow the Company to participate in such proceedings.
(c) The Underwriter acknowledges and agrees that a breach of this
Section 13 may result in irreparable and continuing harm to the Company for
which there may be no adequate remedy at law. In the event of a breach or a
threatened or intended breach of this Section 13 by the Underwriter, the
Underwriter hereby consents to the granting of, and the Company shall be
entitled to seek, preliminary injunctions unilaterally without notice, and final
injunctions with notice, enjoining and restraining such breach or threatened or
intended breach, and to such other rights and remedies as are available at law
or in equity to the Company.
14. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telecopied to, the following
addresses: if to the Underwriter, to Whale Securities Co., L.P., Attention:
William G. Walters, 650 Fifth Avenue, New York, New York 10019, with a copy to
Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405 Lexington Avenue,
New York, New York 10174; if to the Company, addressed to it at E-Cruiter.com
Inc. 1510-360 Albert Street, Ottawa, Canada K1R 7X7, attention: Gerry Stanton,
Chairman, with a copy to Weil, Gotshal & Manges LLP, Attention: Norman Chirite,
Esq., 767 Fifth Avenue, New York, New York 10153, and to Michael Gerrior, Esq.,
Perley-Robertson, Hill & McDougall, 90 Sparks Street, 4th Floor, Ottawa, Ontario
K1P 1E2; and if to a Selling Shareholder, at its address set forth on Schedule A
hereto.
This Agreement shall be deemed to have been made and delivered in New York
City and shall be governed as to validity, interpretation, construction, effect
and in all other respects by the internal laws of the State of New York. The
Company and the Selling Shareholders (1) agree that any legal suit, action or
proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (2) waive
any objection which any of them may have now or hereafter to the venue of any
such suit, action or proceeding, and (3) irrevocably consent to the jurisdiction
of the New York State Supreme Court, County of New York, and the United States
District Court for the Southern District of New York in any such suit, action or
proceeding. The Company and the Selling Shareholders further agree to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding in the New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York and
agree that service of process upon the Company or the Selling Shareholders
mailed by certified mail to the Company's address shall be deemed in every
respect effective service of process upon the Company and the Selling
Shareholders, as the case may be, in any such suit, action or proceeding.
<PAGE>
15. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter, the Company and the Selling Shareholders and, to the extent
expressed, any person controlling the Company or the Underwriter, each officer,
director, partner, employee and agent of the Underwriter, the directors of the
Company, its officers who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns, and, no other
person will acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" will not include any purchaser of the Shares from
the Underwriter, as such purchaser.
41
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
E-CRUITER.COM INC.
By_______________________
Name:
Title:
SELLING SHAREHOLDERS
-------------------------
Name:
----------------------
Name:
------------------------
Name:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By_________________________
Name:
Title:
42
<PAGE>
SCHEDULE A
Selling Shareholder Address Number of Shares
------------------- ------- ----------------
Clarion Finanz A.G. 5,392
Donald Dijkstal 5,392
John Hanemaayer 5,392
Hathaway II Limited Partnership 22,092
William Kertes 8,966
Peter Miller 16,812
Fevzi Ogelman 16,539
SteppingStone Funding Partners I Inc. 10,783
SteppingStone Funding Partners II Inc. 27,468
Farida Tavares 1,110
Maurice Tavares 1,110
Securities Trading SA 10,783
43
<PAGE>
WARRANT AGREEMENT dated as of November __, 1999 between
E-Cruiter.com Inc., a corporation incorporated under the Canada Business
Corporation Act (the "Company"), and Whale Securities Co., L.P.
(hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants (the "Warrants") to purchase up to 245,000 (as such number may be
adjusted from time to time pursuant to Article 8 of this Agreement) common
shares (the "Shares") no par value per share (the "Common Shares"), of the
Company; and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated November __, 1999
among the Underwriter, the Company and the Selling Shareholders named on
Schedule A thereto, to act as the underwriter in connection with the Company's
proposed public offering (the "Public Offering") of 2,450,000 Common Shares (the
"Public Shares"), of which 2,318,162 Common Shares are being sold by the Company
and 131,838 Common Shares are being sold by the Selling Shareholders at an
initial public offering price of US$6.00 per Public Share; and
<PAGE>
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or to its designees who are
officers and partners of the Underwriter or to members of the selling group
participating in the distribution of the Public Shares to the public in the
Public Offering and/or their respective officers or partners (collectively, the
"Designees"), in consideration for, and as part of the Underwriter's
compensation in connection with, the Underwriter acting as the Underwriter
pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of One Hundred Dollars ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Underwriter and/or the Designees are hereby granted the
right to purchase, at any time from November __, 2000 until 5:00 P.M., New York
time, on November __, 2004 (the "Warrant Exercise Term"), up to 245,000
fully-paid and non-assessable Shares at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of US$9.90 per Share.
-2-
<PAGE>
2. Warrant Certificates.
The warrant certificates delivered and to be delivered
pursuant to this Agreement (the "Warrant Certificates") shall be in the form set
forth in Exhibit A attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant.
3.1. Cash Exercise. The Warrants initially are exercisable
at a price of US$9.90 per Share, payable in cash or by check to the order of the
Company, or any combination thereof, subject to adjustment as provided in
Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Ottawa, Canada (currently located at 360 Albert
Street, Suite 1510, Ottawa, Ontario K1R 7X7) the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional Shares). In the case of the purchase
of less than all the Shares purchasable under any Warrant Certificate, the
Company shall cancel said Warrant Certificate upon the surrender thereof and
shall execute and deliver a new Warrant Certificate of like tenor for the
balance of the Shares purchasable thereunder.
-3-
<PAGE>
3.2. Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at the Holder's option, exchange, in whole or in
part, the Warrants represented by such Holder's Warrant Certificate (a "Warrant
Exchange"), into the number of Shares determined in accordance with this Section
3.2, by surrendering such Warrant Certificate at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Warrants to be so
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant
Certificate of like tenor representing the Warrants which were subject to the
surrendered Warrant Certificate and not included in the Warrant Exchange, shall
be issued as of the Exchange Date and delivered to the Holder within three (3)
business days following the Exchange Date. In connection with any Warrant
Exchange, the Holder shall be entitled to subscribe for and acquire (i) the
number of Shares (rounded to the next highest integer) which would, but for the
Warrant Exchange, then be issuable pursuant to the provision of Section 3.1
above upon the exercise of the Warrants specified by the Holder in its Notice of
Exchange (the "Total Number") less (ii) the number of Shares equal to the
quotient obtained by dividing (a) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (b) the Market Price (as
hereinafter defined) of a Public Share on the day preceding the Exchange Date.
"Market Price" at any date shall be deemed to be the last reported sale price,
or, in case no such reported sales takes place on such day, the average of the
last reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Shares are listed or admitted to trading or as reported in the NASDAQ National
Market System, or, if the Common Shares are not listed or admitted to trading on
any national securities exchange or quoted on the NASDAQ National Market System,
the closing bid price as furnished by (i) the National Association of Securities
Dealers, Inc. through Nasdaq or (ii) a similar organization if Nasdaq is no
longer reporting such information.
-4-
<PAGE>
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased shall be made forthwith (and in any event
within three (3) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive Officer or President or Vice President of the Company
and the Secretary of the Company under its corporate seal reproduced thereon,
attested to by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate have not been
registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective
registration statement under the Act, (ii) to the extent
applicable, pursuant to Rule 144 under the Act (or any similar
rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the Company, stating that an exemption from
registration under such Act is available."
-5-
<PAGE>
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by the Holder's
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof [Effective Date], except to the Designees.
6. Price.
6.1. Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be US$9.90 per Share. The adjusted exercise
price per Share shall be the price which shall result from time to time from any
and all adjustments of the initial exercise price per Share in accordance with
the provisions of Article 8 hereof.
6.2. Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
-6-
<PAGE>
7. Registration Rights.
7.1. Registration Under the Securities Act of 1933. None of
the Warrants or Shares have been registered for purposes of public distribution
under the Securities Act of 1933, as amended (the "Act").
7.2. Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any Common
Shares issued upon any share split or share dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
the subsequent public distribution of such security or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Shares, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Article 7.
-7-
<PAGE>
7.3. Piggyback Registration. If, at any time during the seven
years following the effective date of the Public Offering, the Company proposes
to prepare and file one or more post-effective amendments to the registration
statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto under the Act covering equity
securities (or debt securities convertible into equity securities) of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
Form S-8 or successor form), (for purposes of this Article 7, collectively, the
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice"), at least thirty (30) business days prior to the
filing of each such Registration Statement, to all holders of the Registrable
Securities. Upon the written request of such a holder (a "Requesting Holder"),
made within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such Requesting
Holder, use its best efforts to effect the registration under the Act of the
Registrable Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders (except as provided in Section 7.5(b) hereof). In the
event that any registration pursuant to this Section 7.3 shall be, in whole or
in part, an underwritten public offering of Common Shares, the number of
Registrable Securities to be included in such an underwriting may be reduced if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein, provided, however, that such reduction shall be applied
to the Registrable Securities requested to be included by the Requesting Holders
in such manner that the securities to be sold shall be allocated among the
Requesting Holders pro rata based on their ownership of Registrable Securities;
and provided, further, that such number of Registrable Securities shall not be
reduced if any securities are to be included in such underwriting for the
account of any person other than the Company or Requesting Holders holding
Registrable Securities. Notwithstanding the foregoing provisions, the Company
may withdraw any Registration Statement referred to in this Section 7.3.
-8-
<PAGE>
7.4. Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company (except as provided in Section 7.5(b) hereof), a Registration Statement
and such other documents, including a prospectus, as may be necessary (in the
opinion of both counsel for the Company and counsel for such Majority Holder),
in order to comply with the provisions of the Act, so as to permit a public
offering and sale of the Registrable Securities by the holders thereof. The
Company shall use its best efforts to cause the Registration Statement to become
effective under the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof. Once effective, the Company will
use its best efforts to maintain the effectiveness of the Registration Statement
until the earlier of (i) the date that all of the Registrable Securities have
been sold or (ii) the date that the holders of the Registrable Securities
receive an opinion of counsel to the Company that all of the Registrable
Securities may be freely traded (without limitation or restriction as to
quantity or timing and without registration under the Act) under Rule 144(k)
promulgated under the Act or otherwise.
-9-
<PAGE>
(b) The Company covenants and agrees to give written
notice of any Demand Registration Request to all holders of the Registrable
Securities within ten (10) business days from the date of the Company's receipt
of any such Demand Registration Request. After receiving notice from the Company
as provided in this Section 7.4(b), holders of Registrable Securities may
request the Company to include their Registrable Securities in the Registration
Statement to be filed pursuant to Section 7.4(a) hereof by notifying the Company
of their decision to have such securities included within ten (10) days of their
receipt of the Company's notice.
(c) Notwithstanding anything to the contrary set forth in
this Section 7.4, the Company's obligation to register Registrable Securities
under the Act pursuant to a Demand Registration Request may, upon the reasonable
determination of the Board of Directors of the Company made only once during any
12-month period, be suspended in the event of a transaction or the occurrence of
an event which would require additional disclosure of material information by
the Company in the Registration Statement as to which the Company has a bona
fide business purpose for preserving confidentiality or which renders the
Company unable to comply with Commission requirements (such unforeseen
circumstances a "Suspension Event") which would make it impractical or
unadvisable for the Company to file the Registration Statement or to cause such
to become effective. Such suspension shall continue only for so long as such
event is continuing but in no event for a period longer than sixty (60) days.
The Company shall notify holders of Registrable Securities of the existence and
nature of any Suspension Event.
(d) The term "Majority Holder" as used in Section 7.4
hereof shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of Common Shares (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) as would constitute a
majority of the aggregate number of Shares (including Shares already issued and
Shares issuable pursuant to the exercise of outstanding Warrants) included in
all the Registrable Securities.
-10-
<PAGE>
7.5. Covenants of the Company With Respect to Registration.
The Company covenants and agrees as follows:
(a) In connection with any registration under and except
as otherwise permitted under Section 7.4 hereof, the Company shall file the
Registration Statement as expeditiously as possible, but in any event no later
than thirty (30) days following receipt of any demand therefor, shall use its
best efforts to have any such Registration Statement declared effective at the
earliest possible time, and shall furnish each holder of Registrable Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses
(other than underwriting fees, discounts and nonaccountable expense allowance
applicable to the Registrable Securities and the fees and expenses of counsel
retained by the holders of Registrable Securities) in connection with all
Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
including, without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Registrable Securities included in
the Registration Statement for offering and sale under the securities or blue
sky laws of such states as are reasonably requested by the holders of such
securities; provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be subject to
service of general process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such Registration Statement to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriter as set forth in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
-11-
<PAGE>
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and such holder's successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss,
claim, damage or expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such holder, or such
holder's successors or assigns, for specific inclusion in such Registration
Statement to the same extent and with the same effect as the provisions pursuant
to which the Underwriter has agreed to indemnify the Company as set forth in
Section 7 of the Underwriting Agreement and to provide for just and equitable
contribution as set forth in Section 8 of the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise the Warrants held by such Holder
prior to the initial filing of any Registration Statement or the effectiveness
thereof.
(g) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each holder of Registrable Securities
included for such registration in such Registration Statement pursuant to
Section 7.3 hereof or Section 7.4 hereof requesting such correspondence and
memoranda and to the managing underwriter, if any, of the offering in connection
with which such holder's Registrable Securities are being registered and shall
permit each holder of Registrable Securities and such underwriter to do such
reasonable investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request. Holders of
Registrable Securities shall be subject to the same confidentiality obligations
as are applicable to the Underwriter pursuant to Section 13 of the Underwriting
Agreement, with respect to any non-public information disclosed by the Company
during such investigation.
-12-
<PAGE>
8. Adjustments of Exercise Price and Number of Shares.
8.1. Computation of Adjusted Price. In case the Company
shall at any time after the date hereof pay a dividend in Common Shares or make
a distribution in Common Shares, then upon such dividend or distribution the
Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of Common
Shares outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of Common Shares outstanding
immediately after such issuance or sale. For the purposes of any computation to
be made in accordance with the provisions of this Section 8.1, the Common Shares
issuable by way of dividend or other distribution on any shares of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of shareholders entitled
to receive such dividend or other distribution.
8.2. Subdivision and Combination. In case the Company shall
at any time subdivide or combine the outstanding Common Shares, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.3. Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Article 8, the number
of Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
-13-
<PAGE>
8.4. Reclassification, Consolidation, Merger, etc. In case
of any reclassification or change of the outstanding Common Shares (other than a
change in par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), or in the case of any consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
Common Shares, except a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation of the property of the Company as an entirety,
the Holders shall thereafter have the right to purchase the kind and number of
shares and other securities and property receivable upon such reclassification,
change, consolidation, merger, sale or conveyance as if the Holders were the
owners of the Common Shares underlying the Warrants immediately prior to any
such events at a price equal to the product of (x) the number of Common Shares
issuable upon exercise of the Holder's Warrants and (y) the Exercise Price in
effect immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holders had exercised the
Warrants.
8.5. Determination of Outstanding Common Shares. The number
of Common Shares at any one time outstanding shall include the aggregate number
of Common Shares issued and the aggregate number of Common Shares issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
8.6. Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants make any distribution of its assets to holders of
its Common Shares as a liquidating or a partial liquidating dividend, then the
holder of Warrants who exercises its Warrants after the record date for the
determination of those holders of Common Shares entitled to such distribution of
assets as a liquidating or partial liquidating dividend shall be entitled to
receive for the Warrant Price per Warrant, in addition to each Common Share, the
amount of such distribution (or, at the option of the Company, a sum equal to
the value of any such assets at the time of such distribution as determined by
the Board of Directors of the Company in good faith) which would have been
payable to such holder had he been the holder of record of the Common Shares
receivable upon exercise of his Warrant on the record date for the determination
of those entitled to such distribution. At the time of any such dividend or
distribution, the Company shall make appropriate reserves to ensure the timely
performance of the provisions of this Subsection 8.6.
-14-
<PAGE>
8.7. Subscription Rights for Common Shares or Other
Securities. In the case that the Company or an affiliate of the Company shall at
any time after the date hereof and prior to the exercise of all the Warrants
issue any rights, warrants or options to subscribe for Common Shares or any
other securities of the Company or of such affiliate to all the shareholders of
the Company, the Holders of unexercised Warrants on the record date set by the
Company or such affiliate in connection with such issuance of rights, warrants
or options shall be entitled, in addition to the Common Shares or other
securities receivable upon the exercise of the Warrants, to receive such rights,
warrants or options that such Holders would have been entitled to receive had
they been, on such record date, the holders of record of the number of whole
Common Shares then issuable upon exercise of their outstanding Warrants
(assuming for purposes of this Section 8.7, that the exercise of the Warrants is
permissible immediately upon issuance).
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of
securities in such denominations as shall be designated by the Holder thereof at
the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificate, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
-15-
<PAGE>
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of Shares.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out
of its authorized Common Shares, solely for the purpose of issuance upon the
exercise of the Warrants, such number of Common Shares as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all Shares issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all Common Shares issuable upon the exercise of the Warrants to be listed on or
quoted by Nasdaq or listed on such national securities exchange, in the event
the Common Shares are listed on a national securities exchange.
-16-
<PAGE>
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its
Common Shares for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its
Common Shares any additional capital shares of the Company or securities
convertible into or exchangeable for capital shares of the Company, or any
option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an entirety
shall be proposed; or
-17-
<PAGE>
(d) reclassification or change of the outstanding Common
Shares (other than a change in par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), consolidation of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
Common Shares, except a change as a result of a subdivision or combination of
such shares or a change in par value, as aforesaid), or a sale or conveyance to
another corporation of the property of the Company as an entirety is proposed;
or
(e) The Company or an affiliate of the Company shall
propose to issue any rights to subscribe for Common Shares or any other
securities of the Company or of such affiliate to all the shareholders of the
Company; then, in any one or more of said events, the Company shall give written
notice to the Holder or Holders of such event at least fifteen (15) days prior
to the date fixed as a record date or the date of closing the transfer books for
the determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation, winding
up or sale. Such notice shall specify such record date or the date of closing
the transfer books, as the case may be. Failure to give such notice or any
defect therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend or distribution, or the
issuance of any convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation, winding up or
sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
-18-
<PAGE>
(b) If to the Company, to the address set forth in Section
3 of this Agreement or to such other address as the Company may designate by
notice to the Holders.
14. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
November __, 2006. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public; provided,
however, that the provisions of Section 7 shall survive any termination pursuant
to this Section 16 until the close of business on November __, 2009.
-19-
<PAGE>
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] E-CRUITER.COM INC.
By:______________________________________
Gerry Stanton
President and Chief Executive Officer
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:______________________________________
William G. Waters
Chairman
Attest:
-----------------------
-21-
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED FOR PURPOSES OF PUBLIC
DISTRIBUTION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, NOVEMBER __, 2004
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________
____________ or registered assigns, is the registered holder of _______ Warrants
to purchase, at any time from November __, 2000 until 5:00 P.M. New York City
time on November __, 2004 ("Expiration Date"), up to _____ fully-paid and
non-assessable common shares ("Shares") no par value per share (the "Common
Shares"), of E-Cruiter.com, Inc., a corporation registered under the Canada
Business Corporation Act (the "Company"), at the initial exercise price, subject
to adjustment in certain events (the "Exercise Price"), of US$9.90 per Share
upon surrender of this Warrant Certificate and payment of the Exercise Price at
an office or agency of the Company, but subject to the conditions set forth
herein and in the warrant agreement dated as of November ___, 1999 between the
Company and Whale Securities Co., L.P. (the "Warrant Agreement"). Payment of the
Exercise Price may be made in cash, or by certified or official bank check in
New York Clearing House funds payable to the order of the Company, or any
combination thereof.
<PAGE>
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1999 E-CRUITER.COM INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Common
Shares and herewith tenders in payment for such securities cash or a certified
or official bank check payable in New York Clearing House Funds to the order of
E-Cruiter.com Inc. in the amount of $ _____, all in accordance with the terms
hereof. The undersigned requests that a certificate for such securities be
registered in the name of __________, whose address is __________________, and
that such Certificate be delivered to __________________, whose address is
_____________.
Dated: Signature: ____________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________
hereby sells, assigns and transfers unto
---------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ___________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate)
-------------------------------
-------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
PERLEY-ROBERTSON, HILL & McDOUGALL
Lawyers/Patent & Trade-Mark Agents
Avocats/Agents de brevets cr de marquas de commerce
November 29, 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
2,450,000 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 Certificate of Incorporation and Restated Articles
of Incorporation, 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,
/s/ Perley-Robertson, Hill & McDougall
<PAGE>
SERVICE AGREEMENT
THIS AGREEMENT is made as of the 23rd day of February 1999.
BETWEEN:
Positionwatch Limited, a corporation incorporated
under the laws of Ontario
(hereinafter referred to as "PW")
AND:
E-Cruiter.com Inc., a corporation incorporated under the
laws of Ontario
(hereinafter referred to as "ECT")
WHEREAS:
A. PW has developed internet job posting and recruitment advertising
services;
B. ECI has developed internet recruiting software and wishes to engage
the services of PW for its internet job posting and advertising
services;
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.
This agreement replaces and supercedes the prior agreement, signed and
dated May 5th, 1998, between PW and CareerBridge Corporation (now named
E-Cruiter.com Inc). This agreement does not in any way affect
current non-disclosure and confidentiality agreements already in place between
both Parties.
1. DEFINITIONS
In this Agreement:
1.1 "Affiliate" of a specified entity means any entity which directly
or indirectly through one or more intermediaries, controls, or is
controlled by or is under common control with, such specified entity.
1
<PAGE>
1.2 "Agreement" means this service agreement and all instruments
supplemental hereto or in amendment or confirmation hereof; "hereof",
"hereto" and "hereunder" and similar expressions mean and refer to this
Agreement.
1.3 "Business Day" means any day, other than a Saturday, Sunday or
statutory or civic holiday in the city of Toronto or Ottawa, in the
province of Ontario.
1.4 "Confidential Information" means all information relating to the
business and management of either Party or its Affiliates including,
but not limited to the material terms of this Agreement, sales, product
pricing and other unpublished financial information, products and
business plans, projections and marketing data and other proprietary
and trade secrets and technology to which access is obtained hereunder
by the other Party, provided, however, that confidential information
shall not include any data or information which:
1.4.1 is or becomes publicly available through no fault of the
other Party;
1.4.2 is already in the rightful possession of the other Party
prior to its receipt from the other Party;
1.4.3 is independently developed by the other Party;
1.4.4 is rightfully obtained by the other Party from a third
party;
1.4.5 is disclosed with the written consent of the Party whose
information it is; or
1.4.6 is disclosed pursuant to court order or other legal
compulsion.
1.5 "Parties" means each of PW and ECI and "Party" means either of
them;
1.6 "Person" includes any individual, corporation, partnership, joint
venture, trust, unincorporated organization or any other judicial
entity recognized by law;
1.7 "PW Partner Sites" means and includes all web based employment
sites, employment news groups, search engines, directories and other
2
<PAGE>
web sites with which PW has established a relationship(s) for the
purpose of creating exposure for PW client job openings;
1.8 "Sales Channel Representatives" means third party sales
representatives, resellers, distributors and telemarketing partners;
1.9 "Services" means the services to be performed by PW as more
particularly described in paragraph 3 hereof;
2. SCHEDULES
2.1 The following appending schedules form part of this Agreement;
Schedule A - ECI Sales Targets Schedule
Schedule B - Fees and Payment Schedule
3. PROVISION OF SERVICES BY PW
3.1 Subject to the terms and conditions of this Agreement, PW agrees to
provide the following services to ECI:
3.1.1 Network Posting: As of the date of this Agreement, PW
shall provide an intelligent multi-site network
posting/advertising capability to ECI for individual job
postings of ECI's customers or the customers of its
Affiliates on PW Partner Sites. PW will make all commercially
reasonable efforts to expand and maintain the list of PW
Partner Sites on an ongoing basis, servicing the requirements
of ECI. PW does not warrant that any site will remain as
part of the posting package for any length of time. PW will
make every commercially reasonable effort to provide a
substitute site of equivalent value should a site be removed
from a posting package for any reason.
3.1.2 Site-Specific Posting: PW will make all commercially
reasonable efforts to expand and maintain the list of
site-specific PW Partner Sites on an ongoing basis, servicing
the requirements of ECI.
3.1.3 Transparent Posting On or before April 30, 1999, PW
shall provide a commercially transparent job posting
capability, in the event that ECI software submits a job
posting, in the
3
<PAGE>
appropriate format for PW use, to specific PW Partner Sites
using PW's capability to properly format and submit the
posting on behalf of ECI or its Affiliates, and where the
posting is billed by the PW Partner Sites directly to ECI,
its Affiliates or customers.
3.1.4 Automatic Submission and Acknowledgment: PW and ECI
have developed a data interchange format and communications
protocol for ECI to automatically submit all job postings.
Both parties agree that no changes will be made to the format
and communications protocol without the written consent of the
other party and that such consent will not be unreasonably
withheld or unduly delayed. The parties will agree on a
mutually convenient schedule for effecting the changes. PW
shall develop and provide an automatic acknowledgment of each
posting received by PW. PW shall also develop and provide to
ECI a monthly report revealing the specific PW Partner
Sites and traffic response on those sites.
3.1.5 Applicant Linking: In order to hot link candidates
directly to the job application page provided by ECI
software, PW shall utilize the specific uniform resource
locator ("URL") provided by ECI within the postings sent
out on behalf of each job position. PW covenants that it will
use its all commercially reasonable efforts to utilize hot
linking. This will normally mean that all postings to job
boards and major commercial web sites will be linked. It is
understood that not all the PW Partner Sites will permit hot
linking.
3.1.6 Site Tagging: PW shall append a destination site
identification tag to the job specific URL supplied by ECI
before submission to each destination site.
3.2 PW shall maintain and update its list of PW Partner Sites on a
monthly basis or more frequently as appropriate. PW shall provide
ECI with the names of partner sites that may be publicized by ECI
or its Affiliates in order to assist in the promotion of the business
of ECI or its Affiliates. ECI understands that these partner
sites are not to be identified as ECI partner sites, but as PW
partner sites. PW shall also provide ECI with the names of other PW
Partner Sites on a confidential basis. ECI agrees that no permanent
copies of such Confidential Information shall be provided to ECI by
PW or maintained by ECI and ECI acknowledges and agrees that it
shall maintain such information as confidential.
3.3 PW covenants and agrees that it shall inform ECI of its plans to
introduce services that may be beneficial to ECI.
4
<PAGE>
4. PW PERFORMANCE QUALITY SPECIFICATIONS
4.1 PW covenants and agrees that it shall use all commercially
reasonable efforts to provide its posting services seven days a week,
24 hours per day. All commercially reasonable efforts will be made to
ensure that all postings, where no preview or client approval is
required, are be made within 24 hours of receipt from ECI. All
commercially reasonable efforts will be made to ensure that all
postings are receipted to ECI (according to point 3.1.4 above)
within the same twenty-four (24) hour period. PW shall use all
commercially reasonable efforts to utilize its list of PW Partner Sites
for each job position based on the requirements of the position to be
posted.
4.2 In the event PW is not able to provide the performance quality
specifications as aforesaid for a particular ECI customer which
results in the non-payment by the customer for such posting services,
then ECI shall not be obliged to remit the requisite fees to PW in
respect of that customer account.
4.3 PW will provide a full customer service function for ECI
customers utilizing PW's Internet job posting and recruitment
advertising services. The customer service function shall include,
without limiting the generality of the foregoing, front line support
for the postings or advertisements, and specialized site research or
posting augmentation strategies as necessary to ensure that a best
effort has been made to generate applicant responses for the customer.
5. OBLIGATIONS OF ECI
5.1 Subject to the terms and conditions of this Agreement, ECI
agrees to perform the following obligations:
5.1.1 Service Integration. ECI software shall be modified
by ECI to allow every customer of ECI or its Affiliates
the ability, within the graphical user interface of ECI
software, to select a network posting for each job description
intended for posting to the Internet.
5.1.2 Marketing Activity. ECI shall use its best efforts to
actively market the network posting service to its customers
through: (i) presentation within its on-line software service,
(ii) its product literature, and (iii) marketing
communications campaigns that ECI may undertake, including
advertising, direct marketing and public relations components.
ECI agrees to
5
<PAGE>
keep PW reasonably appraised of its marketing efforts
including the provision of written reports to PW on a
quarterly basis.
Sales Training. ECI shall provide training on the PW
network posting service capabilities and benefits to
its employee sales representatives and Sales Channel
Representatives, including seminar delivery
resources. Without limiting the generality of the
foregoing, ECI agrees that all ECI direct sales
representatives will undergo a minimum of one day of
training provided by PW or by a PW trained ECI
representative, on the capabilities and benefits of
the network posting service. ECI and PW undertake
to insure that the training requirements are updated
from time to time in order to maximize the
effectiveness of the ECI sales force. PW agrees to
provide skilled training personnel, for a minimum of
four (4) Business Days during the first two (2)
months of this Agreement and one (1) Business Day per
month thereafter in order to train ECI employee
sales representatives and Sales Channel
Representatives at mutually convenient locations.
ECI shall provide training to PW representatives
on the features and benefits of the E-Cruiter
software package, to allow PW representatives to
provide an effective overview of E-Cruiter to their
prospects and accounts. PW agrees that its Business
Development and Sales representatives will be
available for one half day of training, provided
by ECI at mutually convenient times and locations.
ECI agrees to provide skilled training personnel,
for a minimum of two (2) Business Days during the
first two (2) months of this Agreement and one half
(1/2) Business Day per month thereafter in order to
train PW representatives.
6. EXCLUSIVITY AND BRANDING
6.1 In order to provide ECI with a competitive advantage to
establish revenue generating distribution channels for PW services, PW
covenants and agrees that it will not enter into any service agreements
of the nature contemplated by this Agreement with any other third
party, contingent upon successful achievement of sales target
objectives by ECI on a continued basis, with sales targets and
exclusivity thereto reviewed
6
<PAGE>
every three months from the effective date of this agreement. Sales
targets are determined at the sole discretion of PW. Initial sales
targets are established in Schedule A of this agreement.
6.2 In order to maintain the exclusivity provided by Clause 6.1 above,
ECTECI will not commence, continue or complete the development of
products or services that are competitive in any way to the PW products
and services outlined in this agreement. ECI will not enter into an
arrangement of any kind, with an organization other than PW, for the
purposes of providing ECI with products or services that are
competitive in any way to the PW products and services outlined in this
agreement. For greater clarity, services competitive to the PW services
offered in this Agreement means a posting network or site-specific
postings that duplicate or attempt to duplicate the postings specified
in Schedule B. It is acknowledged that ECI provides the career site to
the market at large, and that ECI may develop, as it sees fit, links to
any sites that provide posting capability in any markets world wide, as
long as these links do not attempt to duplicate the postings specified
in Schedule B. ECI will bring new posting network expansion
requirements to PW first, to establish whether PW can meet the schedule
requirements of ECI for introduction of new network territories or
capabilities. ECI has every intention, based on continued performance
of PW in meeting development schedules, of continuing to use PW
services for expansion of ECI's posting network capabilities.
6.3 PW reserves all rights to its service brand names and may, at the
written request of ECI allow ECI and its Sales Channel
Representatives to use its service brand names.
6.4 ECI may at its discretion, apply its own unique brand names
("Private Branding") to the various PW Services. ECI will consult
with PW in order to avoid using names competitive with or damaging to
PW.
7. FEES
7.1 The Parties agree that the determination and payment of the fees
and pricing of Services shall be as set forth in Schedule B. ECI and
PW covenant and agree to treat the fee structure as Confidential
Information except for disclosure to professional advisers
8. TERM AND TERMINATION
7
<PAGE>
8.1 Subject to the provision of this paragraph 8, this Agreement shall
become effective on the date set out in the first page hereof, and
shall remain in effect for a period of five (5) years from such date;
provided however that either Party may terminate this Agreement at any
time without cause upon thirty (30) days prior written notice of the
other Party.
8.2 Either Party may terminate this Agreement upon written notice to
the other Party for cause if the other Party:
8
<PAGE>
8.2.1 is in default of its material obligations under this
Agreement including, without limiting the generality of the
foregoing, non-payment of fees unless such default is remedy
within 15 days of written thereof;
8.2.2 if the other Party is declared bankrupt, or makes an
assignment for the benefit of creditors or has a receiving
order made against it or where a trustee in bankruptcy is
appointed;
8.2.3 if the other Party ceases to conduct business in the
normal course.
8.3 Subject to the terms and conditions set forth herein, termination
of this Agreement shall not relieve either Party from any liability or
indebtedness arising before such termination, nor from any obligations
imposed by the provisions of this Agreement, that survive this
Agreement or any liability for damages resulting from a breach of such
provisions.
8.4 If this Agreement is terminated without cause by PW, PW shall
continue to provide full service access to ECI, subject to the terms
and conditions of this Agreement, as follows:
8.4.1 ECI may continue to represent and utilize PW services
for a period of thirty-two (32) weeks following the
termination date for existing customers of ECI or its
Affiliates acquired on or before the termination date; and
8.4.2 ECI may continue to represent and utilize PW services
for a period of twenty-four (24) weeks following the
termination date for any new customers of ECI or its
Affiliates acquired after the termination date.
8.5 PW covenants and agrees that it will not attempt to unfairly
restrict ECI from purchasing PW systems or services on commercially
reasonable terms should such systems or services become available due
to PW cessation of operations.
8.6 PW covenants and agrees to provide written notification to ECI
within ten (10) days of change of control of PW.
8.7 Upon the termination of this Agreement, except for the continuation
privileges set forth in paragraph 8.4 hereof, all rights and licenses
granted by one Party hereto to the other Party hereunder shall
terminate and each Party shall return to the other any materials
(confidential and non-confidential materials) of the other in its
9
<PAGE>
possession and copies thereof or destroy the same and provide written
certification of destruction.
8.8 In the event that this Agreement is terminated or expires, and that
Services have been prepaid by customers, any sums due to PW pursuant to
this Agreement shall be pro-rated to the date of termination or expiry
of this Agreement.
9. REPRESENTATIONS AND WARRANTIES
9.1 PW represents and warrants:
9.1.1 that the consummation of the transactions contemplated
by this Agreement will not result in the breach of any term or
provision of or constitute a default under any agreement,
instrument, license or permit or understanding to which PW is
a party;
9.1.2 that it has performed all acts necessary to put into
effect the transactions contemplated by this Agreement,
including, without limiting the generality of the foregoing,
entering into any contract or undertaking with respect to the
provision of Services to PW Partner Sites.
9.2 ECI represents and warrants:
9.2.1 that the consummation of the transactions contemplated
by this Agreement will not result in the breach of any term or
provision of or constitute a default under any agreement,
instrument, license or permit or understanding to which ECI
is a party;
9.2.2 that it has performed all acts necessary to put into
effect the transactions contemplated by this Agreement.
10
<PAGE>
10. INDEMNITY
10.1 PW hereby covenants and agrees, at its expense, to indemnify
ECI and to defend ECI and to save and hold ECI harmless from
and against and in respect of any and all liabilities, claims, demands,
causes of action, actions, losses, damages and expenses (including,
without limitation, all applicable solicitors' fees and disbursements)
of every nature and kind for or in respect of or relating to this
Agreement, including without limiting the generality of the foregoing:
10.1.1 any liability or costs associated with the
malfunctioning of PW software attributable to any acts
performed in furtherance of the transactions contemplated by
this Agreement;
10.1.2 any liability arising from the breach of the
representations, warranties or covenants made by PW herein; or
10.1.3 any combination of the foregoing.
10.2 Notwithstanding the liabilities contemplated above, PW shall not
be responsible for any liabilities arising from the malfunctioning of
ECI software or from any act or performance of the customers of
ECI and its Affiliates, including data supplied by such customers.
10.3 Any amount for which PW is liable hereunder shall be due and
payable forthwith after demand therefor is made in writing to PW.
11. Limitation of Liability
11.1 THE EXPRESS WARRANTIES IN THIS AGREEMENT ARE IN LIEU OF ALL OTHER
WARRANTIES AND CONDITIONS (express AND implied and those arising by
statute or otherwise in law or from a course of dealing or usage of
trade), INCLUDING BUT NOT LIMITED TO, WARRANTIES OR CONDITIONS OF
MERCHANTABLE QUALITY OR FITNESS FOR A PARTICULAR PURPOSE. NO OTHER
WARRANTIES OR CONDITIONS EXPRESS OR IMPLIED ARE GIVEN.
11.2 In no event shall PW have any liability for loss of profits, loss
of business revenue or failure to realize expected savings or for any
indirect, special or consequential damages even if advised of the
possibility thereof.
11.3 Subject to the restrictions in this Section 11 and the indemnities
provisions of Section 10, in the event of any breach by PW of its
11
<PAGE>
obligations under this agreement, ECI's remedy shall be to receive
from PW payment for actual and direct damages to a maximum amount equal
to the the amounts paid hereunder by ECI to PW.
12. GENERAL PROVISIONS
12.1 Any reference to currency in this Agreement is to Canadian
currency.
12.2 Words importing the masculine gender include the feminine or
neuter gender and words in the singular include the plural and vice
versa.
12.3 Neither the making of this Agreement nor the performance of its
provisions shall be construed to constitute either of the Parties
hereto an agent, employee, partner, joint venture, or legal
representative of the other.
12.4 If any term of this Agreement is found to be invalid, illegal or
unenforceable, in whole or in part, by a body of competent
jurisdiction, that term shall be deemed severed from this Agreement to
the extent of such invalidity, illegality or unenforceability, and such
invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of any other term of the
Agreement.
12.5 (i) In the event of any dispute, claim, question or difference
arising out of or relating to the Agreement or the breach thereof, the
Parties hereto shall use their best endeavors to settle such disputes,
claims, questions or differences. To this effect, they shall consult
and negotiate with each other, in good faith and understanding of their
mutual interests to reach a just and equitable solution satisfactory to
both Parties. If they do not reach such solution within a period of
thirty (30) days, then upon notice by either party to the other the
disputes, claims, questions or differences shall be finally settled by
arbitration in accordance with the provisions of the Arbitration Act
(Ontario) and any amendments thereto.
(ii) The arbitration tribunal shall consist of one (1)
arbitrator appointed by mutual agreement of the Parties or, in the
event of failure to agreement within thirty (30) days, either party may
apply to a judge of the Supreme Court of Ontario to appoint an
arbitrator. The arbitrator shall be qualified by education and training
to pass upon the particular matter to be decided.
12
<PAGE>
(iii) The arbitrator shall be instructed that time is of the
essence in proceeding with his termination of any dispute, claim,
question or difference.
(iv) The arbitration shall be conducted in English and shall
take place in Ontario.
(v) The arbitration award shall be given in writing and shall
be final, binding on the parties, not subject to any appeal, and shall
deal with the question of costs of arbitration and all matters related
thereto.
(vi) Judgment upon the award rendered may be entered into any
court having jurisdiction or application may be made to such court of
or a judicial recognition of the award or an order of enforcement
thereof, as the case may be.
12.6 This Agreement shall be binding upon and shall enure to the
benefit of the Parties hereto and their respective successors and
assigns.
12.7 Neither Party shall be liable to the other for delays in the
performance of the Agreement caused by unforeseen circumstances beyond
its control, including, but not limited to, acts of God, wars, riots,
strikes, fires, floods or materials, inevitable accidents, governmental
restrictions or other causes beyond reasonable control of such Party.
Either Party shall notify the other in writing of any such events or
circumstances promptly after their occurrence.
12.8 The failure of a Party to insist upon strict adherence to any term
of this Agreement on any occasion shall not be considered a waiver or
deprive that Party of the right hereafter to insist upon strict
adherence to that term or any other term of this Agreement.
12.9 Any notice or other written communication required or permitted
hereunder shall be in writing and:
12.9.1 delivered personally to an officer of the Party to whom
it is directed;
12.9.2 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 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
13
<PAGE>
12.9.3 sent by telecopier or similar method of electronic
telephone transmission.
12.10 All such notices shall be addressed to the Party to whom it is
directed at the following addresses:
if to :
Positionwatch Limited
by mail or personal delivery: 60 Bloor Street West, Suite 1400
Toronto, Ontario M4W 3B8
Attention: President
by facsimile: (416) 929-7999
if to : E-Cruiter.com Inc.
by mail or personal delivery: 360 Albert Street, Suite 1510
Ottawa, Ontario K1R 7X7
Attention: President
by facsimile: (613) 236-9819
12.11 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 telecopier, 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.
12.12 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
herein.
12.13 This Agreement may be altered, amended or annulled at any time by
the mutual consent in writing of the Parties hereto.
12.14 Time shall be of the essence hereof.
12.15 This Agreement shall be governed by and construed in accordance
with the laws of Ontario.
12.16 This Agreement together with the schedules attached hereto
constitutes the entire Agreement between the Parties hereto pertaining
to the subject matter hereof and supersedes all prior and
contemporaneous agreements, understandings and discussions, whether
oral or written,
14
<PAGE>
and there are no other warranties, agreements or representations
between the Parties except as expressly set forth herein.
12.17 This Agreement shall inure to the benefit of and be binding upon
the Parties hereto and their respective successors and assigns.
12.18 This Agreement may be executed in several counterparts, all of
which together shall constitute one and the same instrument.
12.19 The headings appearing throughout this Agreement are inserted for
convenience only and form no part of the Agreement.
IN WITNESS WHEREOF this Agreement has been executed by the Parties
hereto.
SIGNED, SEALED AND DELIVERED
POSITIONWATCH LIMITED
Per:
Title:
E-CRUITER.COM INC.
Per:
Title:
15
<PAGE>
SCHEDULE "A"
ECI SALES TARGETS
ECI shall, for the period March 1st 1999 to May 31st 1999 (Target Period),
generate a minimum of two hundred (200) (Target Amount) network postings in
purchase orders to PW. If, at any time during or after the Target Period,
purchases made during the Target Period are cancelled for any reason, bringing
the total purchases for the Target Period to less than the stated Target Amount,
ECI will be considered to be short of their sales target.
16
<PAGE>
SCHEDULE "B"
PRICING OF PW POSTING SERIVCES TO ECI
Effective 15 February 1999
1. Network Postings: At the time of writing of this Schedule, PW sells to ECI
a "Canada/Ontario" Network Posting that includes, but is not limited to, the
following sites:
Positionwatch
Career Mosaic
Internet Job Locator
Job Sat
NetJobs
CareerShop
Career Marketplace
CareerMag
Career Span
News Groups (25 or more)
PW does not warrant that these sites will remain as part of the posting package
for any length of time. PW will make every commercially reasonable effort to
provide a substitute site of equivalent commercial value should a site listed
above be removed from the package for any reason. PW will notify ECI in advance
of any planned changes to the posting package (ten business days notice). This
Schedule and the prices herein must be modified and agreed to for every change
in the list of sites contained within this posting package, with the exception
of addition or deletion of specific Newsgroups.
For this Network Posting, PW shall charge ECI according to the following
rates ($Cdn):
Single $125
5-pack $625
10-pack $1,200
20-pack $2,300
50-pack $5,500
100-pack $10,000
17
<PAGE>
The volume `packs' in the above table are purchased by ECI's end customers, and
the purchase order to PW is placed by ECI on behalf of the end customer. The
intent it for the above volume discounts to apply to customer purchases and not
to volume purchases by ECI prior to sale to an end customer.
PW will provide ECI with sixty (60) days advance written notice of any
requirement to change the above pricing.
18
<PAGE>
2. Premium or Site-Specific Postings: New sites may become part of a "Premium
Network Posting" or they may remain as independent "Site-Specific Posting"
purchases for ECI's customers. PW will make every effort to negotiate favorable
pricing with each site partner as compared to the retail prices charged by these
sites to the marketplace, and to offer ECI a discount, determined by PW, on the
purchase of these postings. A Premium/Site-Specific Price List will form part of
this Schedule and will be updated as pricing for each site is negotiated.
3. Transparent Postings: PW shall charge ECI a transaction fee of CD$2.50 for
each Transparent Posting transaction performed for ECI. This pricing applies
to sites where PW does not incur extra charges for the service beyond its
current negotiated agreements. Transparent Posting fees are subject to change
for any given site; provided however that if additional charges are imposed on
PW by PW partner sites, PW will notify ECI in writing of sites with extra
charges.
4. Payment Terms: ECI will invoice the end customer for posting services and
will remit funds due to PW within sixty (60) days of the date of invoice from
PW.
19
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this Amendment No. 3 to the Registration
Statement on form F-1 (File No. 333-87537) of our report, which includes
comments for US readers on Canada-US reporting differences, dated June 18, 1999,
except for note 2(a) which is as of November 15, 1999, on our audit of the
financial statements of E-Cruiter.com Inc. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Ottawa, Canada Chartered Accountants
November 29, 1999
